What happens if we keep on our current fiscal and monetary trajectories?
The US government faces a Hobbesian choice moment – one where either choice is terrible.
The first, and most likely decision, it can make will be to keep spending and pretending. The problem with this program – currently accumulating a fresh new trillion of debt every 100 days, is that eventually, it destroys the bond market.
Such an event would be catastrophic for the US and its citizens. A frozen US Treasury bond market where the government cannot reliably churn its excessive wall of ever-maturing debt would be pure chaos for financial markets.
So the bond market has to be preserved at any and all costs.
And it will be. But first let’s briefly touch on the government’s second option just for the sake of completeness.
The government could decide to do the responsible thing, admit that we’ve been living and spending beyond our means for a long time and that it’s time to live below our means to get all this back under control.
The term for this is “austerity” which is a completely unfamiliar term to politicians but one that many families know well. “Do I eat properly this month, pay the rent, or pay my other bills?”
(More…much more…)