Debt | timiacono.com - Part 5

The Shrinking Deficit

It’s been a rough stretch for the GOP lately and news like this isn’t making it any easier to sell the American public on the idea that, somehow, they have a better plan for the U.S. economy moving forward (if that’s what they call what has been happening in recent years).

That first paragraph is like a dagger to the heart for folks like Rand Paul, Marco Rubio, and others who have aspirations to succeed President Obama in just a couple years: “… the federal budget deficit fell more sharply than in any year since the end of World War II”

Of course, the Federal Reserve has been doing most of the heavy lifting in their multi-year low interest rate/money printing extravaganza that has succeeded in re-inflating asset prices and, for the moment at least, making everyone forget about what happened the last time the central bank artificially inflated the price of stocks and real estate.

That’ll only be a problem when it’s a problem.

Consumer Debt Increase Fastest Since 2007

This New York Fed report(.pdf) showing aggregate consumer debt jumped $241 billion to $11.5 trillion in the fourth quarter, the biggest increase since the third quarter of 2007, has received a lot of attention today and was welcomed news by those who think that buying things you don’t need with money you don’t have is how the U.S. economy should operate.

Now, one could argue about whether you need a college degree these days, but there’s little question that few have the money to pay for it as evidenced by the bulging red bar segment in the lead graphic from the report below. According to this item by Wolf Richter, that red bar is enslaving an entire generation and, if so, that can’t be good.

The New York Fed’s Liberty Street Economics blog noted the dramatic rise in outstanding debt by said enslaved generation in this story earlier today.

I suppose when student loan debt  really becomes a problem, someone will let us know.

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Why Interest Rates Can Never Rise

Among many other interesting projections in the latest budget outlook from the Congressional Budget Office comes this look at the cost of servicing the U.S. debt that is expected to top the $21 trillion mark at the end of the 10-year budget window.

Here’s what the CBO projects that curve to look like via this story at CNN/Money.

Interest on the debt

The current year budget deficit was reported the other day at somewhere around $500 billion, with interest on the debt accounting for less than half that total.

For obvious reasons, the CBO deems the situation above to be unsustainable, however, it becomes much less unsustainable if interest rates remain at or near their current low levels, rather than rising steadily over this period as the group projects.

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A couple of CNBC videos shed some light on the recent market rout. First, Art Cashin, UBS’ director of floor operations at the NYSE, cites the combination of recently weak economic data in both the U.S. and the world along with some key technical factors.

Gloom, Boom & Doom author Marc Faber offers up a much more interesting explanation for what’s going on, namely, that “a vicious circle on the downside” is now underway as assets that were artificially inflated via central bank largess become less inflated.

Faber goes on to note, “Total credit as a percent of the global economy is now 30 percent higher than it was at the start of the economic crisis in 2007…”

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