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Bring it on . . . ?

04/30/2021

Sometimes, what you fear is what you need!

Today, our national debt is $28.2 trillion and will certainly exceed $30 trillion by yearend.
That is over $225 thousand of debt per taxpayer.

Economists have traditionally said the “breaking point” is when our national debt exceeds our national income.
Today, our debt exceeds our national income by 30%

Is this a problem?  Not if you believe in Modern Monetary Theory (MMT)!
After all, there is no legal limit on the amount of Treasury bonds purchased by the Fed to finance the continuing deficit.
I don’t believe MMT works . . . in the long-term.

My Democratic friends argue that taxes are too low to erase the deficit.
My Republican friends argue that spending is too high to erase the deficit.
Of course, they both right . . . pathetically right!
That’s why we cannot fix the problem.

Wall Street doesn’t care about the annual budget deficit.
Wall Street doesn’t care about the national debt.
Wall Street does care about inflation . . . a lot!
That’s because they think the Fed will increase interest rates to curb inflation.

However, the only way to handle our debt may be to “inflate” it away.
Assume you have a mortgage of $100 thousand and income of $100 thousand, for a debt-to-income of 100%.
Assuming your income goes up 4% per year for five years, your income would be $121,665.
Assuming your mortgage remains constant, then your debt-to-income goes down to 82% – a much safer level.

If inflation rises faster than our national debt, that is a good thing!
The Fed has already said they will not immediately raise rates, just because inflation starts to rise.
My conspiracy-loving friends imagine a smoke-filled room of “elites” creating inflation.
That information would certainly crash both the stock market and the bond market . . . in the short-term.

We have experienced an intentionally-induced-recession in the country (1980).
We have not experienced intentionally-induced-inflation.
But, that might not be a bad idea . . . in the long-term.

I don’t expect significant inflation in the short-term but am not afraid of it in the long-term.

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