A combination of large future fiscal deficits and foreign lenders' reduced willingness to buy U.S. securities means the dollar will drop and interest rates will rise, says economist Martin Feldstein.
“Without a fall in the dollar and the resulting rise in net exports, a higher saving rate and reduced consumer spending could push the U.S. economy into a deep recession,” Feldstein writes in the Business Standard.
A lower dollar, Feldstein notes, shifts consumer spending from imports to domestic goods and services, and by supplementing this rise in domestic demand with increased exports.
Moreover, an increased household savings rate reduces America’s need for foreign funds to finance business investment and residential construction.
“Taken by itself, today’s $750 billion annual rate of household saving could replace that amount in capital inflows from the rest of the world,” Feldstein says.
Household savings alone can’t get the job done, Feldstein observes. If we’re ever going to be free of debt, the government has to quit overspending.
“The value of the dollar reflects total national saving, not just savings in the household sector,” Feldstein says.
The House of Representatives has passed legislation to reinstate a “pay as you go” statute that requires tax cuts or new benefit programs to be paid for with tax increases or cuts to other programs.
If the law is ignored and new legislation adds to the deficit, automatic spending cuts would kick in to make up the difference, The New York Times reports.
© 2017 Newsmax. All rights reserved.