Robert Samuelson on Debt in First-World Nations

It's not quite Kübler-Ross' five stages of grief -- in fact, it's more like two -- but it seems that at least some mainstream media types have stopped drinking the Keynesian Kool-Aid. They are beginning to accept that an exponential increase in our nation's debt load could bring us to the point where our nation is forced make the kinds of "choices" -- I use that term loosely -- that used to be reserved for banana republics and failed states (as it happens, that shouldn't be too much of a surprise to those who read one of my earlier posts on the subject). As Newsweek economics columnist Robert J. Samuelson notes in "Up Against a Wall of Debt, Part II," when you owe too much to others, your options suddenly become limited.

Are the United States, Japan, Great Britain, and other first-world nations in danger of defaulting on their debt?

In my latest NEWSWEEK column, I suggested that the unthinkable had become thinkable: some advanced society—say, the United States, Spain, Italy, Japan, or Great Britain—might someday default on its government debt. It wouldn't pay its creditors all they were owed or wouldn't pay them on time. Just a few days later, and completely coincidentally, the International Monetary Fund (IMF) issued a report that, without saying so, added credence to this unsettling hypothesis.

The report, done by IMF staff economists, comes with the forbidding title "The State of Public Finances Cross-Country Fiscal Monitor: November 2009. (.pdf)" And it isn't much fun to read, because it's full of tables, charts, and various ratios. But the central conclusions, buttressed strongly by all the statistics, are simple enough: the economic and financial crisis has dramatically increased the deficits and debt of most countries, and many wealthy countries are in worse shape than major developing nations.

The economic crisis both increased spending—mainly through government "stimulus" packages and bailouts for the financial system—and devastated tax revenues. Of these, the falling taxes are the most important, the IMF said, because they may last much longer. The tax losses are especially large for the United States and Britain, because they stem heavily from "taxation of the financial sector and real-estate activities."

Comments

[Moon Kil Woong:]

Sadly this is of little surprise to any economist who has been looking disappointedly at the US and their unsustainable volume of deficits for a decade. This instability is only accelerating both in the level of spending, extent of absolute dependence the country's economy is on the government, and the decline in it's population's ability to save, pay taxes, or pay for themselves.

The US seems to be running a simulation on how quickly the wealthiest nation on earth can become a pauper nation. The answer is looking like somewhere around 12-20 years.

Nov 08 10:25 PM

[chris coonan:]

When unemployment keeps rising, and taxes fall, and the social safety net stretches.....a country in bankruptcy is not out of the question. The US is in a spiral down right now, and I wonder if we will hit the ground or level off the plane.

Nov 18 06:11 AM

[swaps:]

This whole situation is absurd because the federal government bought into the myth that it could not just print money and had to borrow from the banks - who through fraud became insolvent and then had to borrow from the citizens in theory to keep banks and citizens going.
. Huge sums of more massive debt was theoretically piled onto the citizens (as if they can be taxed enough to ever pay it back) last autumn by a Congress with a gun held to its head.
The extortion imposed on Congress last autumn by Paulson and the Federal Reserve has only made the debt situation far worse and harder to resolve.
The people who love money the most - like the banks who borrow TARP money at near zero and then loan it back at 29 percent interest to the citizens who theoretically saved the banks - should now experience the pain of more default by the citizens. Default on exorbitant high interest mortgage loans did not teach the banks a lesson, which now charge exorbitant credit card and loan rates.
(If the banks are trying to make borrowing so painful so as to kill lending, then the banks and their balance sheets should have just been liquidated in an orderly fashion anyway.)
If the banks are trying to kill lending, then why did Paulson insist Congress try to save lending last autumn?
The whole panic city scene last year was illogical and the only martial law should have been imposed on Wall Street and the too big to fail banks - and no where else.
Citizens should default on all debt.. And then the citizens, being insolvent, can apply for TARP funds from the government and buy back its defaulted debts from the banks and sell them to the government and the privately owned and never audited Federal Reserve.
This complexity is so simple to solve with must more complexity and every rising debt totals. The investment banker way.
In the long run no tree grows to the sky....and Congress, the banksters and central banks don't know that....and the citizens who did were ignored.

Keynes is now irrelevant.
Fraudulent derivatives made it so. Keynes never factored in fraud and 300 to 1 derivatives leveraging.

Nov 21 08:03 PM