Debt Bugs and Windshields

Unreliable Assumptions
Suppressed Growth
An Ever-Deeper Recession
Rosenberg: We Are in a Depression
Banana Cake Recipe and Birthdays

"There is no means of avoiding the final collapse of a boom brought about by credit expansion."

—Ludwig von Mises

Economic recovery is coming, we are told, because the economy has found a new equilibrium. We are supposedly adapting to the new-normal pandemic world, with monetary and (some) fiscal stimulus filling any gaps. Except that’s not what the data says.

Last week I laid out the case that US government debt would be $50 trillion by 2030. That was using straight-line CBO projections but using the 2008 recovery pattern for government revenue plus adding in off-budget debt which averages about $269 billion a year. is now projecting off-budget deficit to rise by over $1 trillion this year. Most of my feedback didn’t dispute the amounts; the disagreement was whether so much debt is a serious problem.

Today, rather than just stating the recovery will be slower, I will try to make the case for a much slower recovery thus much higher debt by 2030. Note first, I’m not saying there will be no recovery. I am simply postulating it will look like the slow recovery from the Great Recession, unless the government makes it worse, which is a nontrivial possibility.

Let’s quickly review the two charts that were at the end of the last letter.

To be fair, there are reasons to think a $50 trillion debt load is “manageable.” It depends on what you consider “manageable” is. Maybe survivable is a better word. But it will clearly slow or kill GDP growth. Think Japan and Europe.