The Case for a Balanced Budget Amendment

Lacy Hunt, executive director at Hoisington Investment Management, believes the debt problem in the United States and the other major economies is far worse than most realize, and he thinks an amendment to the constitution mandating a balanced Federal budget may be the only thing that can save us from a disastrous outcome.

“The ‘Keynesian Endgame’ that is increasingly part of the lexicon refers to a government becoming so excessively indebted that it loses access to credit,” he said at the Fixed-Income Management 2012 conference in San Francisco.

While historically low yields on US Treasury debt would seem to indicate that losing access to credit markets is not an imminent prospect for the United States, Hunt warned that debt accumulation trends in the United States are having increasingly negative economic effects that could take a long time to reverse.

Worse, interest rates won’t provide the early warning system many expect, a consequence of financially repressive Fed policies. By the time rates signal a problem, it may be too late to do anything about it, according to Hunt, who previously served as the chief economist for HSBC and a senior economist for the Federal Reserve Bank of Dallas.

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