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Option #1 it is, judging by the last couple of years.
Our political system is working; the politicians are giving the people what they want.
CG: A pretty bleak picture into our future. One that's certain to be accurate.
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Debt, debt and more mounting debt is plaguing countries around the globe.
In this U.S., states across the country face a collective $125 billion shortfall for fiscal 2012, while Congress is facing a budget gap nearly 10 times that size.
PIMCO founder and co-CIO Bill Gross has previously said that if the United States were a corporation, no one in their right mind would lend us money. For the last decade, we’ve been “relying on the kindness of strangers” to help cover our debts, he tells Aaron in the accompanying clip.
By “strangers” he is referring to our foreign counterparts, like China for example. Basically, for years Americans have spent their hard-earned dollars on less-expensive Chinese made goods. With great gra ude, China turned around and used all those dollars to buy up U.S. Treasuries and other dollar-denominated assets.
But now after years of reckless spending, America’s debt level is nearing a breaking point and can no longer rely on foreign capital as a last resort. “When a country reaches a certain debt level, confidence in that country’s ability to repay that debt becomes jeopardized,” says Gross, citing the work of Ken Rogoff and Carmen Reinhart in This Time Is Different.
The Way Forward...And Your Pocket Book
The budget crisis situation unfolding at the state and federal government level does not bode well for working men and women in this country. There are really only two choices, says Gross. And, neither favors your pocketbook:
Option #1 – Keep spending and do nothing
Option #2 – Balance our budgets by cutting en lements
House Republicans ran and won on a platform to cut $100 billion from the budget this year and last month managed to pass legislation that would strip $61 billion in spending.
But for President Obama and Congressional Democrats, those cuts go way too far at a time when the country is still struggling to recover from the worst recession since the Great Depression. Goldman Sachs and Bill Gross agree and have warned that cutting too much could stifle growth. (See: Gross "self sustaining" clip)
Meanwhile, neither side as gotten serious about reforming en lement programs like Social Security and Medicare, which account for more than a third of Uncle Sam's budget.
If the country cannot come to grips and cut back on en lement programs, U.S. debt will continue to grow and governments around the world will loose faith in the U.S. dollar. Foreign goods would become more expensive, says Gross, while our standard of living would drop.
Under the second option, if en lement programs are cut, many Americans would naturally have to learn to live on less and take a hit to their standard of living.
“There is really no way out of this trap and this conundrum at this point,” says Gross. From an investment perspective his advice is to stay clear of “bonds in dollar denominated terms” and to be “wary of higher interest rates going forward.”
Link
Option #1 it is, judging by the last couple of years.
Our political system is working; the politicians are giving the people what they want.
Yep. The support for Option #1 is very bipartisan.
The standard of living has been slowly declining over the last several decades. No new news here....No Way Out” of Debt Trap, Gross Says: U.S. Living Standards Doomed to Fall
Perhaps the result of the brook no-compromise, faux-ideological politics of last couple decades. Or more accurately, the result of a culture which has elevated individual happiness to the point of absurdity. That one might face a diminished standard of living leaves any plan for fiscal reform DOA at the federal, state, and local level.
And when 50%+ of the voters are tax consumers rather than tax producers, we are doomed.
Politicians aren't elected for telling, and then acting on, the truth. They are elected for telling us what we want to hear and then giving us what we want. Of course we want low taxes and high spending, and the Fed to print enough currency to make it happen with minimal short term pain.
Political pandering to the middle class will ensure that this imbalance continues.
Either the story is that you're overtaxed to pay for the slothful, or that "the rich" aren't taxed enough. Either way, you're the victim, despite the fact that the en lements and wars you expect someone else to pay for are what is driving federal expenditures, debt, and deficits to grow to unsustainable levels.
No politician wants to call the middle class on their bull .
Or, there's no politicians like Bush (the father) or Clinton around anymore. Anything that resembles a deviation from party orthodoxy or perhaps an acceptance of some point of the opponent's agenda is apostasy.
But while the culprit is generally thought to be increasing partisanship (when has it not been at a fever pitch in the US?), the culprit is really the great middle's helplessness, selfishness, and irresponsibility. Arguments for probity, compromise, and societal well-being fall on deaf ears. What's in it for poor, helpless, us?
Option 3: Printing mo...I mean, "quan ative easing".
"the politicians are giving the people what they want."
bull , even by MB's average spew.
The politicians are giving the VRWC what the VRWC paid/elected them for.
Many polls show majorities of Americans want:
stop the wars
tax the wealthy
regulate the financial criminal genies back into their bottle.
stimulate the economy for jobs and growth
permit collective bargaining
permit abortion.
etc, etc.
None of these is being pursued, esp not by Repugs and conservatives.
Real household income has stagnated since the VRWC got its Useful Idiot of St Ronnie elected and implementing VRWC policies.
The article presents an interesting logical inconsistency though. China is happy to support our debts previously, because we were buying their goods. But is that any different today? We're still buying goods from China, are we not? The article doesn't state why China would be fine with our debt at one time, and then not fine later.
Is China sufficiently well-off now that they don't need American customers to the extent they once did?
Ah yes, the "VRWC." What was that about spewing bull ? Without your little conspiracy theory you'd have nothing to subtract from this forum with.
And I'm sure those polls show that a majority of Americans believe that they are overtaxed and shouldn't have their benefits cut. Not to mention that both current wars had the support of a majority of Americans when they started. And abortion is still legal, etc...Try again.
And the rejoinder will be that the "VRWC" controls everything, for the "VRWC" controls everything, by definition. What a ing moron.
Marcus, please keep in perspective the mentality of the one you just addressed...
, I just took croutons seriously. I guess the joke's on me.
Debt really isn't as much of a problem as many seem to think it is. Important to be sure, but not as important to standards of living as our relatively high standard of living compared to the rest of the world.
We could be completely debt free and still face that fact that the Chinese can produce things at a fraction of what we can, mostly due to cheaper labor costs.
This was obvious to me even as far back as high school in the late 80's. We are competing in an ever more integrated global economy with people who can live very well being paid 1/3 of what an average American makes.
That will change over time, given growth rates in the developing world.
Oddly enough, high energy prices will probably help us in the long run, as it becomes more economically compe ive to make things closer to where they are consumed.
VRWC is real and extremely well organized, focused, financed, and effective.
So are the Easter Bunny and the Chupacabra.
Not to mention the Adjustment Bureau.
As our debts get bigger, our risk of default on those debts does too. Just because China thinks our debt is a good investment today doesn't mean they're always going to feel that way.
I don't think so. I do think China is getting concerned about what an excessive debt burden could do to the consumer power of American taxpayers. Larger debt burden = higher taxes = less disposable income.Is China sufficiently well-off now that they don't need American customers to the extent they once did?
Who cares about debt when we can just print more money... until that changes..
China's problem right now is how to cool off its very hot economy. many key provinces are predicting growth of 10%/year
The political and financial elites created this crisis and have been consolidating and growing their wealth and power to absurd gilded age levels- but, but it's the fault of the middle class!
Do you guys realize how little of our debt China owns?
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