Monday, May 03, 2010
Because Politicians Didn't Take The Crisis Seriously
The current government debt bubble is the last of all possible bubbles. Either governments manage to slowly let out the air, or the bubble will burst. If that happens, the world will truly be on the brink of disaster.Is our government really paying any attention? It seems to me that the DC crowd is diving ever deeper into denial.
When Greece faces a possible bankruptcy, the euro-zone countries and the IMF come to its aid. But what happens if the entire euro group bites off more than it can chew? What if the United States can no longer service its debt because, say, China is no longer willing to buy American treasury bonds? And what if Japan, which is running into more and more problems, falters in its attempts to pay for its now-chronic deficits?
The conditions that prevail in Greece exist in many countries, which is why governments around the world are paying such close attention to how -- and if -- the Europeans gain control over the crisis.
What interests me is that common citizens in the US are paying attention, but our politicians are not. A further quote:
What at the time looked like scaremongering has now become bitter reality -- because politicians didn't take the warning signs seriously.Below in the comments, Who Struck John writes that he thinks getting politicians to take the US government debt seriously will take a few election cycles.
We don't have a few election cycles. As of April 30th, US debt held by the public had risen to almost 8.4 trillion. Bookmark this Treasury Direct page. You can enter a date range at the bottom to see how debt has risen. At the beginning of 2010, the public debt was 7.81 trillion. Q1 nominal US GDP (see Table 3) was 14.6 trillion. The danger ratio is 80% of nominal; at this rate we'll be there by 2012 or 2013. It takes time to correct. We only have a few years to start that correction, which must include both tax increases and hefty cuts in government spending.
There isn't any point any more in bailing out state and local governments, no matter what Romer thinks - in the end, it will weaken us further. The state and local governments need to start getting themselves in line this year. There's got to be a whole lot of Chris Christie type shock and awe at the state and local level. And yes, it will take cutting more employees, further pay cuts, and hefty benefit cuts. There is no alternative. The federal government can't assume this debt.
Medicare is running a deficit, and has been for years. Social Security is running a deficit since last year. The jig is up. The current administration has delayed publication of the Trustees' reports, but we know already that the balances are really bad.
I thought we lost you today.
A long Spiegel article about the government debt bubble...
It's funny how the mind works. You said Spiegel and I saw Siegel.
Haven't you heard?
Siegel: Economy in a Self-Sustaining Recovery
According to Siegel, the U.S. economy is in a self-sustaining recovery, no longer dependent on government stimulus...
See? No problems. We can simply stop borrowing right now and everything will be biscuits and gravy!
Sorry. I felt especially snarky for a moment. I'm better now though.
The electorate wasn't ready to listen to fiscal prudence then, isn't ready to vote for it now, and won't be ready to demand it of the political class in 2012. Hence I have no expectations that we will fix the problems before reaching Greek/Italian levels of indebtedness and imminent default.
Trucking is getting considerably better, but incomes are still the major problem. We'll just see what happens as the unemployment benefits expire, the states and local governments start cutting more as their federal bennies wear out, and the Census jobs drop out. Not to mention the food stamps, etc.
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