Christian Debt Recovery

Debt Ceiling Deal Could Mean

January 16th, 2009 |

Author: Gavin

debt ceiling deal could mean

Economic Data Suggests Government Will Be Adding Not Cutting Debt

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The national debt has received a significant amount of attention lately and rightly so. We’ve hit our debt ceiling again and Tea Party politicians are trying to stick to their campaign promises regarding dealing with the debt. Alas, the economy may prevent that.

Economic “Recovery”

I don’t have to tell you 2008 and 2009 where horrific economic years. Nobody went through that period without feeling the pain, although admittedly some felt much more pain than others. Regardless, we have been in a technical recovery since that time. By technical, I mean a slow, gradual recovery that most of us can barely tell is happening. Given this, the really bad news is the economy may be ready to flip over and start retracting again.

Economic Data

The economic data for the last quarter is in and, well, it isn’t bad. No, it is horrific. Every major economic indicator has turned south and some of it has headed straight for Antarctica. The latest two developments were rather startling. Manufacturing slowed to its lowest level in three years. The jobs data was even worse. Economists were predicting the economy would add between 150,000 and 175,000 jobs. It added 38,000, a stunningly low number. Throw in a housing market that has already double dipped and it is grim, grim, grim.

Government Response

The government can only really do what it always does – spend more money. The only other real option is to lower interest rates through the Federal Reserve Bank to create easy access to credit, but that was already done in the last Great Recession. This time around there simply is no magic bullet or technical strategy that can be used. The only thing left is to flood the market with more money in an effort to spur commerce.

Federal Reserve

The truth of the matter is the Federal Reserve Bank may be the entity to pick up the oars on this one. The Fed has already issued two quantitative easing packages. It is going to be mighty tempted to do a third now that the economy is clearly floundering. If it does so, the debt would

go onto the Fed books, not the federal government. Still, one can nearly guarantee that the federal government will not be cutting spending, and that means an additional trillion dollars or so being added to the national debt each year. Indeed, this is pretty much what President Obama’s own projections are for the rest of the decade with his optimistic view being we will only be $20 trillion in debt by 2020. That is scary.

Overall

The real question at this point is has the economy just slowed down to near stop or started to plunge into another massive recession. The problem with economics is there is really no way to know until months after the event. Given this, expect to see the Fed institute a QE3 package to flood the markets with money again.

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