SCARY: Economics expert explains what will happen to Americans if our national debt continues to grow



Joe Biden says a lot of crazy things, but perhaps the craziest is his claim that he’s lowered the U.S. deficit, which Stu Burguiere says “couldn’t be farther from the truth.”

Brian Riedl, senior fellow at the Manhattan Institute and an expert in budgeting, taxes, and economic policy, confirms that Biden is indeed lying.

“Last year, the deficit doubled from $1 trillion to $2 trillion – the largest share of the economy in American history, outside of wars and recession,” he tells Stu, adding that despite what Biden says, “the deficit is growing enormously.”

“The president has already added $5 trillion to 10-year deficits if you add up all the legislation he's signed. The fact that he claims he's reducing deficits is completely and mathematically absurd,” he continues.

“I assume what [Biden] is trying to do here is just compare it to peak COVID spending,” says Stu, “which of course is spending that he wholeheartedly approved and actually wanted more of.”

“The proper way to measure deficits is how they're doing compared to the baseline that was already expected by budget estimators,” Riedl says. “When the president took office, the Congressional Budget Office said the deficit will automatically fall to $ trillion and stay there for the next couple of years with the pandemic ending. Instead, [Biden] ran a $2 trillion deficit, so he's growing the deficit above the baseline, not reducing it.”

So just how bad is the situation?

According to Stu, “long-term, this gets incredibly ugly, really, really fast” and is “completely unsustainable.”

Riedl confirms this: “Yes, long-term, the numbers are totally unsustainable. If you assume current policies are extended, the budget deficit is going to go to 14% of GDP per year in a couple of decades. Historically, it's been 3% of GDP. The debt could grow to 200%-300% of the economy, depending on interest rates.”

Those are scary numbers. So what does that mean for the average American when the debt gets that big?

“It means that as much as half to two-thirds of your taxes will go into paying interest on the debt within the next couple of decades,” says Riedl, “and in fact, if interest rates keep rising, there's a scenario in which 100% of your taxes will just go into paying interest on the debt, as it becomes the biggest program in the entire budget.”

Further, granted “the path we're on, middle-class taxes will eventually double.”

“That's the danger of having debt go to 200%-300% of GDP. And that's the situation that the president is doing nothing about and in fact is pouring gasoline on the fire,” Riedl warns.


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The Fed prepares to fight inflation with more rate hikes this week despite growing concern regarding the economy



With inflation at a 40-year high in June, the Federal Reserve is feeling the pressure to raise interest rates for the fourth consecutive month in hopes of slowing runaway inflation. However, Americans worry that rapidly increasing rate hikes might send the U.S. into a tailspin recession.

In Fed Chairman Jerome Powell's testimony to the Senate last month, he stated, "It is essential that we bring inflation down if we are to have a sustained period of strong labor market conditions that benefit all."

The Fed hopes its actions will force employers to slash spending because of the added burden of increased interest on business and consumer loans.

To regain control of inflation and get on track to a more "neutral" state, the Fed raised rates in June by .75 percent. This substantial hike was more than was forecasted in previous talks.

Chairman Powell signaled to Americans that another substantial rate hike would be announced this Wednesday and stated, "Having seen inflation come above target over and over again, we said we'd move more aggressively if it was appropriate. We thought it was appropriate."

The Senate pushed back, expressing concerns about a potential recession on the horizon. Chairman Powell replied that while a recession may be possible, it would not be caused by the Fed, insisting the economy is strong enough to handle steady increases.

To combat the consumer price index growth of 9.1% seen in June, Chairman Powell is predicted to announce a significant three-quarter-point interest rate hike this month. He will also potentially announce another in September, as well as provide information regarding when the increases will be paused.

While the Fed continues to set expectations of growing interest rates throughout the year, the question remains to what extent they will be raised and when the rate hikes will stop.

The U.S. Federal Reserve isn't the only central bank making these moves. Central banks worldwide are enacting similar rate hikes to tackle inflation, including the European Central Bank and the Bank of Canada.

Roth: What the Federal Reserve rate hikes mean for you



The Federal Reserve has been very active with its monetary policy and resulting market intervention over the last decade and a half, and especially since March 2020 with its extraordinary measures taken in conjunction with the COVID pandemic. The Fed's actions, which included purchasing trillions of dollars in assets and keeping the target interest rate for overnight bank-to-bank lending (called the “fed funds rate”) near 0%, have meant that borrowers paid lower interest costs and savers haven’t been able to earn much of an interest return on their money. Moreover, these actions have been a significant factor in the increases in asset prices and spiking inflation.

The Fed's next scheduled meeting, which takes place Tuesday to Wednesday, is widely expected by investors to result in the Fed increasing the fed funds rate by 25 basis points as a first step toward helping to control inflation (100 basis points equals one percentage point, so 25 basis points is equal to a quarter of a percent). The Fed may also give guidance, or at least some clues, on whether authorities plan to undertake other actions that may impact interest rates, including future rate hikes and shrinking the balance sheet from some of those asset purchases.

How does this impact you?

The fed funds rate directly and indirectly impacts other interest rates in the market. If you have debt that has an adjustable interest rate, that means it changes (as opposed to fixed-rate debt, which is locked in at a particular interest rate), and when interest rates go up, so does the amount banks and other lenders will charge you for interest on that debt. For any adjustable interest rate debt, from credit card rates to mortgages that have an adjustable component, you will see those interest costs increase. You will also find that borrowing will start to become more expensive as well, in terms of the rate that you are being charged to take out a loan or take on other debt.

If you haven’t already taken advantage of low rates, you may want to consider locking in a fixed rate before they rise further.

On the savings front, unfortunately, because there is already so much money sloshing around the financial system, banks are not in substantial need of deposits to lend, and so they won’t likely be raising the rates they offer you on your savings accounts very much. With the latest CPI data showing the highest inflation in 40 years at 7.9% year over year, you definitely won’t be making up for the loss in your purchasing power with any interest income you may make by parking it in the bank.

If you have a business, note that your borrowing costs are likely to rise. And if you invest in individual stocks, take into account the strength of the company’s balance sheet, as companies' borrowing will also become more expensive and companies with high debt levels may become riskier investments.

Whether or not the Fed actions at this and subsequent meetings tame inflation — and if they do, how long it takes to do so — remains to be seen. With the challenges in the supply chain and the labor market, coupled with the ongoing issues related to energy, food, and precious metals exacerbated by the Russian invasion of Ukraine, inflation will likely get worse before it gets better (and, unless we see deflation, those cost increases will be permanent), so be prepared for that scenario as well.