Surprisingly, it's not all about the stimulus package. In fact, it's barely about the stimulus package.
The first is that President Obama’s agenda, ambitious as it may be, is responsible for only a sliver of the deficits, despite what many of his Republican critics are saying. The second is that Mr. Obama does not have a realistic plan for eliminating the deficit, despite what his advisers have suggested.
The New York Times analyzed Congressional Budget Office reports going back almost a decade, with the aim of understanding how the federal government came to be far deeper in debt than it has been since the years just after World War II. This debt will constrain the country’s choices for years and could end up doing serious economic damage if foreign lenders become unwilling to finance it. [More]
To help visualize this accounting:
[Click to enlarge][More]
A chart I found even more helpful:
Once we get past the finger-pointing, and actually look at which holes the money is draining down, I wonder how our appetite for wars in Iraq and Afghanistan will hold up. To date I have seen no resolve from any quarter (other than a few voices like Rep. Jeff Flake) to even strike a glancing blow at spending reduction, and agriculture is a poster child. Any hint of cutting any ag check rouses the ag lobby to full alert.
Ditto the legions of lobbyists for other constituencies. Hence, we may back into the non-choice of allowing our credit to debase and witness very serious inflation. It's how investors show their displeasure with fiscal imprudence.
In other words, unless we can contain defense and health spending, we will see some appalling interest rates. I always think these things will happen sooner than they do, so my best guess is to brace for at rates in the 'teens by 2011.