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Mazzei Minute: 06/11/21

“Below expectations”— get used to those words.

That’s how to describe last week’s U.S. jobs report, and we can expect more of the same if the Biden budget plan is adopted by Democrats in Congress. Soaring government spending and debt will likely usher in a very slow growth economy once the recovery surge has dissipated.

To make matters worse, the already bleak projections of future deficit spending and debt levels under the Biden budget strategy significantly underestimate the severity of financial risk to our country.

Even with underlying rosy assumptions of interest rates and economic growth, the Biden plan will increase spending over the next ten years by a whopping $8 trillion and public debt will rise to an astonishing $39 trillion. These assumptions include ongoing economic growth of 2% and interest rates of only 2.8%.

As a certified financial planner, I find it hard to believe that the Biden policy of higher taxes, more regulation and excessive deficit spending will result in stable 2% GDP growth and low interest rates. The more likely scenario is 1% Obama-era like growth and interest rates rising from enormous inflation pressure.

If slower growth and higher interest rates prevail, then the required spending to satisfy debt payments will accelerate and the above estimates could easily run up another 25%. That would be a debt load of $49 trillion. Debt as a percent of GDP would vault over 140%. No economy can withstand that kind of imbalance.


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