Will we see Stagflation?
*Associated Press, by Jeannine Aversa, January 15, 2006:
Analysts Fear Expanding U.S. Deficits Endanger Economic Health
"Like a person packing on pounds, the United States keeps adding to its
flabby budget deficits, endangering the nation's economic health and
the pocketbooks of ordinary Americans. Here's the worry: Persistent
deficits will lead to higher borrowing costs for consumers and
companies, slowing economic activity.
As Uncle Sam seeks to borrow ever more to finance those deficits, rates
on Treasury securities would rise to entice investors. That would push
up other interest rates, such as home mortgages, many auto loans, some
home equity lines of credit and some credit cards.
"That's the pocketbook risk to the American consumer," said Greg
McBride, a senior financial analyst at Bankrate.com, an online
financial service.
For businesses, rates on corporate bonds would climb. It would become
more expensive to borrow to pay for new plants and equipment and other
capital investments.
With a succession of budget deficits, "you do expect to see higher
interest rates. Where we fight about this is over how big the effects
are. But they are definitely there," said James Feyrer, assistant
economics professor at Dartmouth College.
The government's budget deficit last year was $319 billion. While
smaller than the record $413 billion in 2004, it still was the
third-highest ever.
A White House budget official now predicts that the deficit in the
current budget year will top $400 billion, pushed up by the costs of
the Gulf Coast hurricanes. The red ink is expected to keep flowing for
years.
The nonpartisan Congressional Budget Office forecasts deficits every
year through 2015; that is as far out as the office projects. The White
House forecast, which runs to 2010, also expects annual shortfalls.
"The budget deficit is like gaining weight. You are not really aware of
it until at some point, all of a sudden you can't do what you want to
do because you are heavier. Interest rates go up and slow things down,"
said Brian Bethune, economist at Global Insight. "Then you go to your
check up and the doctor tells you you got to lose 25 pounds."
America's economic doctor is Federal Reserve Chairman Alan Greenspan.
Greenspan, who retires Jan. 31 after 18-plus years at the central bank,
repeatedly has urged Congress and the Bush administration to get the
country's financial house in order.
Bloated budget deficits, if not curbed, could endanger the economy over
the long term, Greenspan warned. Increased government borrowing would
drive up interest rates and weigh down economic activity.
"In the end, the consequences for the U.S. economy of doing nothing
could be severe," he said recently.
The looming retirement of 78 million baby boomers will put massive
strains on the country's finances, Greenspan said."
*This information is solely a highlight of the opinion of a third-party publication and is incomplete. Please subscribe to this publication for the full and timely opinion of the author and call a Monex Account Representative for any additional up-to-date information. This is not an offer to buy or sell precious metals. Investors should obtain advice based on their own individual circumstances and understand the risk before making any investment decision.
Call Now
Let us help you:
Personal Advisors
available now at
1-800-444-8317