President Barack Obama, calling current deficit spending “unsustainable,” warned of skyrocketing interest rates for consumers if the U.S. continues to finance government by borrowing from other countries.
“We can’t keep on just borrowing from China,” Obama said at a town-hall meeting in Rio Rancho, New Mexico, outside Albuquerque. “We have to pay interest on that debt, and that means we are mortgaging our children’s future with more and more debt.” Holders of debt will "get tired" of buying it. It will have a dampening effect on our economy."
Wow, can I believe I am hearing those word from the man who gave us what may be a $2 trillion deficit for the new fiscal year? The president believes in crowding out theory. This is more than what some Bush administration officials believed when they said deficits do not matter. But this view came after the deficit breaking budget passed. Of course, the other shoe drops with comments that this can be solved with health care reform; nevertheless, what do we do now?
If you are a bond holder the deficit problem is big. The president is on your side under the belief that rates will go up if this continues, but he is also the person who has the ability to change the current situation. The pressure will be on the Administration to cut the deficit, but where will the cuts from? Also where will the revenue come from during a recession?
So if this does not happen where will rates have to go - higher.
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