Monday, June 27, 2011

Fed’s Bullard: “When it does blow up it will be too late”

In a recent interview with Bloomberg, James Bullard, president of the St. Louis Fed, offered a blunt warning on America’s disastrous financial trajectory.
Lawmakers and investors shouldn’t take comfort in low U.S. borrowing costs because markets are often “complacent” about the risk from excessive deficit spending, said James Bullard, president of the Federal Reserve Bank of St. Louis.
When it does blow up it will be too late,” Bullard said in an interview last month in New York. “When markets lose confidence in the U.S. and say that they don’t trust us any more, rates will skyrocket and the crisis will be upon you.”
He’s right, of course. Interest rates can’t stay low forever. If (when) the world does start to lose faith in America’s ability to reign in spending and cut debt, things could get crazy for a while. And quickly.
Mr. Bullard points to Greece as an example. Just a year and a half ago, the Greek 10-year yielded around 5.5%. Today that number is closer to 17%. 18 months later.
Trying to raise more debt at those levels would be ludicrous. Like trying to run a national budget on a high-interest credit card. Unsustainable, impossible. Nobody wants to buy your debt, you’ve sold quite enough already. But thanks.

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