Cash Flow

Disaster awaits the unwary and unwilling

   The U.S. economy is still perking along, posting a rise in Gross Domestic Product (GDP) of 1.4 percent in the first quarter, according to the latest estimate from the Commerce Department's Bureau of Economic Analysis. This is down from the 2.1 percent rise in the fourth quarter of 2016, but still not a portent of disaster.
   Perhaps more relevant, though, is a separate report from the Congressional Budget Office that the federal debt will rise over the next decade, even as economic growth remains modest at about 2.0 percent through next year.
   Meanwhile, the CBO noted that unless the federal debt ceiling is changed, the U.S. Treasury will run out of cash in October of this year, which will lead to payment delays in government programs, a default on debt obligations, or both.
   So what does this all mean to the average American? First, that the Federal Reserve Board will keep a close eye on whether to raise interest rates again to prevent the economy from overheating. Higher interest rates, however, can bring higher prices for consumers, even as savings account interest rates hold at their current levels, enabling financial institutions to fatten their bottom line profits.
   Second, when the Treasury runs out of cash, the government will be unable to pay out pensions and other benefits it owes to citizens under various programs designed to help the needy.
   Third, if the government defaults on its debt obligations, its borrowing costs will rise as investors demand a higher payout to cover risk.
   Fourth, this set of losses will stagger the general economy, causing a downward spiral.
   Finally, the administration could call for more and deeper cuts in government expenses to make up for tax revenue losses, or it could raise taxes, or both. And as government spending -- a major contributor to economic well-being -- is reduced, the downward spiral accelerates.
   So unless the folks in Washington make use of principles outlined in Economics 101, a national and even worldwide disaster awaits, as happened during the Great Depression of the 1930s and the Great Recession of ten years ago.
   Those who refuse to learn from history ...