Simon Vielma

“If I had a magic wand I’d raise taxes and cut retirement spending” Those were the words of former federal reserve chairman Janet Yellen in a recent interview where she described the country’s debt path as unsustainable.

The U.S national debt is quickly approaching $22 trillion. Budget deficits rose to almost $900 billion in fiscal 2018 and that doesn’t include unfunded liabilities. The trump tax cuts, which were implemented in the absence of spending cuts, have put the country in an accelerated path to insolvency. We are basically adding around $100 billion per month to our national debt, and few people on wall street or main street seem to be concerned about it.

Think about it. What would happen to the U.S economy if we had to, as Yellen suggests, both raise taxes and cut government spending in an environment of rising interest rates? We’d likely see a recession much worse than the one we saw in 2008. According to Janet Yellen, that’s what we as a country must do in order to avoid a bigger disaster down the road. Ironically, this is the same Yellen who said that another financial crisis was unlikely in our lifetime.

Yellen is right about one thing though. Magical powers of some kind are required in order for us to get out of the mess we are in. Close to one quarter of the $100 billion that we borrow every month is spent on paying interest on the existing debt. Five years from now, It’s expected that servicing the debt will overtake defense spending.

It’s just common sense folks. If I find myself heavily in debt, the only way I can come out of the hole is for me to stop digging. I must try to increase my income, and also cut my expenses so that the debt can be repaid. Countries are no different. One alternative to raising taxes and drastically cutting government spending would be to just default on our debt. That event would also produce a severe crisis. So it seems that no matter what we do, nothing will save us from the inevitable: a combination of a currency crisis and very difficult period of stagflation.

Then there is the other stuff that doesn’t help:

It won’t be long before one of these issues becomes the proverbial straw that breaks the camel’s back, and we’ll wake up to a very different America. One of extreme austerity and massive tax hikes. One of hyper inflation and ruin. This is the kind of crap I saw growing up in Venezuela. Once it starts getting really bad for everybody, the government will be out for blood as “the rich”,  and “greedy corporations” will become the scapegoats to the catastrophe that idiotic politicians created.

 So what can be done at this point? Frankly I believe this problem is so massive that we are at a point of no return. There are however a few things we can do individually to try to weather the storm:

I don’t have a magic wand to change the outcome of what’s coming, but we can all use common sense to get in front of these issues and try to position ourselves for success no matter what. I hope you all do the same.