Growls

Jim Bacon writes on page 49 in his book, “Boomergeddon: How Runaway Deficits Will Bankrupt the County and Ruin Retirement for Aging Baby Boomers -- and What You can Do About It,” that the scary thing about China, Japan, and the Persian Gulf oil states:

“is that they don’t have to yank their trillions of dollars in loans to bring us to our knees. As long as we’re running trillion-dollar deficits, all they have to do is stop lending us new trillions, and it’s Boomergeddon time.”

Marty Sullivan is a contributing editor for Tax.com, and has written several hundered articles for TaxAnalysts.com publications. He was an economist at the U.S. Department of the Treasury and for the congressional Joint Committee on Taxation. He got his B.A. at Harvard University and his Ph.D. at Northwestern University. He has two articles that focus on what very likely could be America’s economic future.

In his November 1, 2010, article entitled, “The Slow Descent to Second Class Status,” Sullivan writes:

“It is undeniable that we are on the path to fiscal collapse. This decline will occur in two stages. First there is the decay as the swelling national debt wears away the economy's foundations and commits more and more future income to foreign creditors. We are already in stage one.

“In stage two a lethal combination of phenomena arises in quick succession: greater default risk, looming inflation, higher interest rates, declining growth, financial market instability, and an acceleration of government borrowing. They feed on each other. The economy heads on a downward spiral. Between stage one and stage two there is a tipping point. Experts know it will come, but nobody wants to predict when. (See below.) This article is about the slow economic decline of stage one. Next week part 2 will describe the hell of a full-blown fiscal collapse.

“There is no question economics has failed us The old paradigms have been made obsolete by the hard reality of the 2007-2009 financial crisis and soaring government debt. But some ideas can be salvaged from the wreckage . . . .”

The second article, published November 8, 2010, entitled, “Fiscal Crisis, Part 2: Catastrophe,” discusses what happens in the second stage of the descent. He writes:

“This week we look at stage two: a rapid economic meltdown precipitated by an untamable accumulation of government debt. Stage two is much more difficult to understand than stage one. Government debt in distress is not something that gets much attention from economists who study developed countries. It's not something they were taught when they went to economics school. So as the possibility of a crisis has become more real, they are trying out a lot of new ideas.

“One nice thing about this otherwise gloomy state of affairs is that politics has not yet infected the economics. The research that you see is not by economists who are pushing a partisan agenda, but by people who are genuinely concerned that the economy may be running itself off a cliff.”

Sullivan is not totally pessimistic, however, since he writes:

“We are in uncharted economic territory. We cannot be sure of what danger lies ahead or how fast it may arrive at our doorstep. But at least economists are providing some useful ideas to help us better conceptualize the problem.

"With their help we can see that we absolutely want to be vigilant about any risk premium creeping into the government's interest rate. It surely will precede any bond market meltdown. But that is not enough. The dynamics are such that we may not have much warning before uncertainty suddenly develops into a catastrophe.”

Especially when he concludes the second essay by writing:

“Finally, it is clear that politics and confidence in our political system play a critical role in forestalling a bond market meltdown. We know, unfortunately, that in our current political climate the federal government will not be undertaking the steps needed to put its finances on a sustainable path. The markets right now believe that this will change dramatically before default is a problem. When push comes to shove, we will buckle down. It seems the investors are taking the Churchillian view: "Americans can always be counted on to do the right thing . . . after they have exhausted all other possibilities." Let's hope there's time for that.”

Take some time to read both essays in order to learn more about the issues of America’s economic crisis. And visit Jim Bacon’s website, Boomergeddon, to learn where we are on the road to Boomergeddon.