3 Potential Outcomes For The Debt Dilemma, According To Dick Bove

It seems like each election cycle, politicians talk constantly about getting the national debt level under control. Then, no matter which part takes the White House, the new administration continues to pile on more and more debt.

The Congressional Budget Office projects the federal debt will grow by $10 trillion over the next decade under President Donald Trump’s policies, but at what point will the debt reach a critical level?

According to Rafferty Capital Markets, the debt dilemma is the single biggest problem facing the United States today.

“It the debt is to be increased to fund a stronger military or to fund an infrastructure rebuilding program, the new money must come from the American people themselves,” analyst Dick Bove explained.

3 Possibilities

Bove sees three possible outcomes from the current U.S. debt situation:

1. Nothing happens. The United States continues to sell new issues and foreign investors continue to buy them on the idea that U.S. debt will remain among the safest investments in the world.
2. Foreign buyers grow skeptical of U.S. debt and will scale back buying, forcing the Federal Reserve to reduce its spending.
3. The United States adjusts its tax structure to fund its spending via border taxes on foreign importers.

Bove concludes by saying he doesn’t know which one of the three potential outcomes is most likely, but that the fate of bank stocks is ultimately linked to the fate of the federal debt.

Since Election Day, the Financial Select Sector SPDR Fund XLF is up 23.7 percent.

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