Dollar Doom Scenario

Peter Schiff Crash Proof: New predictions of doom from Tea Party favorite. – Slate Magazine.

While Schiff is a partisan, it does not mean he is wrong. The country’s debt is now greater than its GDP, and we are supposedly in a recovery. Federal and local governments are running low on funds in mediocre economic conditions.

What will happen in a recession? Revenues will drop creating larger deficits at all levels of government. Interest rates will have to rise to convince investors to buy more debt. Additionally, once federal debt is greater than GDP, GDP has to grow faster than debt just to keep debt levels stable.

The next recession will trigger this vicious circle. The country will either have to restructure its debt or monetize it raising inflation. The winner of the next presidential election will actually be the loser, because he will be dealing with this.

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