My fear is that the current recovery is storing up problems for the future. Household debt continues to decline, and the savings rate has increased. This should be good news for the recovery of the economy: much of the recent recession was about households adjusting spending, debt, and savings to reduce debt and increase savings rates. The rise in the savings rate, however, has been entirely due to lower taxes – households have not substantially adjusted spending lower in response to the recent recession. Government taxes as percent of income will have to rise in the future, and households will have to adjust eventually.
Available as a .pdf here on the Close Mountain site.