Politics as usual, like we are seeing with tax policy, is heading us in the wrong direction. We can't keep cutting taxes and lowering interest rates and expect the rest of the world to fund our debt. They are losing faith in our institutions and they wonder whether we can control the potential inflation that will occur when the economy picks up steam.
We are also reminded of the next sub prime lending problem. State and local governments are in terrible fiscal shape and they are only able to borrow at low interest rates because the rating agencies believe that the federal government will not permit them to default. The Fed put $3.3 trillion on its balance sheet to bail out the banks. Will we be able to do the same for states and municipalities?