Summary: The world is changing fast. Yet as so often in history the changes remain unseen until some event reveals them in unmistakable fashion. Can we look ahead at America’s future? Perhaps we should start with the obvious, the almost inevitable.
Consider a nation in financial crisis, a typical Latin American-type crisis .
(a) Large foreign debts due every year for the next 30+ years, which it cannot conceivably pay (without selling itself). The principal and interest due each year are just rolled over — totally aprox 4% of GDP this year.
(b) Massive borrowing (well over the red line of 3% of GDP) each year to pay for necessary imports. It will take years to gently reduce this dependence — or a long, severe recession.
(c) Massive additional borrowing (aprox 7% of GDP per year) for at least the next two years to restructure its financial system.
Argentina? Costa Rica? No, this is us. Our delusions of global hegemony were like our dreams of wealth from ever-rising home value — both artifacts of ample, cheap credit. Now the bills come due.
Solutions
How do our elites hope to obtain the loans necessary for America’s survival (at least $1.5 trillion in 2009)? We can only guess. Since private inflows have almost stopped, there are several reasons foreign governments might provide the vast sums of cheap loans we need.
(1) Hold the world hostage. As in “loan us the money or the world economy burns.”
(2) Hope that they see this as in their best interest, and that they take no measures to prepare themselves for an eventual day of reckoning (as we certainly are not).
(3) Trust to the kindness of strangers.
The third option is insane. The first will work, but might impel the world’s major nations to ally against us so that we can never again hold them hostage. The second is blinkered, seeing the outcome as binary: we get the money or the world burns. This is unrealistic, as these things are usually resolved by negotiations.
At some point I believe we will need to talk with our creditors, when the current ad hoc financial and regulatory mechanisms break down. That might be soon, judging from recent events. We are likely to get the money we need. The debate will be on what terms we get the money. We can only speculate how this might work; here is my guess.
The Master Settlement of 2009
I. The US receives $1.5 trillion in new lending in 2009 and 2010, with smaller loans in the following five years. New lending under this agreement ends in 2015.
II. Existing US government and agency bonds held by foreign central banks are rescheduled. Principal or interest payments begin in 2016, amortized over the following 30 years at low fixed interest rates.
III. The bonds are denominated in an index of currencies, weighted by the debt held by each nation. We lose the ability to inflate the debt away by printing money.
IV. The US dollar is immediately devalued by some fixed amount (perhaps 20%). The lower dollar will reduce our imports, as they become more expensive. Our exports again become competitive on world markets, so we can earn the money to pay our debts.
V. Our creditors will demand (and receive) consensions. We can only guess what those might be. China will certainly ask for a sphere of influence that includes Taiwan.
Needless to say, this will end our pretensions to global leadership. Like everyone else, we will need to carefully ration foreign spending so that we have the foreign exchange needed to pay our debts. Like the post-WWII UK, foreign bases — and foreign wars — will become expensive luxuries.
This is unthinkable. Absurd. Cannot happen.
Why?
After it happens, the experts who now say this is impossible will explain why it was inevitable.
What should we do to prepare for this harsh new world?
The world is changed, I can feel it in the water, I can feel it in the earth, I can smell it in the air.
Said by Treebeard, leader of the Ents, from The Two Towers– part II of Tolkien’s The Lord of the Rings trilogy.
We speculate about these things in order to better understand how the world is changing — what futures open before us. Keeping that in mind, I take the guesses presented in this post and give simple (or simplistic) answer in A solution to our financial crisis.
Afterword
If you are new to this site, please glance at the archives below. You may find answers to your questions in these.
Please share your comments by posting below. Please make them brief (250 words max), civil, and relevant to this post. Or email me at fabmaximus at hotmail dot com (note the spam-protected spelling).
Some FM posts about the current crisis
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Treasury Secretary Paulson leads us across the Rubicon, 9 September 2008
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High priority report: a geopolitical sitrep on the financial crisis, 15 September 2008
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Say good-bye to the old America. Welcome to our new socialist paradise!, 17 September 2008
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Another voice warning about the nationalization of AIG, 18 September 2008
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A vital but widely misunderstood aspect of our financial crisis, 18 September 2008
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A new sitrep, as we move into phase 3 of the financial crisis, 19 September 2008
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Another step away from our Constitutional system, with applause, 19 September 2008
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What do we know about the financial crisis? What are the key questions?, 20 September 2008
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Slowly a few voices are raised about the pending theft of taxpayer money, 21 September 2008
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America appoints a Magister Populi to deal with the financial crisis, 21 September 2008
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Legal experts discuss if the Paulson Plan is legal, 21 September 2008
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Essential steps to surviving the current crisis, 23 September 2008
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How should we respond to the crisis?, 24 September 2008
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A solution to our financial crisis, 25 September 2008
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Is the US economy in good shape, or in terrible shape?, 27 September 2008
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A quick guide to the “Emergency Economic Stabilization Act of 2008″, 29 September 2008
For a full listing see the FM reference page about the Financial crisis – what’s happening? how will this end?.
A few of the most important posts warning about this crisis
This crisis has long been forecast by many, including in articles on this site. Even now that we are in the whirlwind, these provide valuable background material on its causes — and speculation about the results. To see the all posts on this subject, go to the FM reference page about The End of the Post-WWII Geopolitical Regime. Here are some of those posts.
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A brief note on the US Dollar. Is this like August 1914?, 8 November 2007 — How the current situation is as unstable financially as was Europe geopolitically in early 1914.
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The post-WWII geopolitical regime is dying. Chapter One, 21 November 2007 — Why the current geopolitical order is unstable, describing the policy choices that brought us here.
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We have been warned. Death of the post-WWII geopolitical regime, 28 November 2007 — A long list of the warnings we have ignored, from individual experts and major financial institutions (links included).
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Death of the post-WWII geopolitical regime, III – death by debt, 8 January 2008 – Origins of the long economic expansion from 1982 to 2006; why the down cycle will be so severe.
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Geopolitical implications of the current economic downturn, 24 January 2008, – How will this recession end? With re-balancing of the global economy, so that the US goods and services are again competitive. No more trade deficit, and we can pay out debts.
- A happy ending to the current economic recession, 12 February 2008 – The political actions which might end this downturn, and their long-term implications.
- What will America look like after this recession?, 18 March 208 — The recession might change so many things, from the distribution of wealth within the US to the ranking of global powers.
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The most important story in this week’s newspapers , 22 May 2008 — How solvent is the US government? They report the facts to us every year.
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The World’s biggest mess, 22 August 2008 — A brillant ex pat looks at America from across the ocean.
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“The changing balance of global financial power”, by Brad Setser, 22 August 2008
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“The Coming US Consumption Bust”, by Nouriel Roubini, 6 September 2008
Fine note — maybe my usual contrary speculations later. In answer to your main question about why Americans don’t see it, perhaps because of …
a) screaming about the Iraq War, and/or Afghanistan and the WOT,
b) screaming about gas prices,
c) screaming about global warming, er, climate change (all water based disasters);
d) continued single issue discussions about pro-life / abortion politics (and judges’ roles); which often use gay marriage and other culture war issues as a surrogate battlefield.
The screaming especially doesn’t leave a lot of room to discuss how America has changed, most especially its position in the world.
Oh, and e) Political leaders whose primary message is to blame problems on the other political party.
The coming pension crisis will be tougher, and sooner, in Europe before it’s tough in America — thanks to so much immigration (legal and non-).
Special thanks for JRRT quote.
Financial weakness can rapidly lead to concessions on other issues once the moment of crisis comes.
When Britain realised in 1940 how short of money it was to fight the Germans, just about everything was thrown in to the deal to get access to American war materials. In particular a considerable amount of intellectual property was transferred essentially gratis, including work on jet propulsion, radar and early computers.
While the US is not as desperate now, it does have differences on patents and intellectual property to its major creditors, particularly China. The fact American firms already seem to have patents on everything is an unwelcome barrier to emerging nations seeking to develop their economies or even stop their populations from dying of treatable diseases.
The latest “pro-IP” legislation may turn turn out to represent the high-water mark of the current bullish American position. It may be difficult to prosecute an aggressive war on counterfeiters and pirates when the same people turn out to also be your creditors.
Though much of the media coverage of this legislation has focused on domestic music and film copying, the bill’s backers are very clear that it as much about large-scale international patent infringement and piracy. The Wired coverage even mentions that one of the duities of the new copyright czar will be “to train other countries about IP enforcement”.
How long other countries will be willing to take lessons in observing American patent laws is now questionable. They may now feel able to assert their own interests where these differ.
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Fabius Maximus replies: The appropriate analogy is not war-time UK, but the post-war UK. The long period of withdrawal from its Empire. Bases closed, troops demoblilized, defense obligations shed. They just did not have the money to maintain an unprofitable Empire. Nor do we.
It is interesting that you mentioned “a typical latin american-type crisis”. At the rate we are going, we might become a latin nation before you know it.
This is a weird concept, and many may not understand it as it’s new and radical. But after defense you have about $2.3 trillion in pork and bacon available. If we go the “Bailout-means-protecting-Congressional-jobs” route then we pay that back by slashing and burning across the various pork-barrel social programs choking the budget like so much flotsam.
As for the credit crunch, that’s an artifact of the banks holding out for this “Great Heist” from Paulson and Pelosi. Banks aren’t loaning to each other because they think they’ll be getting free money from Congress and not have to go through the CEO-sacking process known as bankruptcy.
Fabius, the USA hasn’t really changed much in the past few years and it’s not (only) the foreigner who begin to see a change.
The problem is instead that the basis for “A New American Century ™” was never there.
I’m blogging about the lacking economic basis for such great power dreams since previous year, using data of 2004-2006 that didn’t look very different ten years ago.
The shipbuilding industry isn’t large enough to support great naval power dreams in the long run.
There are only national bases in the Pacific and North America – nowhere else. The U.S. basing is dependent on goodwill, not very global power-like.
The budget deficit is many years old and difficult to fix without less military and para-military spending.
The industrial production base is in purchasing power parity smaller than the PRC one’s. The USA lacks the industry to even keep up with its own ideas of its present wealth and power – how could the country stand against a serious challenge, a arms race?
The weakness of the industrial base is apparently due to business ownership structures that don’t promote long-term strategies and due to a insufficient competitiveness. Much of the U.S. industry is focused at its home market and loses international competitiveness by doing so (look at the automotive sector!).
U.S.Americans despise European achievements as if 0.7% of the own population in jail was better than more social care, as if many per cent without health insurance was better than 100% insured and as if GWB’s stupid policies were better than seeming EU council inaction, as if the French who know how to intervene successfully in the Third World had a useless military in comparison to the wasteful U.S.military that fails so often against rice, poppy seed and date peasants.
Why is paying higher taxes evil if we get free university study opportunities for everyone, even for foreigners living here (with good school results and tiny fees)?
I could call this ignorance.
The U.S.Americans are slowly waking up now, but the relevant changes happened in the 70’s, 80’s and 90’s.
I am often in a military-related English-language forum, and see the most ridiculous and primitive right wing examples there.
I visit thinkprogress.org and read the Huffington post as counterweight, to be sure that there’s not only the mad right wing in the USA. It works. The people who comment at thinkprogress certainly know that the illusions were illusions and that the USA has changed sometime in the past, away from superpower and No.1 status.
And yet we have one Presidential Candidate talking about adding a bunch of new entitlements. And I don’t hate Europe for its achievements. I lived with a 30 year old German woman while I was in the Army there. In her tiny apartment with 2 kids, thinking this must be how poor people live in the city.
But yes, lets see that national Debt zoom on up there with nationalized health care. We have all of these expenditures, and if you raise taxes on the wealthy, they will just hire people to hide the money. If you raise it on Corporations, the poor who buy their product pay the tax. So how do we fix it? We hire a President who is not a liberal ( like W, god if not for the war on terror I would have voted for Kerry, at least with repub congress no new spending we could hope). I mean that boondoggle prescription plan is gonna cost my kids tons of money. Do not even get me started with what national health care will cost them.
Yet, something tells me you guys are voting for Obama. haha, with a Democratic congress, and you are worried about debt. Don’t make me laugh. The federal government needs to decrease in size. The only job it has in the Constitution is defense. So we can leave it at the paltry 4% of receipts it is. But we need cuts across the board. Say 20%, hell maybe 30%, the federal government is twice the size it needs. We need to not hire new beauracrats when the old ones die off or retire. Move Social Security out of the Government’s hands so it does not screw African American males. According to Actuary tables they pay the social security of little old white ladies.
So forget any new government programs, we can not afford the ones we have. Cuts across the board, hell even a 20% cut in military spending will not hurt much. Get rid of the crap going on in W. VA. There are several federal offices there that do the same thing other ones do, but since ex-kkk Byrd has so much power he gets that crap. Cut it all out.
And lets repeal the 17th Admendment. And add term limits of 2 terms for all elected officials. That might do away with some of the log jam at the top. Enact the fair tax. That would get rid of loopholes and k street and the influence their money buys. Not too mention the 4 billion dollars the IRS spends.
Do all of that and we might get our books right. Elect a Democrat with a Democrat controll congress and watch those numbers balloon fast. And Sven what is going to happen in 1 generation, when there will be half as many Germans, Spanish and Italians, to those wonderful European social programs?
“America has changed. Why do so many foreigners see this, but so few Americans?”
I’ll try to use some poetic licence to provide some insight:
The African lion is the top predator of the savannah, but it sleeps about 65 to 70 percent of the time on any given day. As a top predator, it can afford to be so lazy.
The United States is like that lion – It sits at the peak of the pecking order of nations; And just like the lion, because of it’s position with no-one to challenge it, it adopts a somewhat proud but lazy existence… oblivious to most things around it, until it decides to get up and walk around a bit, stretch it’s legs, scratch its fleas. It lives off the abundance (goodwill) of the herds for its existence.
Other nations are the abundant herbivores of the savannah; Always nervous, always alert – Some more so than others and some others more herd like than some. However they see things from a perspective that the lion does not, and are intimately aware of the strengths and weaknesses of the lion.
The only time the Lion gets a look at himself is when he drinks from the pond. Because of his pride, all he sees is the King of the Savannah. It is his Pride that prevents him from seeing an old, battle scarred, flea bitten moggy that has seen better days.
If the abundance (goodwill) of the herds (other nations) is withdrawn, the United States, like the lion begins to have a difficult existence. The lion would be faced with two choices: Starve to death, or evolve into an entirely different beast – the latter is something something that takes time.
Maybe it’s not a good analogy, maybe its even a crap one, but I did say I would use poetic licence …
“So how do we fix it? ”
First the diagnosis. This is mine (in short, very short):
The U.S. industry isn’t competitive enough…
-> huge trade balance deficit
-> dependence on foreign creditors
-> energy inefficient consumer products
-> insufficient private income to match the consumption
-> insufficient private income to avoid a mortgage crisis
-> insufficient state income to balance budgets
-> tiny shipbuilding industry
The failure to keep the industry competitive enough since the 70’s is what enabled the crisis and its real, deep root.
The causes for this failure?
– education (higher education not for free as in many European countries)
– focus on domestic market instead of the challenging world market
– corporation ownership structures that don’t promote the use of long-term strategies
– insufficient railway infrastructure (bad for industries in states without harbors)
– (probably) insufficient health care
Now back to the question “So how do we fix it?”
1) Leave NAFTA, enter NAFTA II with Canada only.
2) Change legislation to design a corporation leadership structure with more long-term motivations.
3) Improve education to ensure that all gifted students can graduate on a university and work highly productive.
4) Push universities to focus more on engineering, engineering+management, microbiology, materials sciences. Law schools, arts and MBAs don’t help as much.
5) Enforce high industrial product standards in the domestic market. We’ve got a 2 year guarantee on consumer products by law since some years in Germany, for example. That was a great tool to enforce quality production. Dunno if the USA has something similar. The Californian car emission law was a nice idea to push for quality and new concepts – Michigan should have done that in the 70’s.
6) Create best conditions for small and medium enterprises – they develop new markets, form the backbone in many trade surplus economies and create most new jobs.
7) Improve the transportation infrastructure (especially railway transportation time/cost) to help inland industries.
8) Consider the coming low dollar value phase as a tricky boost for the domestic industries’ competitiveness, it will go away in few years and cause a rude awakening afterward.
About your other question: “And Sven what is going to happen in 1 generation, when there will be half as many Germans, Spanish and Italians, to those wonderful European social programs?”
Answer: One generation is about 30 years. German population forecast for the year 2040 is 73.4 million – down from about 82 million. That’s much more than “half”. We will still not have 0,7%, but about 0.1-0.2% of our population in jail and will save (in comparison to the USA) much money on the military and domestic problems. We will still pay taxes to give everyone with enough brain a chance to graduate on a university instead of save money privately for it. We will still have a strong base family-owned small and medium enterprises that resist globalization and shine with innovations and excellent enterprise culture… Btw, social services have been cut back in the past years for improved efficiency.
(John) Hussman Funds writes about the Need to Bnderstand Balance Sheets to save the economy. I think his ‘typical financial company’ divisions are excellent: Good Assets + Questionable Assets = Total Assets to Customers + to Bondholders + to Shareholders (equity) = Total Liabilities + Equity.
It doesn’t take much reduction in questionable asset value to wipe out all the shareholder equity, even tho Liabilities to the Customers are still pretty safe, and most of the Bondholder assets somewhat safe.
The examples show equity of only 3% — I think this might be low but don’t know. If so, that partly explains why the ‘huge loss’ in the financial institution doesn’t directly carry over into the real economy. It seems the most highly geared (lowest equity %) companies are dying first. So the bailout seems more to save the bondholders, shareholders, and Big Bankers than the Customers.
It also continues to confirm my feeling that house price stabilization must come before paper value stabilization.
Hey Sven, welcome to the face of Fascism right?
Enforce good corporate structure? How can the government do that? Without making rules on high, using fascism. No thanks brother. In fact, get the government out of it, lower the highest corporate income tax in the world.
Even better, pass the fair tax and we would just absorb every corporate head office in the world. And we would need to import workers to do it.
Joining some Nafta II and completely screwing Latin America, no thanks. Enforcing some kind of protectionist scheme and screwing the rest of the world, no thanks.
And of course, you save money on Defense because we are there to bail you out. If America had not pretty much paid for the Defense of Germany for the last 60 years, would Germany had been able to afford that healthcare?
At current population rates, a child born in Germany today will not half as many people in Germany, without an influx of new workers, than they have today. What is the birth rate per woman in Germany? 1.2? That is not going to cut it. More turks might be the answer, but when I was there from 86-89, most Germans hated the turks. And when I went back in 1997, 98, and 99 that had not changed much.
If we are running a pyramid scheme, China’s present setup looks more like the Space Needle. We cannot consume the way we do without them financing it. But, they cannot export and grow the way they do without us consuming it. My guess is that they’d be just as happy as we would continuing this particular Poker game for another 10-20 years while they put shoes on the half-billion or so dirt farmers still there and figure out how to avoid mixing baby milk with paint thinner.
Sven: While you raise many excellent points, I’d raise a couple of questions:
1. Germany’s population isn’t just declining in size, it’s also aging, and the latter may be the more important part of the story. Older people are very different economic/political actors than younger ones.
2. The prison population is not exactly a clean cross-section of the US population as a whole. I wonder if we normalized things based on income/race/immigrant status etc. whether the US and EU might look a bit less different in this regard. I recall reading that Switzerland’s prison population is something like 50% immigrant laborers. In any case, that prison population is not siphoning 1% of our productive labor pool in economic value terms. While I’d like to see it smaller (drug consumption should only be a jailable offense as a last resort, IMHO), an argument can be made that it is a net positive producer for society.
3. It would be interesting to try and come up with a model for EU defense spending in a post-US hegemonic world. Certainly one can argue that the EU wouldn’t engage in something like the Iraq war and so it doesn’t need to substitute for 100% of US DoD spending. But, it will have to grow, and the EU will have to demonstrate a willingness and capability to use it at some point. It is partly the US’s fault, but since WWII, the EU nations have only very occasionally shown real independent initiative in this manner, and it is an open question in my mind whether today’s UK would fight the Falklands war.
Last, as an entrepreneur (self-funded software manufacturer) who used to work for a Bertelsmann-owned company, I think the US already does a fantastic job than anywhere else when it comes to creating an environment friendly to the formation and growth of small and medium businesses, and I can’t imagine where becoming more EU-like would actually improve things, unless we’re talking about lowering corporate taxes.
@James; it’s sad that you fell back to such myths and exaggerations.
I’ve discussed most of those in other environments, and I don’t have much respect for those point of view. I’m actually tired of discussing the myths and exaggerations, but I’d like to point this out:
You misunderstood me about the enterprises. Imagine a stock exchange-noted company that does not need to report quarterly, but only annually and which has no owner assembly once a year, but once every four years (kind of like in politics). The incentives to use short-sighted strategies would be much reduced.
Then add rules that make take-overs more difficult to prevent that companies push their ‘value’ instead of pushing their long-term prospects (and therefore indirectly their value).
This is the first comment to “Counterparty Risk Increases“, Moon of Alabama, 1 October 2008:
I would just add one other sector to FIRE — arms and military. As Helena Cobban points out, every year we approve an amount equal to the proposed bailout for the military and war.
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Fabius Maximus replies: Fascinating comment, because the equally obvious interpretation of events is that this is a vast expansion of government power, moving power from free-market capitalists to left-wing statists. As suggested in today’s post, “America is changing. Read some chillling words from a liberal economist.“
Only time will tell which view is correct.
This is a fantastic article of how got to our money problems. Through Instapundit. “The Financial Crisis: What Went Wrong?“, Theodore P. Seto, Understanding Tax, 30 September 2008
Also follow read the article on taxation and jobs: “How the Tax Code Subsidizes Businesses that Move Jobs Elsewhere“, Theodore P. Seto, Understanding Tax, 18 August 2008.
Our problems are multidimensional and that’s why it’s not easy getting the citizen to understand what needs to be done.
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Fabius Maximus replies: It is amazing to what lengths Americans will go to avoid confronting the simple fact that over the past 50 years we have accumulated too much debt. All these complex explanations dance around this simple fact. Deleveraging is now necessary. The details are significant, but minor compared to this simple fact.
Supposing we reschedule our treasury debt, with cooperation from our creditors. In that scenario, what do you suppose would happen to treasuries that are domestically held? Or held by the fed, or the illusory social security trust fund?
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Fabius Maximus replies: The debt held by private entities, domestic and foreign, would likely be unaffected. The US government debt held by the US government is only an accounting phantom. Write yourself an IOU for a million dollars. Has anything changed?
Many of the articles I post are for information purposes. Better to much information than not enough. I am in total agreement that debt is the issue and the citizens, as well as governments, appetite for it. Therefore we need to understand the mechanics behind it so as to limit future repeats of the same. The other part is the seperation of action and consequence which has taken place within our society. This is what allows people to take on debt they really can’t afford, among other behaviours. They expect someone to show up and save the day and the political class is more than happy to try! The bail out, or whatever it’s called, is just that.
Currently, no member of either political party will say what we have discussed here and if they did they no longer would be in office. This is what I have found running for office currently. They only want someone to provide a solution so they can continue their lifestyles. It will have to get much worse before their attitudes change.
Hopefully, when the citizens attitudes do change, there will be leaders to guide them in a positive direction. But the history of Rome comes to mind and how our parties behave and I fear that maybe that might be our most likely path. I hope not.
Hubris is the belief that EVERYONE ELSE is beneath you. Much akin to the views of the aged lion Celebau mentioned. My guess is that the education system in the US was very efficient in promotin’ the myths of “Manifest Destiny” & “American Exceptionalism”.
Sven Ortmann : I’m not good with computers. & I can’t ask FM because he’ll probably RAIL at yours truly. How do you type that (TM) after “A New American Century? I’ve seen other guys type the mathematical symbol for “degrees” after 360. How do you perform that as well? & I’ve no idea how to enter those symbols for pronunciation when I wish to type in decent German. Help please. Danke schoen.
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Fabius Maximus replies: “he’ll probably RAIL at yours truly”
Considering my low level of computer expertise and terrible spelling (no spell checker in WordPress comments), I have no basis to do so.
(tm) = ( t m ) ,without blanks. “°” is on top left of my keyboard, left of “1”
@Snob; the prisoner issue is not only about loss of workforce, but about costs. I use it as an example whenever others despise European social spending, thereby completely ignoring that the alternative approach isn’t for free either. The same applies to the financing of universities; they need money, either through the state budget or privately.
FM: “too much debt”.
Yes. Certainly. So change the Income Tax interest deduction (debt subsidy) to a clear, fair, 35% tax credit on the entire house payment, up to $50k/yr max, up to $500 000 lifetime max (credit received). Maximums to increase with prior year avg wages (now ~$45 k?) as the yr, and 10*yr for lifetime max.
The Interest deduction pushed folks to re-finance and borrow more, to keep their deductions up (and taxes low) — but also kept their own equity low.
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Fabius Maximus replies: It is easy NOW to diagnose the problem and recommend preventive measures. But far too late. Making such a change now would just increase the speed — and pain — of deleveraging.
Best comment here, by fxconde: “They only want someone to provide a solution so they can continue their lifestyles.”
Not only that — it is politician promising the minimum lifestyle change that will probably win!
FM: “The US government debt held by the US government is only an accounting phantom. Write yourself an IOU for a million dollars. Has anything changed?”
Nothing has changed until you need to pay for your Medicare program with the dollars that you borrowed from yourself 20 years ago and spent somewhere else. The Medicare IOU starts coming due in 2011. If we are lucky we’ll have finished up with the current mess by then and will be able to tackle the problem with a reasonably clean slate.
More likely we will still be in our current slow-motion train wreck and the Medicare problem will make the situation even worse and we’ll throw additional layers of band-aids on the problem until it becomes catastrophic. Just like the current crisis.
To address Fabius’ original question, why don’t Americans see how fast America is changing?
That’s easy. People have a tendency to assume that if they don’t hear about something going wrong it is still okay. A lot of the problems we are encountering (although fairly simple in nature) are discussed in a technical financial language that requires a lot of concentration (by modern American standards) to understand. Most people aren’t interested in these topics so they tend to ignore things that don’t obviously directly impact them.
American political leaders do not have the time or the expertise (or the interest) so they won’t raise the issue. Our fiscal leaders (Wall Street) created the problem and don’t want to be blamed for it so they are either staying quiet or camoflaging the problem in technical details. The centralized news media is comatose and the blogosphere is fractured as to what is happening and what to do about it. Our entertainment leaders have decided that the topic is boring (a quote from Jay Leno) and don’t discuss it.
The rest of the world has the advantage of distance. Big trends in warfare, for example, tend to be much more easily understood on a map or in a report than in the middle of the battlefield where everybody is running around shooting at each other.
I don’t know what the fix should be short of waiting for the current crisis to start hitting people in ways that they can understand and can’t ignore but it will be WAY too late by then.
Global warming, “latin american type crisis,” with a political system divorced from the populus = a North American Banana Republic, anyone?
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I have never thought the US of A as anything but the Greatest Country in the world; Powerful, Smart, Strong, Self Sufficient, Compassionate, Understanding, Charitable, The land of opportunity, etc, “Work Hard, earn your money, spend as you chose, give as you wish…etc,” I suppose a very conservative republican out look by Today’s standards. I am not making a political statement…I am asking WHY Have Things Changed so much in the last 10-20 Years.
1. Why does Boeing not make the whole Airplane; if it cost more, at least we are paying our folks, and have great quality control.
2. Why are we not on Nuclear Power for 90% of our electrical power and all of our large sea vessels…a Nuclear Carrier or Sub can go 20+ years with out fuel, the distance the QE”2″ moves on one gallon of fuel is measured in inches not feet. So away goes the fuel crunch, and we have no petroleum problem. Of course we are smart enough to find safe containment for the waste left overs.
3. Why are the Big Industries being eat up, Steel, General Motors, Banks…
4. Why are we letting people into our country that want to destroy us.
5. The founding fathers wrote “God” into many documents, saying you can believe, or not believe…but if it “Ain’t broke , why fix it?”
I have know for the past 50 years that I have lived in the most Productive and Best country in the World. I do not see or hear that into Days Youth! I want to know; What Happened? Can we change it back? Does today’s generation want to?
I am off the “Soap Box” now on to the “Sunday Paper”… drop me a note if you have an answer or some reasons why. I won’t reread any part of this because I will change it…so on to send.
Bob N
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Fabius Maximus replies: Too many big questions for one post, but I’ll take some very brief shots at answering them.
(1) I don’t understand the question.
(2) Nukes are an expensive source of power (vs. coal and natural gas), and require lots of capital. Utilities intensely dislike #2, as bad bets can bankrupt them.
(3) Many reasons. Some of which are: an overvalued currency, poor management, and labor that doesn’t see itself as stakeholders in the business.
(4) Do you have evidence that we do so in significant numbers?
(5) The founding Fathers wrote God into few documents (e.g., no mention in the Constitution). To cite just 2 examples — “In God we trust” was first on a coin in 1864. “Under God’ was added to the Pledge in 1954.