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-- create the need for "more borrowing from abroad;"
-- reduce "domestic investment;
-- depress income growth in the United States;" and
-- "seriously harm the economy."
In addition, "Lenders may become concerned about the financial solvency of the government (and) demand higher interest rates to compensate for the increasing riskiness of holding government debt." Worrisome as well - "Both foreign and domestic lenders may not provide enough funds for the government to meet its obligations."
Admitting its estimates may be grossly understated, the CBO said its projected budget shortfalls are unprecedented in US history, signaling a growing urgency to address them.
Further, the analysis omits how financial markets will react, but it anticipates "much more (disorder) as investors' confidence in the nation's fiscal solvency beg(ins) to erode....causing (dollar valuations to) plunge, interest rates to climb, and consumer prices to shoot up."
The Federal Reserve's second quarter "Flow of Funds Accounts" report highlights the problem by showing federal spending crowding out businesses and consumer households. In Q 1 2009, the Treasury borrowed $1.443 trillion, and in Q 2 $1.896 trillion with projected continued high levels ahead.
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