One aspect to this that is less obvious: A bubble in equities accompanied by low unemployement is also basically a bubble in tax receipts. If this reverts to th

One aspect to this that is less obvious: A bubble in equities accompanied by low unemployement is also basically a bubble in tax receipts. If this reverts to the mean, we could quickly be in a painful situation. Macro analyst Luke Gromen likes to point out that non discretionary expenditures (entitlement PAYGOs + interest on the debt + TGA drawdowns) already equals more than 100% of tax reciepts. Meaning even if we had focused politicians who were aggressively cuttting (which we don't), even at our elevated tax receipts, it would be structurally impossible to get back to a budget surplus without structural changes. Again, this does not bode well for the likely event where tax receipts fall off of a cliff next year. If anything, it's a good argument that despite all the tough talk, the Fed cannot keep rates elevated for too long.