Our Debt Is Catching Up With Us
July 28, 2016 at 4:25 p.m.
By Gary [email protected]
"Morgan Stanley Says Government Defaults Inevitable."
I remember over the past few years writing columns about how our government's deficit spending was unsustainable.
How sooner or later, something had to give. Sometimes, I would sit back after writing some pessimistic piece about the economy and think maybe I was being too negative - too skeptical. I wondered if I was being Chicken Little.
I guess not.
I'm seeing more and more economists writing about the impending debt crisis and its likely effect on the economy.
And no matter how many times Vice President Joe Biden or anybody else in Washington tells me we're "on the right track," I'm not buying it.
The Morgan Stanley analyst says investors will face defaults on government bonds given the burden of aging populations and the difficulty of securing more tax revenue, according to Morgan Stanley.
Does that sound like the "right track" to you?
"Governments will impose a loss on some of their stakeholders," Arnaud Mares, an executive director at Morgan Stanley in London, wrote in a research report this week. "The question is not whether they will renege on their promises, but rather upon which of their promises they will renege, and what form this default will take."
On top of that, Nouriel Roubini, the New York University economist who predicted the global financial crisis, and gained the nickname "Dr. Doom," said U.S. growth will be "well below" 1 percent in the third quarter and put the odds of a renewed recession at 40 percent.
Roubini is chairman of Roubini Global Economics LLC.
He says the government is poised to lower its estimate for growth in the second quarter to an annual rate somewhere in the range of 1.2 percent.
"All the growth tailwinds of the first half of the year become headwinds in the second half," he says.
In an interview with CNBC as reported by finance.com, Roubini explained that not only would the second half of 2010 be worse than the first half, but that the government and the Federal Reserve are out of policy moves to stimulate the economy.
See that makes sense to me. What else can the government do? The Fed has lowered interest rates to zero. There's nowhere else to go from there.
And the alleged "stimulus," according to Roubini, has the potential to become a drag on the economic growth in the second half of 2010.
That boost in employment we saw because of the census will go away.
And other "stimulus" programs like cash given for green appliances, cash-for-clunkers and first-time homebuyers credits were all temporary.
That means, Roubini says, growth for the rest of the year will be closer to zero than 1 percent.
What else can the government do?
Last year, when the economy was in even worse shape, the Fed lowered interest rates and the government spent $800 billion on a stimulus package. (That $800 billion was 10 percent of Gross Domestic Product, by the way.)
Then they spent even more untold billions on the bailout of financial institutions.
So what can government do now? Frankly, the outlook for government policy going forward is pretty bleak.
With U.S. and other government teetering on the brink of defaulting on their treasury obligations, it would seem the days of giant stimulus programs are over.
Remember when last year lawmakers were gleefully approving the giant stimulus program? Analysts note that this year they're haggling over a lousy $20 billion for unemployment aid.
None of this is pretty.
Another economist, Paul Craig Roberts, takes an even dimmer view of things to come.
Google his Aug. 16 column, "Without A Revolution, Americans Are History." It's 1,500 words or so, but it's worth the read. I'll excerpt some of it here.
Roberts surmises that the United States is running out of time to get its budget and trade deficits under control, and that despite the urgency of the situation, 2010 has been wasted in hype about a non-existent recovery.
Roberts says deficits are already too large for the dollar to survive as reserve currency, and deficit spending cannot put Americans back to work in jobs that have been moved offshore.
And this:
"The economy has not recovered. By the end of this year it will be obvious that the collapsing economy means a larger than $1.4 trillion budget deficit to finance. Will it be $2 trillion? Higher?
"Whatever the size, the rest of the world will see that the dollar is being printed in such quantities that it cannot serve as reserve currency. At that point, wholesale dumping of dollars will result as foreign central banks try to unload a worthless currency.
"The collapse of the dollar will drive up the prices of imports and offshore goods on which Americans are dependent. Wal-Mart shoppers will think they have mistakenly gone into Neiman Marcus.
"Domestic prices will also explode as a growing money supply chases the supply of goods and services still made in America by Americans.
"The dollar as reserve currency cannot survive the conflagration. When the dollar goes the U.S. cannot finance its trade deficit. Therefore, imports will fall sharply, thus adding to domestic inflation and, as the U.S. is energy import-dependent, there will be transportation disruptions that will disrupt work and grocery store deliveries.
"Panic will be the order of the day.
"Will farms will be raided? Will those trapped in cities resort to riots and looting?
"Is this the likely future that 'our' government and 'our patriotic' corporations have created for us?"
Roberts offers solutions, like ending all wars and dismantling a large portion of the military-security complex, thereby reducing the budget deficit by hundreds of billions a year.
And enacting tax laws that penalize corporations for shipping jobs overseas and reward them for bringing those jobs back home - the only way to revitalize the economy.[[In-content Ad]]"If the wars are not immediately stopped and the jobs brought back to America, the U.S. is relegated to the trash bin of history."
Of course, corporations and Wall Street would do everything possible to block any laws that would reduce earnings by bringing jobs back to the U.S., he says.
"The United States and the welfare of its 300 million people cannot be restored unless the neocons, Wall Street, the corporations, and their servile slaves in Congress and the White House can be defeated.
"Without a revolution, Americans are history."
On the right track, eh?
And I thought I was Chicken Little.
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"Morgan Stanley Says Government Defaults Inevitable."
I remember over the past few years writing columns about how our government's deficit spending was unsustainable.
How sooner or later, something had to give. Sometimes, I would sit back after writing some pessimistic piece about the economy and think maybe I was being too negative - too skeptical. I wondered if I was being Chicken Little.
I guess not.
I'm seeing more and more economists writing about the impending debt crisis and its likely effect on the economy.
And no matter how many times Vice President Joe Biden or anybody else in Washington tells me we're "on the right track," I'm not buying it.
The Morgan Stanley analyst says investors will face defaults on government bonds given the burden of aging populations and the difficulty of securing more tax revenue, according to Morgan Stanley.
Does that sound like the "right track" to you?
"Governments will impose a loss on some of their stakeholders," Arnaud Mares, an executive director at Morgan Stanley in London, wrote in a research report this week. "The question is not whether they will renege on their promises, but rather upon which of their promises they will renege, and what form this default will take."
On top of that, Nouriel Roubini, the New York University economist who predicted the global financial crisis, and gained the nickname "Dr. Doom," said U.S. growth will be "well below" 1 percent in the third quarter and put the odds of a renewed recession at 40 percent.
Roubini is chairman of Roubini Global Economics LLC.
He says the government is poised to lower its estimate for growth in the second quarter to an annual rate somewhere in the range of 1.2 percent.
"All the growth tailwinds of the first half of the year become headwinds in the second half," he says.
In an interview with CNBC as reported by finance.com, Roubini explained that not only would the second half of 2010 be worse than the first half, but that the government and the Federal Reserve are out of policy moves to stimulate the economy.
See that makes sense to me. What else can the government do? The Fed has lowered interest rates to zero. There's nowhere else to go from there.
And the alleged "stimulus," according to Roubini, has the potential to become a drag on the economic growth in the second half of 2010.
That boost in employment we saw because of the census will go away.
And other "stimulus" programs like cash given for green appliances, cash-for-clunkers and first-time homebuyers credits were all temporary.
That means, Roubini says, growth for the rest of the year will be closer to zero than 1 percent.
What else can the government do?
Last year, when the economy was in even worse shape, the Fed lowered interest rates and the government spent $800 billion on a stimulus package. (That $800 billion was 10 percent of Gross Domestic Product, by the way.)
Then they spent even more untold billions on the bailout of financial institutions.
So what can government do now? Frankly, the outlook for government policy going forward is pretty bleak.
With U.S. and other government teetering on the brink of defaulting on their treasury obligations, it would seem the days of giant stimulus programs are over.
Remember when last year lawmakers were gleefully approving the giant stimulus program? Analysts note that this year they're haggling over a lousy $20 billion for unemployment aid.
None of this is pretty.
Another economist, Paul Craig Roberts, takes an even dimmer view of things to come.
Google his Aug. 16 column, "Without A Revolution, Americans Are History." It's 1,500 words or so, but it's worth the read. I'll excerpt some of it here.
Roberts surmises that the United States is running out of time to get its budget and trade deficits under control, and that despite the urgency of the situation, 2010 has been wasted in hype about a non-existent recovery.
Roberts says deficits are already too large for the dollar to survive as reserve currency, and deficit spending cannot put Americans back to work in jobs that have been moved offshore.
And this:
"The economy has not recovered. By the end of this year it will be obvious that the collapsing economy means a larger than $1.4 trillion budget deficit to finance. Will it be $2 trillion? Higher?
"Whatever the size, the rest of the world will see that the dollar is being printed in such quantities that it cannot serve as reserve currency. At that point, wholesale dumping of dollars will result as foreign central banks try to unload a worthless currency.
"The collapse of the dollar will drive up the prices of imports and offshore goods on which Americans are dependent. Wal-Mart shoppers will think they have mistakenly gone into Neiman Marcus.
"Domestic prices will also explode as a growing money supply chases the supply of goods and services still made in America by Americans.
"The dollar as reserve currency cannot survive the conflagration. When the dollar goes the U.S. cannot finance its trade deficit. Therefore, imports will fall sharply, thus adding to domestic inflation and, as the U.S. is energy import-dependent, there will be transportation disruptions that will disrupt work and grocery store deliveries.
"Panic will be the order of the day.
"Will farms will be raided? Will those trapped in cities resort to riots and looting?
"Is this the likely future that 'our' government and 'our patriotic' corporations have created for us?"
Roberts offers solutions, like ending all wars and dismantling a large portion of the military-security complex, thereby reducing the budget deficit by hundreds of billions a year.
And enacting tax laws that penalize corporations for shipping jobs overseas and reward them for bringing those jobs back home - the only way to revitalize the economy.[[In-content Ad]]"If the wars are not immediately stopped and the jobs brought back to America, the U.S. is relegated to the trash bin of history."
Of course, corporations and Wall Street would do everything possible to block any laws that would reduce earnings by bringing jobs back to the U.S., he says.
"The United States and the welfare of its 300 million people cannot be restored unless the neocons, Wall Street, the corporations, and their servile slaves in Congress and the White House can be defeated.
"Without a revolution, Americans are history."
On the right track, eh?
And I thought I was Chicken Little.
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