And I was thinking…
We have had ten years of unconstrained spending since the start of the Obama administration.
His Commission – Simpson Bowles – forecasted really bad stuff if this kept up. I wrote about that several years ago as you can see in an accompanying post. But it isn’t happening that way. I don’t know why.
I read yesterday in a Bernstein Report that American Households are now worth a net $100 trillion plus. The net worth of the Federal Government is also very high, in huge trillions – property and land all over the world. Difficult to monetize, of course. Look at Japan. Debt much worse than ours and life is pretty good.
It seems that a strong economy, one which is market driven on both up and down side – clearing out inefficiencies – can handle a lot of stuff. Beware of those who want that to go away.
The Japanese started getting into real trouble when their economy was dominated by Keiretsus – interlocking corporate relationships – that would not respond very quickly to inefficiencies.
Not sure what modifications they made, but sure they made some, compared to early 1970’s.
Also, good reason why you don’t want to allow US govt expenses to get much higher as percent of GDP because there is no automatic adjustment mechanism for inefficiency.
Only way to fix the debt problem is to monetize it, let inflation erode much of its value. But when you do that you also erode the value of the $100 trillion, and everything else. Does that really fix it? Only works when foreigners own the majority of your debt. Steal from them, not your own citizens. Maybe this is why Argentina and Brazil keep following that model though I doubt foreign debt is much higher than ours, now. Foreigners have been deeply burned, especially foreign banks.
The other approach, is to slow down the accumulation, which is what Simpson Bowles wanted, and get it under 2.5% of GDP per year. This is what Warren Buffett called sustainable. That was considered Draconian by the critics because of course you had to cut spending, or at least the rate of increase. And to slow it down you really must either increase the taxes for Medicare and Social Security or change some of the parameters of these programs, and reduce Defense spending by $25-50B a year. Apparently, there is no public support at all for doing that.
Chances are the debt problem will last so long as the consequences do not appear in the here and now. Sad, but probably true. The crisis will probably be awakened by debt service, kept so low during this period by shockingly low interest rates. Wait until it cost a trillion a year to service it. Probably a reason why you don’t need to worry about the Fed raising rates.
Just thinking…
