“Government revenue is not growing faster than ever, which means rising debt even in today’s relative prosperity.
Again, whether you like this or not is irrelevant. It’s happening. I see no way out. Raising taxes on the wealthy won’t get us even close to a balanced budget, even at confiscatory levels. Raising taxes on the middle class won’t happen in a recession. The only tax system with a shot at actually paying for current spending (even without adding the new programs some Democrats want) is a “VAT” or value-added tax, and it is anathema in both parties.
No matter how I look at this, I keep coming back to gigantic deficits that the Federal Reserve will have to monetize in some fashion—probably something like the previous QE rounds but on a vastly larger scale. And thus my belief it will launch an era of Japan-like deflation and economic doldrums.” – John Mauldin
The requirement by the Fed that banks increase their equity ratios would confirm that a deflationary period is expected. That people were allowed to re-finance via TARP to lower interest rates and shorter amortization periods also points to that event. Lower loan balance to collateral value is extremely important to a bank. When a loan is found to be upside down by the regulators the bank has to classify the loan and up its loan loss reserve which impacts bank earnings. You can imagine what a larger percentage of “classified loans” means to the longevity of that particular bank.