Market analyst Bob Elliott, co-founder and CEO of Unlimited Funds, addressed a less than rosy fiscal outlook for the U.S. with AgriTalk Host Chip Flory on Thursday.
Elliott told Flory the U.S. government balance sheet and financial condition have been deteriorating significantly over the last decade.
“Finally, they’re waking up to that fact, and I don’t think anyone in the markets is really looking at what they have to say,” Elliott said.
“It’s creating a renewed focus on the unsustainable path of the fiscal situation of the United States. And that, I think, is in part what is driving some of the market action we’ve seen in the last couple of days related to the bond market,” he added.
Flory told Elliott one of his concerns is that market analysts are predicting fiscal deterioration over the next three years, which will be concerning to “average” consumers who invest in the stock market and other entities.
“What’s going on?” Flory asked.
Elliott explained that the U.S. government typically borrows more in economic contractions. “It’s called counter cyclical,” he said.
However, the U.S. is in so much debt today that his concern is there will be no financial room to borrow more money if a recession – like the Great Recession in the mid-2000s – occurs again.
Elliott said one notable difference between today and 15 years ago is that the unemployment rate today is at secular lows. “The economy just put up a two and a half percent GDP growth number. You know the economy, while it may not be perfect, it’s doing pretty well,” he said.
Potential For Government Shutdown?
Congress has to pass 12 appropriation bills before the end of this fiscal year, and the clock is ticking. Flory said he’s concerned.
“They got one done, and then they left for August recess. Assuming Congress is going to get 11 more appropriation bills done by the end of September is exceedingly hopeful,” he said. “That’s going to raise the potential for a government shutdown, isn’t it?”
It looks very possible, Elliott said. “There’s some risk, but odds are there will be some last-minute agreement that pushes the issue out into the future,” he said. “Look, we’ve been down this path before and the government shutdown is a real possibility, and I think we’ll just add further focus on the fiscal unsustainability of the U.S.,” he added.
“Congress acts like the country can just go on spending,” Flory said. “Why it that?” he asked.
“They haven’t faced the consequences of spending so recklessly in a good economy,” Elliott said.
He predicted the U.S. consumer will continue to see a rise in interest rates and then “real-world” effects on households and businesses that are faced with borrowing money at those higher rates.
“And that will start to weaken the economy,” Elliott noted. “Too much fiscal stimulation creates rising interest rates, which creates a challenge for businesses and households. And eventually, people will come to realize, you know, that isn’t necessarily a good and acceptable path for their legislators to pursue.”
The conversation on AgriTalk is available here:
