There was an alternately harrowing and fascinating IMF paper released today on the U.S. economy, deficits, and the outlook for the dollar. Here is a long-ish snippet:
… the emergence of large fiscal deficits and signs that they will be sustained at substantial levels unless corrective action is taken, raises a number of longer term and multilateral concerns.
First, sustained fiscal deficits lower national savings in the United States and will eventually raise real interest rates both in the United States and abroad, thus crowding out private investment. The eventual cost will be lower global productivity and income growth. These effects are discussed in Section 2 of the report.
Second, higher U.S. fiscal deficits means that federal debt will not be brought down as had previously been envisaged, making the impact of an aging population on Social Security and health care programs even more difficult to deal with.