Editor’s note: A version of this article first appeared at Forbes.com.
I recently indulged in some wistful, year-end nostalgia, but now that 2013 is underway, let’s turn our attention to a time more crucial to our well-being: the future in which we will live.
Forecasts for sluggish economic growth are common. Investment superstars and gurus such as Bill Gross of PIMCO and Jeremy Grantham of GMO, and researchers such as Dr. Robert Gordon of the National Bureau of Economic Research, all have predicted anemic growth for the next several years. With the caveat that when too many “expert” opinions agree, the resulting consensus can be spectacularly wrong, I agree with the pessimists.
The American economy is stuck in the molasses of unfathomably colossal debt. Team Obama will block any attempt to curtail the federal government’s chronic overspending or to reform its unsustainable growth in entitlements. President Obama’s regulators are ramping up costly, suffocating rules on massive scale. A compliant Federal Reserve continues to enable the destructive over-spending by further debasing the currency by aggressively increasing its supply. And don’t be fooled by modest rises in the Consumer Price Index; the Federal Reserve Note’s purchasing power is shrinking.
Looking ahead, I see no end to ZIRP—the Fed’s zero interest rate policy. Besides depriving savers of an opportunity to earn a measurable return on their savings, I suspect that the Fed will do everything in its power to keep interest rates artificially low, whether that power has been explicitly authorized by enabling legislation or not. The Fed simply cannot permit interest rates to rise several percentage points above current rates, because the ensuing cost of servicing the federal debt would consume so much of Uncle Sam’s tax revenue that the Fed would have to undertake a quantum increase in quantitative easing (raising it from a river to a flood of new monetary units) to provide enough liquidity to fund the government.