Thursday, August 21, 2014

The future of excess reserves

How long does the debt cartel keep these reserves? That is the question of the day. They exist so the cartel can cover the deficit expansion expected from existing government programs in DC. Taxes are volatile, middle class voters do not pay for the stuff they buy from DC. So a 3% hit to GDP can result in a 5% addition to deficit/GDP ratio real quickly. Just in the last wo years when DC finances were stable, the debt/GDP ratio varied by 4%. Deficit ratio to GDP varies by 6% over the recession cycle. We need 2.5% of GDP just to pay the interest bill, and we have not reached even that level with the deficit still at 4% of GDP. So over half of the new debt is used to cover interest expenses from past debt, and we are at the end of the business expansion, taxes have never really recovered.

Why are we in this state of affairs?  Mainly large states and the voters living there have no clue, information is masked by carpet baggers and scallywags.

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