Today’s Economist cover:

By The End Of The Decade?

America’s budget deficit is set to balloon as its population ages, the cost of handouts swells and the government’s interest bill rises.  We estimate that deficits could reach around 7% of gdp a year by the end of this decade—shortfalls America has not seen outside of wars and economic slumps. Worryingly, no one has a sensible plan to shrink them…Governments elsewhere face similar pressures, and appear just as oblivious. All are stuck in a fiscal fantasyland, and must find a way out before disaster strikes. – Economist, May 6-12

We’ve been all over this, and the chart we posted last weekend (see below) illustrates the 12-month rolling fiscal deficit is already pushing up against 7 percent of GDP. The U.S. Treasury will experience a decent seasonal surplus in April as tax receipts roll in, keeping the 12-month rolling shortfall flat (as last April’s surplus rolls off) at around 6.8 percent. Deficits don’t matter until they do, and they will.   

I used to think a U.S. government default on its obligations was about as probable as the sun not rising tomorrow, about the same probability as the Capitol being ransacked one day by a mob of igno-marauders. Not as easy to handicap now given the many crazies running the Capitol City Zoo.

It doesn’t take a genius, or Chat GPT, for that matter, to project the future timeline:  

Larger deficits –>  Monetization –> Inflation