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2020 Money Supply Triples and Deficits Rises to $3.1t, but Net Interest on US Debt Drops from 3% of GDP in the 90s to 1.6% in 2020
A Federal Reserve calculation of future inflation is based on comparing regular Treasury securities and inflation-indexed securities, projects CPI inflation to be 2.0% annualized in the five-year period starting five years from now (so, roughly, 2026 – 2030). That's an increase from the 1.8% expected a year ago, and much higher than the 0.8% projected back in mid-March.
The increase can be explained by the expanded monetary base of $1.6 trillion since February, the M2 measure of money has grown 25% in the past year, and the Fed says it doesn't plan on lifting interest rates until at least 2024. The federal budget deficit soared last year, hitting $3.1 t in the Fiscal Year 2020, which ended in September, and looks likely to remain very large in FY 2021. The United States, and other governments around the world, face huge fiscal issues in the years ahead.
These transfers of wealth and income from current and future taxpayers to the government distort the economy in massive ways. The concept that Modern Monetary Theory (MMT) allows the Fed to print money to finance this debt with no consequences is delusional. It's been tried before, by the Romans, the Weimar Republic, Zimbabwe, Venezuela...all with disastrous results. In the mid-2000s, people bought homes they couldn't afford with interest rates that were artificially low. Now, the government is doing this.
In 2020, net interest on the US federal debt was 1.6% of GDP versus 1.7% in 2019 and about 3.0% in the 1980s and 1990s. In spite of soaring national debt in 2020, as well as a plunge in GDP, the interest burden was smaller as a share of GDP than it was the year before, and roughly half of where it was 30-years ago.
While the worldwide increase in budget deficits has not impacted economic growth, massive deficits due to entitlement programs and the lack of government discipline, the math takes over.
A Federal Reserve calculation of future inflation is based on comparing regular Treasury securities and inflation-indexed securities, projects CPI inflation to be 2.0% annualized in the five-year period starting five years from now (so, roughly, 2026 – 2030). That's an increase from the 1.8% expected a year ago, and much higher than the 0.8% projected back in mid-March.
The increase can be explained by the expanded monetary base of $1.6 trillion since February, the M2 measure of money has grown 25% in the past year, and the Fed says it doesn't plan on lifting interest rates until at least 2024. The federal budget deficit soared last year, hitting $3.1 t in the Fiscal Year 2020, which ended in September, and looks likely to remain very large in FY 2021. The United States, and other governments around the world, face huge fiscal issues in the years ahead.
These transfers of wealth and income from current and future taxpayers to the government distort the economy in massive ways. The concept that Modern Monetary Theory (MMT) allows the Fed to print money to finance this debt with no consequences is delusional. It's been tried before, by the Romans, the Weimar Republic, Zimbabwe, Venezuela...all with disastrous results. In the mid-2000s, people bought homes they couldn't afford with interest rates that were artificially low. Now, the government is doing this.
In 2020, net interest on the US federal debt was 1.6% of GDP versus 1.7% in 2019 and about 3.0% in the 1980s and 1990s. In spite of soaring national debt in 2020, as well as a plunge in GDP, the interest burden was smaller as a share of GDP than it was the year before, and roughly half of where it was 30-years ago.
While the worldwide increase in budget deficits has not impacted economic growth, massive deficits due to entitlement programs and the lack of government discipline, the math takes over.
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