The growth of entitlements has weighed on domestic saving, and foreign borrowing is now a very large source of funding for domestic investment. If foreign capital flows slow, and domestic saving continues to be crowded out by entitlements, there would be serious consequences for investment and productivity, even though the recent figures on output per hour are a little better. The growth of populist sentiment has hampered the ability of our political system to handle important issues such as tackling entitlements. There is no precedent, in Western civilization, where you can expand the money supply as much as going to be necessary to fund this deficit, without engendering inflation. In the very near term, though, the near-term outlook for capital investment is favorable.
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