pagadesign
Well, the U.S. budget situation has ascended to the lead opinion piece in the Financial Times.
We read about “The long shadows of America’s growing debt.”
And, the editors of the Financial Times close with
“Sooner or later policymakers need to engage in bipartisan efforts to think seriously about how America funds itself responsibly. If not, panicked bond traders may force them to. As the IMF chief economist, Pierre-Olivier Gourinchas, said last month: ‘Something will have to give.'”
I have recently been voicing my own concerns in pieces like “National Debt Issue Needs More Attention,” which just recently was posted on Seeking Alpha.
I also agree with the editors of the Financial Times that
“Ignoring the difficult tax and spending decisions needed to put debt on a more sustainable footing keeps the economy on a risky path amid political and economic uncertainty.”
But, the time is not right for our political parties to engage in such a discussion.
There is a presidential election taking place in 2024.
The Key Word
The key word in the discussion just ended is “uncertainty.”
The problem of the growing U.S. debt is a growing problem, but this problem is shrouded in a substantial cloud of uncertainty.
And, the amount of uncertainty in the air seems to be growing all the time.
The U.S. government debt is expected to grow for the rest of the 2020s decade and the Congressional Budget Office is projecting that the U.S. debt-to-GDP ratio will cross over its high point, reached during the second world war, of 106 percent. And, this percentage figure will keep rising into the 2030s.
But, figures like this are just attempts to put numbers onto the problem.
Uncertainty reigns.
Here we are talking about what the politicians want to do and what the result will be.
There is little or nothing said about what the Federal Reserve might do during these times.
And, there is little or nothing being said about how other countries are going to move their budgets and economic variables.
The amount of world debt grows and grows and grows.
Yet, several central banks around the world have been projecting moves in their policy rates of interest.
These moves will impact exchange rates.
Changes in exchange rates will impact how economies are doing and how governments will respond to these changes.
Uncertainty reigns.
The Election
The current U.S. administration wants to keep things as stable as possible up through the next election.
Historically, the Federal Reserve has always acted to keep things economically as peaceful as possible through the election time period.
Whether Republican or Democratic, the “operating rule” of the Federal Reserve during a presidential election is to avoid being a distraction during the election.
I assume that this will be the approach taken by the current Federal Reserve officials.
This may be a hard thing to do this time around.
The Federal Reserve has become very, very, very good at keeping itself in the headlines concerning what it is going to do in the future.
This time through the election time period, the Fed may find it extremely difficult to get out of the focus of the press. Unfortunately, Mr. Jerome Powell and other officials at the Fed have become extremely good at getting and keeping the attention of the press.
It may be hard for the Fed to assume a smaller profile during the remaining time up to the November elections.
But, historical precedent argues for the Fed to try and keep a little more “out of the news” over the next seven months.
We will see.
Hopefully, the Federal Reserve may not become too big an issue during the campaign.
After the election…I have little or no idea.
To me, the uncertainty seems greater at this time than at any other time I can remember in my knowledge base.
What Next?
The opinion piece in the Financial Times alludes to the spending and taxing ideas that both the Biden administration and the Trump team are floating around these days.
Underlying this discussion, I sense that the editors believe that after the election, there will be very little that will actually be put into place because of the growing debt issue.
That is, the feeling seems to be that most of what is being proposed cannot and will not be put into place because the “debt issue” is going to grow and grow and grow in terms of what the government is really going to have to do.
But, that is an uncertainty because no one is talking about this possibility at this time.
So, what do we have to speculate about?
What’s coming next?
The Future
My view of the future…….
Well, the politicians will try to get votes by proposing ideas for the future that will attract the different subgroups of voters.
Most of these ideas, I believe, will not get enacted in the post-election environment. So, these proposals do little more than confuse the current narrative.
The next story to investigate relates to the Federal Reserve and its actions.
Fed Chair Powell, I believe, has done a pretty good job over the last two to two-and-a-half years. I hope one can continue to give him good marks through the election.
But, then what?
In my mind, we will be entering a totally new chapter.
To me, uncertainty about what the Fed is going to do after the election is substantial. And, it is going to stay substantial in the time directly following the election.
And, this uncertainty extends itself because we don’t know how the bond markets are going to respond to the election and how the financial markets are going to respond to whatever the Federal Reserve does.
Oh, and then there is what is going on in the rest of the world…in Gaza, in Europe and Russia, and in China.
As the editors of the Financial Times suggest: “Something is going to give.”
My feeling is that, for the next year or so, investors face a time of substantial risk.
