Debt, Debt, and More Debt in Store for the U.S.

This is a fantastic piece that is a must read. Even if you do not understand it all - and I am struggling - it is persuasive and, well, quite depressing. It covers a good bit of ground and it is not a quick read, but I recommend persisting to the end. It is worth it. Bottom line to the piece, U.S. attempts at stimulus have led to a bit of a situation. Investors are starting to not listen to the explanation and are focusing more on the impact. The post calls it "rational expectation." And this may lead to some rather severe problems for our attempts to finance our recovery and to make it work. The problem is, in a recovery the government does not need us to be rational. It prefers a good dose of irrationality - like continuing spending, buying Treasuries and the like. Looks like the jig is up!

Debt, Debt and More Debt

I have said repeatedly that common sense (along with a lot of people I respect) tells me that replacing debt with debt only creates a new bubble and it is not a good long term plan. That kicking the can down the road thingy - so far that is exactly what we have been doing. So what happens when we catch up to the can? Well, for the dot.com bubble we kicked it harder, for the housing bubble we have given it a nice kick as well, and now when we catch this debt-laden can, we are in my opinion a bit screwed. There are no apparent bubbles to replace the last one (a good thing) and we seem to be stuck with something I like to call reality. Get used to it, it is here for a long, long time.

This link talks about our debt related problems. Indeed, I recommend the site as it is dedicated to how debt got us into this mess and it was started before most realized this issue.

Many, unfortunately, still do not realize that we are well in over our heads. I have read some posts lately on our debt load when Social Security and Medicare/Medicaid are included and it is a doomsday scenario. Here is one to get you started.

Personally I think both Social Security and Medicare are going to be largely gone or seriously reduced by the time I reach retirement in 18 years or so. Indeed, I suspect you will have to be over 70 to get full Social Security benefits and Medicare expenditures will be limited to less expensive procedures. It is not what anyone wants (I am getting older and I have elderly parents, so I do not want it) but it is inevitable that, despite medical advances that can save lives, we will let older people die. The cost of extending their lives through expensive medical care for 5, 10 15, or 20 years will just be too expensive for society to withstand. I may eventually be a victim of this, but I think it is the right move. We need to first protect the interests of the young and vital and leave as a secondary consideration the interests of the old and fragile. Focus more on those starting their lives. Hard reality will be facing us in the future. For my kids, I hope we do the right thing. (And yes, some day they will read this post and tell me it is why they are not paying for some procedure I am begging them to do.)

Disclosures: None.

Comments

[Roger Knights:]

"So what happens when we catch up to the can?"

The can kicks back!

Jun 17 05:38 AM

[Joyful Alte...:]

The first link doesn't work, which makes it really hard to comprehend.

(Full Social Security is now age 66 and rising, on its way to 67. Additional increases to 70 are not impossible. I'd like to see civil service full retirement hit at least 60.)

Jun 17 08:40 AM

[Seanlbrennan:]

Problem is that it is very hard to stop paying people who elected you.
It might be the right move, but when politicians start losing elections for suggesting that we just look at this, they will get the message: Better to default on foreign debts than to reduce pension payments or other programs for the elderly.

Jun 17 09:58 AM

[Craig Brown:]

Sorry the first link is not working. Something must have gotten lost in translation between my blog and Seeking Alpha. Try this link:

english.caijing.com.cn...

If that still does not work, the link is working on my blog, which is linked above below the picture.

Jun 17 10:54 AM

[Donald Ingram:]

"The cost of daily living, from buying food to getting medical care, will become difficult for all but a few. States and cities will see their pension funds drained and finally shut down. The government will be forced to sell off/privatize all services and utilities. Commercial and private real estate will be worth less than half its current value. It will be difficult to borrow and impossible to sell real estate unless we accept massive losses.
There will be block after block of empty stores and boarded up houses. Foreclosures will be epidemic. There will be long lines at soup kitchens and many, many homeless.
Our corporate-controlled media, already banal and trivial, will work overtime to anesthetize us with useless gossip, spectacles, sex, gratuitous violence, fear and tawdry junk politics.
America will be composed of a large dispossessed underclass and a tiny empowered oligarchy that will run a ruthless and brutal system of neo-feudalism from secure compounds. Those who resist will be silenced, many by force. We will pay a terrible price, and we will pay this price soon, for the gross malfeasance of our power elite."
From: The American Empire Is Bankrupt.
By: Chris Hedges.
www.truthdig.com

Jun 17 11:49 AM

[Gdub53:]

"The Moneymasters" google video. Says it all.

Jun 17 12:08 PM

[snagglesnarf:]

Fire up the Soylent Green trucks!!!!

Jun 17 08:12 PM

[Northstar10000:]

Debt will shortly be our masters and it won't matter how many liberal democrats we send to government the debt will rule. It's funny how this will strike while the democrats are in power. What a rude awaking on a government love affair watch. What goes around comes around moment. Government will go from god like adoration to the what the hell happened stage in a few short years. Enjoy the fun folks,

Jun 17 08:19 PM

[PainfullyAware:]

"Pretend To The End" seems to be the policy of choice.

Love Thy Neighbor - Kindness Is Never Wasted.

Jun 17 10:27 PM

[Gregman2:]

The fact is, at some point default and repudiation [of debt] will happen.
It is unlikely to be a nice clean singular implosion. Rather, pieces on the periphery will fall first, like the City of Vallejo, CA., like the State of California, etc. Bond rating down grades may soon start to happen more. Our system is not a monolith, but consists of many composite districts, munis, departments, agencies, counties, etc. The core problem is insolvency and an inability to generate any real wealth comparatively...in a way that can sustain the huge debt service edifice built-up over decades...of giving it all away.

Jun 18 01:31 AM