1. 1. The US government will keep borrowing and spending. In the federal budget right now, about 20 to 25% of the money spent is borrowed. This behavior won’t change until there is a crisis similar to PIGS in the last 2 years.
2. 2. QE may be scaled down, but it will continue to hold the interest low in the foreseeable future. The Federal government’s total debt already exceeded $17T. If they have to pay 3% interest on it, the total annual interest will be 510B, which is 13% of the $3.8T proposed spending in 2014.
3. 3. There will be consequences for the very loose monetary policy we have had in the last few years and years to come. Inflation will eventually come, though I don’t know when. When inflation picks up, interest rate will rise. But it won’t rise fast enough to kill inflation immediately. What’s going to happen will probably be similar to China’s case in recent years: real interest rate consistently stayed below the inflation rate.
4. 4. When interest rate rises, the housing market may be slowed down. But it won’t be killed. Historically speaking, real asset is always a good hedge against inflation, though the stock market has performed the best since World War II.
In crises, cash is king. But in the long term, cash is a big loser: its purchasing power continues to drop ruthlessly.
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