Is The Bridge Actually There?
If you were in a line of fast moving cars running in and out of fog and suddenly the fog parted and you could see that the bridge ahead had just collapsed, and that cars were falling into the deep canyon, would you continue to speed forward because you enjoy how your car accelerates, or would you stop?
My Pension Or Yours?
Imagine that each of the speeding cars is one of the world’s economies, and the precipice is the disaster which occurs when a nation runs up so much debt in paying for its profligate spending that it can no longer borrow to close the gap between income and expenses. But it enjoys the feel of the expenses so much that it won’t stop spending. So it drives off the cliff, resulting in severely cut services, bankruptcies, lost pensions, anger, class jealousy, and, eventually civil unrest and riots.
As we look ahead through the economic and political fog, we in America are benefitting at the moment from three undeserved and temporary gifts.
Who Will Buy?
First, because for now we are perceived as the world’s best alternative, we have a reprieve from what should otherwise be a shunning of our debt, given our huge stated debt plus unfunded liabilities. For now, investors will still buy our bonds.
But when even a partial alternative to U.S. debt is perceived as a safe haven, or our deficits and debt level become too large to ignore, the buyers will dry up, or they will at least demand a higher level of interest.
Our second gift is that the fog has actually lifted, and we can clearly see the collapsed bridge and the terrible consequences in Greece, Ireland, Spain, and most of the rest of Europe. All these have some version of entitlements, regulations and crony capitalism enacted by Progressive Elitist governments over the last fifty years. Now the consequences are too obvious to ignore.
The Tax and Spend Model
Notice to College Grads and Entry Level Teens
The U.S.-equivalent includes tax and spend entitlements to government unions, rich farmers, mortgage holders, and Food Stamp recipients, ramping up huge deficits, which are simply unsustainable. And regulations impede new job creation while protecting the jobs of those (older people) who are fortunate to have them.
Yet even with the terrible results clear for all to see, we keep speeding/spending because we can’t abide what we believe will be the short term pain of stopping.
There are many articles on this clear future in the news today–it is no secret! And well written opinion pieces, including these in the Wall Street Journal by Bret Stephens, Daniel Henninger and Holman W. Jenkins. All of these are well worth reading and are worth the price of admission for a subscription (a necessity in my mind).
Our third temporary gift is that, while our debt is astronomically high, record low interest rates have masked the real cost and pain that are sure to come, unless the level of debt is actually reduced.
My Family Has To Pay The Debt?
Over two years ago (when there was $1 trillion less national debt) I pointed out that when interest rates return to an historic average of 5%, the $800 billion of annual interest will equate to about $1,400 per tax-paying family of five, every month. https://bit.ly/1zZSJ7t. That’s $1,400 per month less family housing, transportation, education, entertainment, etc. just to pay the interest on the national debt. How’s that for helping the much discussed middle class? Maybe there will be barricades and Molotov cocktails in gated communities.
Now the CBO predicts an even more terrible result over the next decade, as reported by Kevin G. Hall. https://bit.ly/1zZReGv.
What is to be done? The good news is that the fog has also largely lifted on the solutions. In general, “everyone” agrees that we need to drastically reduce entitlements, including those to rich farmers and Boeing, cut back spending, and simplify the tax code to reduce the exemptions, level the playing field, and widen the base.
Most of what would be a great start was handed to President Obama in the Simpson-Bowles Report. https://bit.ly/1yFvF7j. But he and many in Congress chose to ignore all of the specific recommendations.
Particularly with the perfect “good” storm of the clear choice before us (Europe vs. Simpson-Bowles), the willingness of investors to buy our debt, and current low interest rates, it is imperative that we “stop” now, while whatever the pain may be, it will be less than in the near future.
We paid good money for Simpson-Bowles’ hard work and recommendations. We should use them!
If the new Republican House and Senate are looking for an issue with potential bipartisan support which would also be great for the nation, they should start with passing the recommendations in the Simpson-Bowles Plan. It is the right thing to do, on so many levels, and for so many reasons.
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