Wealthion: Debt Crisis to Trigger Hard Landing & Painful Recession?

U.S. debt has hit over $30 trillion. While most may shrug off that statistic, the real issue is that the debt has been growing faster than the national income for decades.

Simultaneously, most government debt has been financed in short-term bills and notes of up to two-year durations. That’s kept the cost of financing government spending low. Now, with interest rates closing in on 5 percent, the cost to service that debt is about to explode.

That could create a debt crisis. If that happens, any potential “soft landing” for the economy could go out the window. A steep recession could result instead.

Meanwhile, Congress is dealing with the debt ceiling. That simply sets a statutory level on how much debt the government can borrow. That does nothing to address the problem of growing debt or rising debt costs.

A few solutions may be necessary. First, the U.S. government could issue longer-term debt beyond a 30-year period. Second, the government may have to raise taxes to deal with higher debt payments, even if that slows the economy. Third, government spending would have to decline.

A combination of those factors would be the least painful. But pain is coming. And it’s likely that politicians will avoid any painful decision until one has to be made.

Much like the credit crisis of 2008, swift action may prove a short-term solution that still leaves long-term structural issues in place.

To listen to the full interview, click here.