Bloomberg: Deficit Reduction “Victory Lap” Was Premature!

Any deficit reduction victory will soon be forgotten amid a national debt crisis.

Obama-money

A few days ago Bob Allen responded to Secretary of the Treasury Jack Lew’s “victory lap” over the historically small deficit.

You know you’re doomed when your Secretary of the Treasury takes a “victory lap” simply because the Federal Government devoured an all-time record of citizens’ hard-earned money—and it still spent half-a-trillion more than it plundered!

A Bloomberg story backs up Bob’s analysis: “Obama’s Sweet Spot May Sour as Deficit Seen Wider in 2016.”

Even as the Treasury Department prepares to release figures tomorrow showing a fifth straight year of declining deficits, the shortfall is predicted to rise again in the presidential election year of 2016.

[…]

“This is the sweet spot, and we’ll take it, we’ll enjoy it,” said John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina.

Silvia, the best monthly budget forecaster in the past two years according to data compiled by Bloomberg, said the U.S. isn’t taking advantage of the healthier fiscal situation to address longer-term issues such as the costs of programs for the elderly.

“This is the time to mend your fences, fix your sails” and “unfortunately, we in the United States, don’t tend to do that,” he said.

The fiscal outlook faces “real challenges” in the coming decade, Silvia said. After narrowing again next year, the CBO forecasts the deficit will widen in 2016 as an aging population prompts more spending on Social Security and health care, and as the Federal Reserve pushes up borrowing costs.

First of all, this is why the Federal Reserve will never intentionally “push up borrowing costs.” No matter what they say, the only monetary policy for the Fed is to always lower interest rates below zero.

But interest rates may eventually rise despite the Fed best attempts to restrain them. When that happens, as we have told you on this blog with many other “alternative” sources of economic news, there will be a crisis.

But you don’t need the alternative media to tell you that. Bloomberg admits it:

“When the Fed starts to raise interest rates, rising interest expense to the Treasury is going to exacerbate the climb in the deficit,” said Michael Englund, chief economist at Action Economics LLC in Boulder, Colorado. “A normal monetary policy would lead these deficit figures $200-300 billion higher. So if that were to happen quickly, it would quickly create what you might see as a crisis environment in Washington.”

“What you might see as a crisis environment”? That’s as close as the mainstream media will come to admitting what a debt death trap the government has created around us.

But if they hint at it that obviously, you know that we must be facing a really bad time.