Saturday, November 19, 2011

Debt, the Reason Reactionaries Can be Optimistic in the Medium Term

Presently the US' debt at the federal level has just crossed over GDP.  This of course doesn't actually count federal obligations in the future, such as Medicare and SS, or debt at the state and lower levels, which in many cases is far worse.

There are a lot of similarities with the 70s right now, but there's one glaring difference.  In the 70s debt was down around 40% or so GDP.  To get debt levels comparable to now, you've got to go back into WW2.  The situation is clearly unsustainable.  Either action or inaction will result in continuing and widespread damage to the legitimacy and prestige of the existing order.  As reactionaries, this is cause for great optimism.  The US has never been able to effectively tax more than around 20% of the GDP of the country, so owing 1x GDP is, from a governmental standpoint, a lot like owing 5x one's yearly income.  That would be bad bad news indeed for any sane loan officer.

Are the bond vigilantes on the way, or are they still busy in Europe?


postgygaxian said...

How much time will pass?

I am grateful to Creative Providence for many current events. It appears that big changes are coming - if the faster-than-light neutrinos and Rossi's reactor prove to be reproducible, then big changes are indeed coming.

But I wonder about the timeframe of economic change. There is a lot of ruin in a country, and when a government ruins its country, it can take a long time.

Jehu said...

Tough to say. There's a definite race to the bottom between the Euro and the dollar. If the Euro tanks first there'll be a lot of flight to the dollar, which will let us continue our debt addiction a little longer. Of course if I could predict more precise timing, I'd make a bundle.