The seal of the Board of Governors of the Federal Reserve System in Washington, Feb. 5, 2018.
Photo:
Andrew Harnik/Associated Press
Red Jahncke hits the nail on the head: “Swooning Markets Will Crush Government Budgets” (op-ed, May 17). He emphasizes declining tax revenues, but the fall in the markets will have at least two other major adverse budgetary impacts worth noting.
First, tens of millions of Americans are receiving income from pension funds. Declining pension-fund assets will push many funds into somewhat precarious financial condition, forcing increased contributions to maintain pensions. In the private sector, this might threaten corporate profits. For state and local governments, where many pension funds are already only around 70% funded, this will force bigger employee or government contributions, benefit reductions or both.
Second, rising interest rates are going to sharply increase the interest payments of the federal government to bondholders. It is conceivable that within a couple of years, interest costs on the outsize U.S. federal debt will rise by at least $500 billion annually—$1,500 for each American or $500 a month for an average family of four.
The root cause of all this is inflation. It reflects not mainly the Covid-19 pandemic, the machinations of Vladimir Putin or price gouging, but rather the Federal Reserve’s recklessness—equivalent to dropping money out of airplanes—and the fiscally irresponsible excessive spending of the federal government.
Em. Prof.
Richard Vedder
Ohio University
Athens, Ohio
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