For Stocks & Bonds, Upside Surprise of Inflation and Interest Rates “Could Prove Nasty”: Dudley | Wolf Street

“Fiscal orthodoxy has shifted” – more deficit spending. There has been a huge policy shift toward big fiscal deficits, starting with massive tax cuts two years ago, which caused the federal deficit to blow out even during the Good Times, followed by the massive Pandemic spending, which caused the deficit to explode. And it appears that there are at the moment not a lot of concerns about the deficit and debt in Congress, as “fiscal orthodoxy has shifted.”

Well, OK then. Another warning about asset prices, on top of a pile of warnings about asset prices. And so far, markets have blown them all off. Which seems to be precisely what Dudley is getting nervous about.

For Stocks & Bonds, Upside Surprise of Inflation and Interest Rates “Could Prove Nasty”: Dudley | Wolf Street

What could go wrong?

Massive debts piled on top of unpayable massive debts.

Extend and pretend; no payments on rent, mortgages, vehicles, student loans, and more… but alll of this unpayable debt is just ignored, denied and chalked up officially as payments made.

Deficit spiking almost straight up, along with national debt.

Huge drops in revenues, sales taxes and income for cities, counties, states, with no end in sight yet, leading to massive increase in debts, drawdown of reserves.

Tens of millions of people out of work, getting paid nothing or very little.

What could go wrong?