The debt, inflation, and what will likely happen

[Aseahawkfan]

When you have built up significant debt as the U.S. government has done, a lot of it in 10 to 30 year treasuries, you have a few choices when it reaches a level where the interest alone costs 13 percent of the federal budget:

1. Cut spending.

2. Increase taxes with a focus on paying down the principal

3. Inflate the price of assets, goods, and services so percentage based taxes increase based on the inflated value of assets and the old debt shrinks in comparison to the inflated GDP with the federal tax revenues taken in increasing based on the inflated GDP.

The path they have taken in the past has been option 3 with maybe a little of option 1 and 2 in some combination. Going forward I believe the U.S. government has no choice but to pursue inflation of the GDP which means inflating everything that comprises the GDP. I think they will first tank the economy which will create the catalyst for The Fed to lower interest rates and print money which is one of the major causes of inflation as we have been inflating our way out of every economic crash we've ever had since 2001 and we have had a bad balance sheet since supply side economics was introduced in the 1980s under Reagan. Supply side economics doesn't work, never did, and was never going to work and most economists know this.

You can't continue to have two parties that work at odds with each other economically creating a system that doesn't work. You can't cut taxes and not cut spending. You can't increase spending and not increase taxes. If you don't have the power to do both, you shouldn't be continuing down the path these parties have been on. You have to pick a strategy and implement policy that leads to effective economics.

Since we know neither party seems to ever gain enough power to fully implement their policies, we get a huge national debt. Republicans don't have enough pull to cut enough to bring the budget in line with taxation levels. Democrats don't have enough power to raise taxes enough to match spending.

Crisis like the 2008 housing burst and 2020 pandemic require ramped up spending in a depressed economy which leads to spiked debt.

So both parties tend to wait for or orchestrate an economic crash to justify The Fed creating an inflationary environment to grow the economy, boost employment, and boost liquidity. I think they have no choice but to continue this practice.

So how do you protect yourself?

1. If you're poor and unable to invest in assets, especially those on fixed income, you are royally screwed.

2. For people with investments and money, they should be accumulating assets that will benefit from inflation they can afford like equities. You can do property if you can afford the carrying costs like property tax, mortgage insurance, and the maintenance costs. If not, better to own inflationary assets with low to no carrying costs like equities. Bonds are fixed income and likely won't be beat the cost of inflation on the upside after the inflation process starts with the lowering of interest rates.

Once the crash occurs, I want to transfer liquidity from short-term fixed income like short-term bond funds or short-term treasuries or bonds into equities or ETFs of quality equities with companies that can transfer the cost of inflation onto the consumer and see the benefit on the income statement inflation revenues and profits that will increase market value.

A lot of rough economics in the next ten years in my opinion. I hope I'm wrong, but I don't see many other options unless the American people can focus less on social issues and more economic issues to put America in a better place economically.

[River Dog]

I don't care for Option 3 at all. It runs the risk of re-igniting inflation and pushing the economy into recession, in which case receipts to the government will decrease. IMO they need to quit kicking the can down the road, raise taxes and cut spending, get their balance sheet in order.

I don't object to everything this Administration has done with their DOGE initiative, and in some cases, they haven't gone far enough. One is that they quit producing pennies. IMO they need to quit producing nickels and dimes, too. Most transactions are done electronically. I haven't carried coins in my pants pockets for a decade or longer. If I do get some during a rare cash transaction, they go in a jar on my desk.

The other thing they can do is completely abolish USPS. There is no reason why we need snail mail, 95%+ is unsolicited junk, delivered to our doorstep 6 days a week. Contract it out with a private carrier, UPS, FedEx, et al, and let them deliver snail mail once a week if a resident signs up for it.
 
As a senior on a fixed income, inflation is my worst enemy. Social Security does have a COLA clause that is determined by law, but it doesn't do an adequate job of accounting for costs that most seniors incur that many times rise above the inflation rate. Pension plans and annuities, of which a lot of seniors depend on for their monthly income, don't have COLA clauses.

[c_hawkbob]

1- go back to pre trickle down tax structures.

2- Rescind Freedom United and get corporate money out of American politics.

Two steps and done. Seems to me you're bending over backwards to make things work in a manner acceptable to the oligarchy. We need to actually address the root issues instead of smoothing over the surface to make it look good.

[Aseahawkfan]

1- go back to pre trickle down tax structures.

2- Rescind Freedom United and get corporate money out of American politics.

Two steps and done. Seems to me you're bending over backwards to make things work in a manner acceptable to the oligarchy. We need to actually address the root issues instead of smoothing over the surface to make it look good.

As I stated in the post, our politicians do not seem capable of getting this done.

The American people are too divided to get this done, same as they cant' focus enough to see that revising the medical system to a more European style system would be much better for them.

Democrats torpedoed Bernie last time someone tried to run who may pursue such policies. I'm not sure Democratic power brokers want the changes you want. If you don't see a way to get the Democratic Party or working class Republican Party to come together to do what you think should be done, I have to plan my forward investments according to the reality we live in, not the one I want.

This post was me thinking out loud about where we as Americans find ourselves with two parties that can't fully implement their economics working at odds to the detriment of us all with the American people supporting these two parties so they hand the government back and forth creating the situation we're in. That's our reality.

That's what Americans have to use to plan moving forward. It doesn't look pleasant.

[Aseahawkfan]

https://www.youtube.com/watch?v=ibhBudtIeY8

Another video on how badly our nation has been managed economically. I don't see how they have any other option but to inflate their way out of this causing severe pain to working people and fixed income.