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“A-List” Economists Agree: The US Is Going Broke

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Jim Rickards called them “A-list of top-tier economists.” Michael Boskin, John Cochrane, John Cogan, George Schultz and John Taylor are all senior fellows at the prestigious Hoover Institute. And they all agree on one thing.

The US is going broke.

The five economists all signed on to an op-ed published in the Washington Post warning of steadily rising deficits as far as the eye can see.

For years, economists have warned of major increases in future public debt burdens. That future is on our doorstep. From this point forward, even if economic growth continues uninterrupted, current tax and spending patterns imply that annual deficits will steadily increase, approaching the $1 trillion mark in two years and steadily rising thereafter as far as the eye can see.”

And of course, economic growth won’t likely continue uninterrupted. As we’ve reported, rising debt is a cancer on economic growth. The rising debt will almost certainly retard growth, resulting in even more debt.

The economists called the anticipated string of perpetually rising trillion-dollar deficits unprecedented in US history.

They also brought up a point we’ve been harping on for months. All of this debt in a rising interest rate environment is going to lead to even bigger deficits and more debt in a vicious cycle.

In recent months, we have seen an inevitable rise in interest rates from their low levels of recent years. Rising interest rates and increasing deficits threaten to build upon each other to send public debt spiraling upward even faster. When treasury debt holders start to doubt our government’s ability to repay, or to attract future lenders, they will demand higher interest rates to compensate for the risk. If current spending and tax policy continue unaltered, higher interest costs will have to be financed by even more debt. More borrowing puts more upward pressure on interest rates, and the spiral continues.”

Boskin, Cochrane, Cogan, Schulz and Taylor come to a stark conclusion. This debt spiral raises the specter of a crisis.

Some may think that such concerns are overblown, as there is no current evidence in financial futures markets that a crisis is on the horizon. But a debt crisis does not come slowly and visibly like a rising tide. It comes without warning, like an earthquake, as short-term bondholders attempt to escape fiscal carnage.”

This will come as no surprise to our regular readers. But as Rickards noted, “These are the warnings not of a fringe doomsday blogger but of the establishment itself.”

Rickards said he thinks the actual debt and deficits will end up even worse than projections, “pushing the US closer toward a true crisis of confidence in the dollar.”

This path is unsustainable. Something has to give — and probably sooner rather than later.”

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