Impact Of Government Debt On Long Term Inflation
Don’t look now but mortgage rates are starting to creep back up after reaching an all time low after the Federal Reserve announced it would enter the market for mortgages securities a few months back. The thing is, with the U.S. government set to sell unprecedented amounts of debt, many investors are concerned about the long term impacts of inflation.
Over the next two to three years, inflation is expected to remain fairly flat, however, yields on 10 year notes have climbed recently which has caused a steepening of the yield curve. The Fed has pretty much kept short term borrowing cost down by being an active participant in the Treasuries’ market but everyone knows that isn’t going to last forever.
With this year’s deficit nearing the two trillion mark already, there are grave concerns among investors on what happens to rates once the Fed finally turns off the spigot when the economy starts to improve. Many see the Fed raising rates at a fairly quick pace once that happens, in order to deal with the repercussions all that government debt will have on inflation.
Look, in a span of two to three years, the government will have increased the national debt by about a third of it’s total before this whole mess started. If anyone thinks that won’t have long term repercussions on our economy, you’re kidding yourselves.
All you have to do is look at is the current state of Medicare and Social Security to see what the likely outcome will be. The government will leave it as a problem for a later generation to deal with.
