Yellen Speaks Out on Deficit Solutions - You Won't Like Them!

Everyone knows the deficit situation is unsustainable and out of control. We’ve known this for years. And, it’s accelerating. Why? With good economic indicators and a supposedly booming economy, why is the government still so upside down on its spending?

The emergent situation right now is that we are headed straight into an explosive deficit trifecta that will create a perfect storm of economic disaster.

And what should be done about it?

According to former Federal Reserve Chair Janet Yellen, YOU (not the government) should pay more and spend less. She’s not the only one who sees it this way.

"If I had a magic wand, I would raise taxes and cut retirement spending," Yellen told CNBC's Steve Liesman at the Charles Schwab Impact conference in Washington, D.C.

Former Fed Chair Janet Yellen recently gave an interview in which she briefly discussed what SHE would like to see happen regarding the worrisome deficit situation. She still has a lot of influence in Washington and Wall Street. She is much in demand as a speaker and when she gives her opinions, people listen. She is not the only one eyeing this “solution” that puts all the burden and hard decisions squarely on YOUR back, not in Washington.

So it IS TRUE that we have been kicking this can down the road for so long now, maybe you’re one who secretly thinks we can just keep kicking it ad nauseum.

The truth is we can’t. It is all coming to a head soon and I will tell you why:

We have not been faced with today’s DEFICIT TRIFECTA.  We are currently under THREE MAJOR ECONOMIC FORCES that will make this time completely DIFFERENT.

What is this TRIFECTA?

For one – Inflation.

As inflation ticks up, prices for things the government pays for go up along with it. Many expenditures and entitlements are linked to inflation – note that Social Security recipients got a cost of living adjustment this year! That explodes the deficit. That’s just one big example. Inflation is making everything more expensive adding to the sea of expenses.

Number two - Tax Cuts.

Those tax cuts were a welcome relief to the middle class and allowed corporations to have a little breathing room, but they also decreased government revenue. Trump touted the tax cuts as growth positive and that we would grow our way into the reduced tax receipts and they would mostly be revenue neutral eventually. It all sounded like a nice plan except for…

Number three - Interest Rate Hikes.

Those growth calculations might have been reasonable in a steady interest rate environment, but the Federal Reserve has not been providing that this year, much to Trump’s dismay. But the Fed doesn’t coordinate with the President. At least, it is not supposed to.
The Federal Reserve is supposed to be politically independent. As they have seen the economy overheat, they have enacted interest rate hikes to cool it down a bit. The very growth Trump was counting on is being negated by the Fed’s monetary policy. So much for growing into the tax cuts.

What SHOULD they do?

Of course, if YOU found yourself in a situation where your income was vastly lower than “outgo” you would probably analyze your spending first and tighten the belt. After that, you’d maybe look for a part time job or some way to increase your salary. Like normal people do.

But Washington elites suggest taxpayers pay more and retirees get reduced benefits while they’re allergic to spending cuts because special interest on the other end of those cuts raise Cain over any kind of reduction in their programs or government checks.

You should be prepared that what Janet Yellen is suggesting is the path of least resistance for Washington and therefore the most likely course of action within a few years.

In other words, those tax cuts will be replaced with tax increases and retirement benefits will be reduced somehow.  How will your family survive this coming economic squeeze? Well, you won’t be alone. The entire economy is going to be squeezed. You may want to consider adding precious metals to your portfolio. It’s the one investment that does well when economic forces derail.