That the US is going broke is no longer a moot point for many. The signs are everywhere; the mathematics too obvious. To understand the latter, see The Continuing Spiral to Bankruptcy, Spiraling to Bankruptcy or Welfare States R.I.P.
The timing and the manner in which this plays out is not easily forecasted. The key point in trying to forecast this particular problem is when and how the politicians respond. No politician ever wants to address a problem that inflicts pain on his/her constituents. Unfortunately, the possibility of solving this problem without inflicting pain is impossible. That option disappeared years ago.
Based on the universal political characteristic — cowardice – politicians never take painful actions until forced to do so. Markets will eventually be the force that causes action. The ensuing events will not be neat and tidy. One way or another, the welfare states will be dismantled. Whether this dismantling is partial or total is moot.
After decades of coddling and dependency, the US has created a class of citizens that believe entitlements are a birthright. Several generations have known only this way of life. Public “servants” are a different problem. They live in their own insulated world, divorced from the realities of markets. For too many years they have only seen their numbers expand and salaries increase. To believe that either group will accept what’s coming graciously is the height of naiveté.
Chuck Roger in America’s possible Greek tragedy makes the following unsettling point:
If attempts to cut education spending can send thuggish teachers’ unions into the streets and a tough Arizona law on illegal immigration can send unions and race baiters screaming, what will happen if Washington politicians ever find the spine to do what has to be done to cut Welfare, Social Security, Medicare, Medicaid, and other government handouts?
Can anyone doubt what will happen when these events begin to unfold? Yes, “when,” not “if” is the proper term. The US long passed the tipping point for corrective action that does not involve all of the above. So have the welfare states of Europe.
Greece will continue to be an interesting spectacle. It represents a dry run for what will eventually happen in other countries. It is unlikely to be a prototype test for other countries in Europe. My guess is that Greece becomes a version of the Pavlovian dog experiment with the EU being the trained dog. It is likely the process proceeds along the following lines – EU imposes cuts, Greek people strike and riot, EU relaxes cuts – repeat again and again until the EU is thoroughly trained. Of course if Spain, Portugal or some other countries implode, this training could be abruptly truncated by the realization that the union cannot hold.
In one sense, Greece may be lucky to be the first country to incur the wrath of the EU. The EU so desperately wants to retain its organization and control that they are apt to do whatever is necessary to prevent a breakup or major embarrassment. Greece, by being first, has the advantage of a full purse and the desperate belief of the EU politicians that the union can and must be saved. Countries further down the bail-out chain will be less fortunate than Greece. At some point the recognition that there is not enough money to hold things together will be apparent. Then, European welfare states will fall like dominoes.
It is likely that Greece represents the prototype for early US responses. Political denial and cowardice will defer hard decisions. Eventually external forces will force action. The US government will become the same Pavlovian dog conditioned to respond to riots and violence. California is likely to be the first “trainer.” If the US government resists bailing out CA, then the streets of CA will be the learning center for the US Pavlovian dog. When (and I believe they will) the US government bails out CA, there is no end to the beggars that will show up. Eventually we run out of money, at least money that can be raised in financial markets. (We may be at this point already.)
My guess, and it is only that, is that the US government will do everything it can to avoid the necessary cuts and the resulting violence in the streets. That implies massive monetization to fund commitments. Ultimately that will destroy the currency and result in an hyperinflationary depression that will cause markets to cease to function other than on a barter system. Savings and fixed income pensions will be destroyed.
While printing money might buy some time, it will worsen outcomes, including worse violence. A hyperinflationary depression will destroy the country and perhaps our mode of government.
Welcome to the advanced version of “The New Normal.”
Originally posted on American Thinker
Krauthammer's Take On Obama Speech
Taking Not Making
The Rate At Which We Are Adding Government Debt
Where We Lost Our Economic Footing: Keynes vs Mises
Community Organizer Not Doing So Well Outside of Hyde Park
Union worker’s contracts in California are COLA based, to allow for inflation. By law only the purchasers of muni/govt bonds and these union contracts are binding in a receivership. Under the inevitable restructuring of debt after bankruptcy the federal government WILL pay teachers and unions(lots and lots) and government bondholders(much less)and other people get nothing! Correction anyone?
BUY GOLD.
Read One Way It Ends at American Thinker. Wanted to comment, but waiting for approvel to do so. So …
This might have to happen in the manner you are saying; however, once it is inevitable and recognized by the mythical “everyone,” by which I only mean a majority of politicians of both parties with their backs to the wall, there might be a way found to do it in stages that will leave the country better off eventually.
Inflation is the biggest enemy of sound economics — inflation such as raising wages (including minimum wage, yes, since that especially effects the cost of so much day-to-day stuff, but more importantly “average” wages which determine the cost of everything — by which I mean that if the average income were $100 per week, then not only would the poor be better off than they are now but a car couldn’t sell for what it does now, for instance, and the scope of prices would have to shrink, perhaps even to where the U.S. could compete with the rest of the world) and negotiated benefits and retirements, which has current school teachers, for instance, being laid off in order to pay retirement benefits, or a medical benefits system that logically has/will evolve into more-of-the-same Obamacare.
So, what if, in response to the emergency, the government takes emergency measures such as first ending public education entirely, then making government employee unions illegal and firing all government employees who are in unions, then puts all government employees into the social security system and phases out the separate government retirement program? At that point, maybe medical care habits can be changed (people seeing a doctor when they’re sick rather then when they have a cold, for instance, or perhaps someday so many children won’t be diagnosed with ADD or the next disorder du jour) and, thus, healthcare costs reduced, so that maybe all retirement benefits can be frozen or even reduced without creating American Bangladesh because less will be able to go farther, and maybe all wages will fall until the separation between rich and poor won’t be such a motivating force for political bandwagons (don’t ever lose sight of what Mike Royko long ago said about EVERYONE wanting to stick it to those who make more than he/she does NO MATTER HOW MUCH an individual makes).