Obama Has Tied Trump’s Hands

America is going broke. That’s not an opinion or scare tactic – it’s a fact based on simple arithmetic. President Trump could be forced to face this fact as early as March 15, the date the latest U. S. debt ceiling suspension ends.
Government debt is growing faster than the economy. If you extend that trend, and that’s exactly what official government projections do, you reach a point where higher taxes cannot cover interest expense, investors lose confidence in the bond market, and a death spiral of higher deficits, higher interest rates, and still higher deficits spins totally out of control.
This does not mean the end of America, let alone the end of the world. There are several ways out of the debt death spiral. It’s just that none of the ways out are easy, and all of them will cause massive losses to unprepared investors.
The ways to escape the debt dilemma are default, inflation, asset sales (‘What do you bid for Yellowstone National Park?’), an IMF bailout, or some combination of these.
Default imposes immediate losses on government bondholders, and mark-to-market losses on other bondholders as interest rates spike to account for increased risks. Even the possibility of default can push world markets into a tailspin or result in a credit downgrade for the United States, which happened in 2011 during that debt ceiling crisis.

This post was published at Wall Street Examiner on February 27, 2017.