From the founding of the American republic in 1787 until 2005, the federal government ran up a debt of $8 trillion. Today, just eight years later, the federal debt is nearly $16.6 trillion.
(Notice I say the federal debt, not the national debt. It's not what is owed by the purple mountain majesties or amber waves of grain, it's what is owed by the federal Goliath.)
Maybe there is something I'm missing, but I do not see how interest rates can rise much. The federal government has gotten itself hopelessly in hock. If interest rates were allowed to rise to normal levels, say 4% short-term and 6% long-term, I can see no way officials would be able to pay the interest on their enormous and fast-growing liability. At an average 5%, the interest would be $850 billion per year, absorbing 73% of all income taxes.
Ergo, I think the Federal Reserve will print however much money it takes to keep rates in the basement. The Fed will buy any US bond that comes on the market, at whatever price it takes.
If this is correct, more investors will go into stocks for income, giving an added boost to the stock market boom.
Judging by the stock market's performance over the past eight months, this historic lift-off appears to have begun. We'll see.
Money does not sit still
After the government's newly printed dollars go into stocks or anything else, the recipients will spend it, and it will continue on to other destinations, fueling purchases of cars, houses, appliances, you name it.
One of these destinations will almost surely be anything with value that isn't tied to that of the dollar, which will be falling. Non-dollar assets will be what everyone wants.
Judging by 2,500 years of history, tops among the non-dollar assets will be…
Mr. Maybury went on to make several investment suggestions which have all done spectacularly and are still in our recommended portfolio.
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