Sunday, February 05, 2017

The Hole Truth

Bottom line, who pays for the Trump Effect?
Unlike past periods, deficits are swelling not because of an economic downturn or a short-term boost in discretionary spending, but because of the costs of caring for an aging population. Medicare and Social Security are the biggest projected drivers of spending. Ten years ago, some 6,700 Americans turned 65 every day. The number is now 9,800 Americans, and it will rise to 11,700 by 2026.

An aging population not only pushes up federal spending on health care and retirement, it also shrinks the tax base and may lead to slower rates of growth in personal income and household spending.

Faster economic growth would solve many of Mr. Trump’s problems. But doubling the growth rate to 4%, Mr. Trump’s stated goal, would be difficult when productivity and the labor force are growing slowly. Another hurdle: Unemployment is already low. The Federal Reserve might stand in the way of a very fast growth rate if it threatens to push unemployment much lower and risks spurring inflation.

The Fed sees a long-run growth rate of just 1.8%.
Sometimes you need to do huge things in smaller slices...

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