Hope you’ve had your coffee already:
Slowing tax revenues and an historic bailout of the U.S. financial system will drive the annual budget deficit to nearly $1.2 trillion this year, even without the massive economic stimulus package now under review by Congress, the Congressional Budget Office is expected to report this morning.
That’s from this morning’s Washington Post. And it matters. A lot.
If we want to give people (and the Chinese government) good reason to buy up that much debt, we’re going to have to offer high interest rates. In the middle of a credit crunch, when there isn’t enough liquidity to go around. And in the middle of a recession, when you need to give people a reason to take on risk — not scare them away. And what little capital is available for private investment in the real economy, will instead be attracted to the high rates Washington can offer, but the free market at the moment can’t.
If you’ve lost track of how many ways this is bad… well, so have I.