In today’s political climate, anyone who worries about the deficit is immediately labeled as a crank and a bore. After all, the deficit is soaring under Trump, and where are interest rates now? Look at Japan, with its monstrous deficit and low inflation! This is the new normal; its continuing existence can be taken for granted, and debt is just a talking point for hypocritical GOP congressmen.
The part about GOP hypocrisy is true, but the rest isn’t. Japan gets by because its debt is held internally, and because the Japanese people have confidence in their political system. A large percentage of our debt is held overseas, and while the world still has confidence in our system, it is being tested every day. Who is to say that four more years of Trump might not kill it off altogether?
Argentina is proof that the law of gravity has not been repealed. Even in a world marked by secular stagnation, when the public loses confidence in your government, your currency falls, inflation and interest rates rise, and lots of pain ensues.
The UK could be next. We’ll see.