On March 18, the Congressional Budget Office estimated that President Obama’s 10-year budget proposal will add at least $9.5 trillion to the national debt over the next 10 years, if enacted. Of course, if you read my February 22 E-Letter, you already knew that. Like a lot of other analysts, I don’t believe that it will be remotely possible to add almost $10 trillion to the national debt over the next 10 years.The bond market won’t stand for it, much less the foreigners that own almost 50% of our national debt held by the public. I will discuss the CBO's latest estimates as we go along today.
Dallas Federal Reserve Bank President, Richard Fisher, went public recently with his serious concerns about the US debt trajectory. He warned that the US is now at a debt "tipping point" and added that if we don't change course, the US "will become insolvent." Fisher also let it be known that he opposes QE3 when QE2 ends in June. This raises the question of what will happen in the economy and the markets when QE2 ends in two months. I have some thoughts on that question below.
Next, we take a look at just how enormous the spending cuts would have to be to remotely balance our federal budget, which will see a deficit of at least $1.65 trillion this year. It doesn't take a rocket scientist to figure out that there's no way to balance the budget without cutting entitlements. And that brings us back to the question: Do Americans really want serious spending cuts? Some recent polls are not encouraging, unfortunately. In any event, it should make for interesting reading.