“Since fiscal year 2000, the federal budget has gone from a surplus of $87 billion to an estimated deficit of $675 billion. In the last four years, the national debt has increased by almost $2 trillion and will continue to increase for many more years even under the most optimistic scenario, absent legislative changes.”

Most Americans “are unwilling to pressure members of Congress to actually do anything to reduce the deficit. On the contrary, most people support still more spending for education, health, and other programs.”

“The reason the deficit has been an impotent issue politically is that the two principal negative effects of deficits — inflation and high interest rates — have been nonexistent.”

“But all this is about to change.”

“Were this policy maintained too long, it would eventually lead to roaring inflation like we had in the 1970s. Therefore, the Fed must tighten monetary policy, which will lead to rising interest rates.”

“If the Fed is able to keep to a gradual pace of tightening, financial markets should be able to adjust without trouble. But there is always the danger that mistakes will be made or that unexpected circumstances may arise that will trap the unwary and create a crisis situation.”

He then lists some likely scenarios.

He then concludes with:

“The result of any of these scenarios would be a sell-off in the stock and bond markets as great as or greater than the stock market crash of 1987. At that point, policymakers will be forced to adopt a significant deficit-reduction program. They will have no choice, because it will be the only policy action in their power to take and they will be strongly pressured to do so by the overwhelming force of public opinion.”

“The package will have to reduce the deficit by at least two percentage points of GDP annually to meaningfully affect financial markets and restore confidence, and it is unrealistic to think that this can all be done on the spending side. Therefore, taxes will be on the table. Voters need to ask themselves which party they prefer to manage this process when the time comes.”

Somehow, I don’t see a Republican Congress and George W. Bush raising taxes.

I’m sure some gentle readers out there can put this in proper context for me.