Are you worried that we are passing our debt on to future generations? Well, you need not worry.
Before this recession it appeared that absent action, the government’s long-term commitments would become a problem in a few decades. I believe the government response to the recession has created budgetary stress sufficient to bring about the crisis much sooner. Our generation ”” not our grandchildren’s ”” will have to deal with the consequences….
The question we need to ask is this: If we don’t change direction, how long can we travel down this path without having a crisis? The answer lies in two critical issues. First, how long will the capital markets continue to finance government borrowings that may be refinanced but never repaid on reasonable terms? And second, to what extent can obligations that are not financed through traditional fiscal means be satisfied through central bank monetization of debts ”” that is, by the printing of money?
Kendall
This is a simply outstanding piece. Thanks for posting. I am bumping it on my own blog.
I second Ad Orientem’s opinion, this is an excellent article. The sad reality is that nothing is too big to fail, even governments.
The trick is to make it fail on another’s watch.
Re # 3,
Br. Michael,
[blockquote] The trick is to make it fail on another’s watch. [/blockquote]
In that event I may have to adjust upward my rather low opinion of President Bush. That said while I think Obama inherited a house that was on fire, it has been his choice to throw gasoline onto that fire.
Sooner or later, no matter how facile and nimble the juggler, reality will set in. Wall St, the Feds, and big investors have been playing a lot of games, but it is impossible to always win. I am in my 60’s; I expect to see some tough times – and my kids will see even more.
Let’s also not forget that this actual crisis began with Congress meddling in the mortgage industry and telling lenders they /had/ to give out subprime mortgages to low income home-buyers. The banks, stuck with loans that probably weren’t going to be repaid and eventual, expensive foreclosures, did what they had to do to minimize losses: commoditize the mortgages and sell them off to anyone stupid enough to buy them.
And now the tax payers through Fannie and Freddie and the Fed are footing the bill just as Obama comes into office and decides to put in place the Great Society II.
Re #6
VW,
Actually it started in 1913 with the establishment of the Federal Reserve. It was greatly exacerbated in 1933 by the abandonment of the Gold Standard for money. And it has been compounded by every administration and every congress, regardless of party majorities ever since with their endless borrow and spend, live for the moment way of running the country.
You can not build a nation on debt. And no matter how you cook the books at some point the bills have to be paid. It is unfortunate. But we will be the generation that has to actually bite the bullet for this fiscal and monetary insanity.
Wow – terrific article. Lots of food for thought. And, truthfully, I would rather our generation take the hits and get back to fiscal sanity (and balancing the budget, paying off the debt) than my children’s generation or their children’s.
#7 AO – your points are well made; however, the most recent piece of that sad history is as #6 VW states. Decisions made in the 90’s have much to do with the most recent bubble burst.
Well the good news is that the O’s new proposed “pension bailout” will involve letting our generation take (some) of the hits by confiscating the 401ks and IRAs of the folks who saved in order to pay the debts (which now belong to the govenment) of those who did not. Spreading the wealth, just as Mr. Obama promised us.
http://sharprightturn.wordpress.com/2010/05/04/obama-administration-is-seriously-looking-at-confiscation-of-your-401k/
We know this will work because SSI has been such a great success.
And the hits just keep on coming.