I trust the analyses showing that a long-term fiscal crisis looms, and I note that America's gross debt-to-gdp ratio is uncomfortably high. It's not obviously too high to sustain, however. It's far from obvious that swingeing cuts are necessary to right the fiscal ship—as opposed to, say, moderate increases in revenues combined with a meaningful slowing of the projected rate of growth of health spending. And markets, which should be heeded, could not be shouting any more forcefully that whatever cuts need to be made certainly don't need to be made now.This is going to be my new mantra.
...I see Americans as distressed by a dismal economy, frustrated at years of stagnant pay amid rising costs, and outraged by a system of government institutionally incapable of addressing basic concerns. Europe hasn't proceeded with dramatic austerity because austerity is popular in Europe. Oh no. Europe has proceeded with austerity because markets posed a real threat, because European parliamentary systems lack the anti-majoritarian bottlenecks that constrain America's government, and because European electorates accepted that policies they dislike were necessary to avoid potential outcomes they dislike even more.
Lampooning American voters as idiots living fat off the government teat obscures the reality of the present situation. Fiscal issues are not and should not be the principal worry in an America with high unemployment and rock-bottom sovereign-debt costs.
Fiscal issues are not and should not be the principal worry in an America with high unemployment and rock-bottom sovereign-debt costs.
Fiscal issues are not and should not be the principal worry in an America with high unemployment and rock-bottom sovereign-debt costs.
(By the way, life has almost finished with its current bout of overwhelming interference with my blogging. More regular posting to resume in the next few days.)
The last paragraph is right, but the one before that is completely wrong. European countries have implemented austerity because they were bullied into it by larger countries and supra-national institutions like the ECB and IMF. No party was put into office to implement austerity, and in the two general elections this year both incumbent parties that started the programs were thrown out (Ireland, Portugal). The exception is the UK, where in the course of throwing one party out the Brits elected a worse one that siezed on the crisis as a justification for doing what they've always wanted to do.
ReplyDelete"It's far from obvious that swingeing cuts are necessary to right the fiscal ship—as opposed to, say, moderate increases in revenues combined with a meaningful slowing of the projected rate of growth of health spending" Which seems fairly accurate, until you consider the unfunded liabilities which, frankly, make the gross debt seem like a minor issue in comparison. Historically, countries tend to fail (and the fall from grace is fairly quick once it starts) when interest payments exceed the defence bill as a share of government spending. America approaches this historical tipping point in the near term.
ReplyDeleteFor America to base its fiscal policy off the current yield on a Treasury bill seems enormously reckless to me, as the yield is solely reliant on the market's continued belief that Treasuries are a safe haven. Were that perception ever to change, and the Treasury be priced solely according to its merits, I doubt we would be seeing the Ten year as low as it is now.
The banks the world over have been given the privilege to create money in the form of extending credit. Over the past 30 years they have done so in extremis resulting in an overindebtness on many levels. When looking at total debt of most Western Countries (private, business, government), it figures mostly in the range of between 300 and 400% of gdp. This fact is generally not very well known as people simply look at the government's debt.
ReplyDeleteWhen you have like overall debt levels at 400% of gdp in the economy, just to manage that debt at a rate of interest of 2%, takes 8% out of the economy every year.
If part of the debt becomes questionable e.g. a third of it and the market demands instead of 2% suddenly 8%, the burden for the economy would increase to like 16%.
How sustainable does that sound???
Like It http://www.fancytvs.com">.
ReplyDeleteDear PeakVT. The market is spoken its verdict starting with Greece. There is no escaping austerity or devaluation of currency (the US and British way). In both cases the population is being robbed of their savings in order to save the banks. The resistance to austerity in countries like Greece etc. is simply demonstrating the fact that the political class does not yet get it by contineously trying to save the banks. It is a serious breach of trust and against the spirit of the rule of law that is the basis of western society. Until the bankers whose core job is to be prudent and diligent when extending credit are taken to account for their failure in their core functions (incl. jail terms and confiscation of ill-gotten benefits), the spirit of the rule of law remains violated.
ReplyDelete