This is making me scared of seeing a stock market collapse in my life time. If the market collapses in the US, and people lose their pensions, who knows what will happen.
Consider this situation - inflation is now what at 8%. That means the prices were up by 8% than last year. If it stays this high, federal reserve will raise rates but how high can the rates go? Turns out every 1% rate raise causes almost 33billion debt payment by US Treasury since US at this point has close to 33 trillion debt and growing.
A rate raise by 5% means around 150 billion for just the debt payment alone. This is obviously unsustainable as the Treasury doesn’t get more income unless it substantially raises taxes.
If we somehow come out of this situation, the debt will continue to rise since the US has a balloning social security spending and it’s only going to get worse due to more and more aging population.
So our generation (GenZ and millennials) are kind of screwed. I can’t see how we get out of this.
But yeah that has been my thesis as well that after a point there will be another “hedonic adjustment” in defining the inflation and that will bring down the official inflation number even though the real numbers are far higher. Just like how the housing market has inflated far more than the actual inflation numbers in last decade but the real numbers barely took it into account.
In regards to the wider US economy, creating pain via high borrowing costs is the whole reason the interest rate is being increased. People and companies see the higher borrowing costs and change their mind on borrowing to spend, demand is choked, inflationary pressure reduced. The hard part is finding the rate that chokes it enough to control inflation while not choking it so much that you cause a recession.
lebanese pay it every day
Government revenue generally should increase inline with inflation.
As long as GDP growth (unadjusted by inflation) is higher than the interest rates the amount of real debt will go down over time.
Historically debt to GDP ratios went down during periods of high inflation, even without any real growth it’s possible to inflate most pf the debt away as long you find people willing to lend you money at low rates (even 5% when inflation is 8-9% is mot that bad$