Dr. Susmit Kumar, Ph.D.
The charts and table below would show you where the stock market heading to. The US government has been running budget deficits for last 3 decades. In the aftermath of the 2008 Great Recession, both the Bush, Jr. and Obama administrations ran huge budget deficits to provide stimulus (as shown in Chart 1). Afterwards, the yearly budget deficit gradually went down but still it was more than $500 billion a year. Trump’s tax-cut to rich has ballooned the budget deficit to $1.3 trillion this year and it would be above $1 trillion for next several years.
Table 1 shows the US Treasury debt. From 2000 to 2016, the treasury debt has increased from $5.6 trillion to $19.5 trillion. Table 2 shows the yearly interest paid by the US government on its debt. In 2000, the interest payment was $362 billion whereas in 2016, it was $402 billion, i.e. although the debt in these years increased by nearly 250% (from $5.6 trillion to $19.5 trillion), the interest payment increased by only 11% - the trick behind this low increase in interest payment was due to the US Federal Bank which has been gradually reducing the interest rate as shown in Chart 2 so that the interest payment by the US government would be manageable. At 2000 (6%) and 2008 (4%) treasury rates, which changes in tandem with the Fed rate, there would have been an additional $800 billion and $400 billion (for each percent increase in interest rate, the interest payment increases by $200 billion), respectively, interest payment by the US government which would have increased the debt to $2.1 trillion and $1.7 trillion, respectively this year instead of $1.3 trillion.
If you keep your money in bank, then you would get 1% interest rate right now (because of low Fed Rate) and hence people and investors are flooding the stock market where they see several times higher gain. Had the interest rate on bank deposit would have been say 5%, they would not have had invested in stock market. Hence the low Fed rate has created a bubble in stock market world-wide which has to burst – it may burst in few months, few years or say in next several years but it has to burst. US Fed has created a house of cards which has to collapse one day.
[I only present analysis of data and I never give any time line for any prediction as I am not a god. In a 1995 article published in an European magazine, I predicted the global rise of Islamic militancy due to the US intervention in Afghanistan during 1980s, but I did not give any time line for this prediction also – this article is available at my website site.]
Chart 1.
Table 1.
Table 2.
Chart 2.
Chart 3.
