Date: Sept. 3, 2016
Subject: The 5,000 Year Government Debt Problem
Regarding the Op Ed, The 5,000 -Year Government Debt Problem, as a former bond issuer and a current bond portfolio manager I was encouraged to read that the current bond bubble, long overshadowed by its more sexy counterpart – the stock market bubble- is finally raising a few eyebrows.
Yet my concern goes further than the author of this Op Ed. It goes to the heart of the current Presidential election.
The top holders of US debt, $12.9 trillion of $19 trillion are U.S. citizens and American entities, such as state and local governments, pension funds, mutual funds, and the Federal Reserve. If the Federal Reserve raises rates, the U.S. government that is currently paying historically low interest on the debt it holds will have to pay billions more in interest just to service current debt. Every dollar more paid in debt service is a dollar less available to pay for entitlements, government services, and the military. There are only 2 possible outcomes: A reduction in entitlements, services or security and increased taxes or; reduced government waste and regulations currently inhibiting growth in the U.S. economy and compounding our government’s reliance on debt to fund current expenditures.
No wonder the Federal Reserve doesn’t want to increase rates at least until after the November elections. This delay in the inevitable will leave it the next President and Congress to face the consequences of the biggest bond bubble in history. As for the lame duck President and Congress, they will be all too happy to leave this disaster to the next generation of elected officials in Washington. And to the American people who will pay for the consequences.
San Francisco, CA