Fiscal Forecast America: How a Debt Default Happens
Politicians are known for two things: they never do what they should, and they always do what they shouldn’t. First, they do not prevent a debt crisis, then they aggravate it.
Politicians are known for two things: they never do what they should, and they always do what they shouldn’t. First, they do not prevent a debt crisis, then they aggravate it.
Democrats and Republicans are bickering over the debt ceiling. They will reach an agreement before the June 1st “default” date, but it will only be a stopgap measure. At some point, Congress will face such high costs for its debt that not even the most optimistic investors can trust the U.S. Treasury any longer.
While the stars are lining up for another fiscal crisis in Europe, the ECB’s chief economist fails to even mention the threat. Is the ECB ignorant on what is coming down the pike?
The official story is that the U.S. economy grew by 1.1% in the first quarter. This number is heavily modified and tells us nothing. We have the real numbers.
New data suggests an elevated risk for stagflation in Europe. Policymakers beware!
America’s states are supposed to be sovereign jurisdictions. Yet when the federal government is their main source of revenue, how independent are they really?
Financial markets are important to governments that need a lot of tax revenue to pay for their welfare states. The problem with taxes levied on financial markets is that they generate unstable revenue.
With a welfare state that dominates their budgets, European governments are exceedingly vulnerable to a recession. When tax revenue declines and entitlements force governments to spend more, the inevitable result is larger budget deficits. What will the ECB do in response to that?
If government size and employment rate had been the same in 2022 as they were in 2000, the cost of today’s government would have been $47,000 per employed person. That is a lot of money—until we do the same arithmetic with today’s government size and employment rate. Then the cost comes out to $59,700.
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