The debt trip
The NY Times has some steep figures on the debt avalanche. Because of the skewing of the US federal debt portfolio to short-term issuance to overcome the credit crisis $1.6 trillion of the $12 trillion US government debt falls due before 31 March. On top of this everyone is forecasting that the interest rates will have to go up (esp. as Germany, Japan and the UK all compete to finance their blow-outs) which leaves the US in a costly predicament when they are forced to lift their near-zero rates.The assumption underlying this debt is that the US will not default — that is why the risk is considered to be so low that lenders accept interest rates that are minimal; but one of the risks - after the recessionary bite has abated - is inflation. It will be very tempting for the US to inflate its way out of the debt mountain. The consumers won't be happy with the rising prices, foreign creditors will be aggrieved as the relative value of their holdings slips away, and the exchange rate will deteriorate making gold at $1050 an oz. and oil at $70 a bbl. look like a time of modest and affordable living.