“Forget about a government shutdown. The quibbling over concessions to keep the government funded distracts from what might be the most predictable economic crisis.”
So argues currency manager Axel Merk, noting that the country faces problems that may affect everything from the value of the dollar to investors’ savings and even national security.
“To see why we have a problem, let’s look at the projections of the Congressional Budget Office,” Merk begins in his October insight. “From 1973-2012, government spending averaged 20.4% of GDP; in contrast government revenue averaged 17.4% of GDP. That equates to an average yearly deficit of 3%. As long as an economy grows sufficiently, it may be able to carry a sustained 3% annual deficit.”
Financing any level of government spending can occur either through increasing revenue (taxes) or borrowing. Trouble is that there aren’t enough “rich folks out there” to tax to mend the system, he argues.
He then lists the following projection by the CBO:
•In 10 years, our annual budget deficit is projected to be 4.5% of GDP.
•In 25 years, our annual budget deficit is projected to be 13.6% of GDP.
•In 35 years, our annual budget deficit is projected to be 18.7% of GDP.