Monday, May 09, 2011

Are we headed for another civil war?

I hope not, and I believe we have the resources, creativity, and opportunity to avoid one.

But when the evil Paul Ryan budget, the destroyer of the nation, increases deficit spending in the next 3 to 5 years, well, maybe we are unable as a democracy to bring our resources and creativity to bear to avoid a civil war. These deficits are not sustainable. We might be able to inflate our way partly out of it, but that is not the ultimate solution.

Anything not designed to go forever will end. China's USD peg. Low carry on the national debt. Entitlement payouts. So what happens? I think the Fed will need to punt at some point when we can no longer finance our entitlement programs. So what does that look like? I think that they could go down the road they've already started with Medicare: punting problems to the states. The catch here is that federal politicians will not want to punt the power and influence that comes with the problems and the campaign promises to solve them.

In any case, I think that inter-state tensions will increase. Texas will eventually have more electoral votes than California. California will not be able to deal with its addiction to spending. Conflict will rise. The fight over slavery was economic. Unlike most wars, it wasn't that religious.

I know that the next 5 years will probably be same as the old boss. But I've got kids that I'd like to see get through college, to get married and to have kids. So I'm interested in the 20-30 year outlook. And if I get a grandkid or two, then the outlook only gets farther out.

Of course, I might be just clinging bitterly to my Social Security and Medicare payments by then.

Image link here.

UPDATE: Greg Mankiw wonders How long will inflation expectations remain anchored? and How long will the bond market trust the United States? He's merely feeling skeptical, not like my Monday morning apocalyptic mood. He is also consistently more humble than the typical economist:
AFTER more than a quarter-century as a professional economist, I have a confession to make: There is a lot I don’t know about the economy. Indeed, the area of economics where I have devoted most of my energy and attention — the ups and downs of the business cycle — is where I find myself most often confronting important questions without obvious answers.

Now, if you follow economic commentary in the newspapers or the blogosphere, you have probably not run into many humble economists. By its nature, punditry craves attention, which is easier to attract with certainties than with equivocation.

But that certitude reflects bravado more often than true knowledge.

UPDATE: The Governator and Maria Shriver split. I told you it was rough out there.

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