Tuesday, November 25, 2008

A Certain Casualty

Fabius Maximus has another of his usual thoughtful, provocative posts up. Give it a read:

A certain casualty of the recession: the US Government’s solvency
Summary: Whatever happens during this recession, one thing is almost certain: the US government’s balance sheet will be trashed. Wrecked, perhaps beyond repair. This post discusses what we should do to mitigate the damage, and why such extreme spending is necessary.

As described in “The most important story in this week’s newspapers” (22 May 2008), the government has borrowed $6.4 trillion to finance past expenditures (aka “net public debt”, posted here). The government — us, collectively – owe an estimated $57 trillion in past promises to pay (the debt) AND future promises (social security, government pensions, medicare, etc).

That’s bad, perhaps beyond our ability to pay by means of future taxes. The alternatives are stark:
  • cut expenses — the budget consists almost entirely of interest,
    defense/security, and social services.
  • renege on our promises — cutting pensions, social security, medicare via
    taxation of benefits, and means-testing).
  • inflation — reducing the debt in real terms.
  • big tax increases.
None of these are easy or certain remedies. All may be necessary, and even together might be inadequate...

If you think he is being alarmist, please provide me with a realistic way to service the debt being piled up by the United States. Please.

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