Listen to David Walker, head of the U.S. Government Accountability Office (GAO) speaking on how the U.S. economy is unsustainable: [Hat tip L!]
I think the only error in his calculations is assuming that our grandchildren will get stuck with the check. I’m afraid the bills will come due while most of us are still around.
Wow. That was apparently from late 2007, yet this is this the first time I’m seeing it.
Thanks, Doom, for helping to spread this.
first time I’ve seen it, too.
I have to agree with Twist. This bill is coming due in the present, not the future.
(I’m a Democrat, FYI.) the part with Clinton declaring the deficit fixed? that had nothing to do with responsible spending or the great economy. That happened in the year after people were allowed to rollover their traditional IRAs to Roth IRAs, triggering an immediate tax burden while protecting future distributions.
&, oh, the economists who predict we can just keep growing our way out of this? sounds alot like all the REAs who preached to CA/FL that we could just appreciate our way out of those messes, too.
My 2 cents….
It all stops once we can’t sell any more debt to foreign governments. That will come much sooner that this guy thinks…
It’s not a “grow out of” solution.. It’s a “reduce standard of living” solution.
The upcoming depression will take care of that quite well.
The Ponzi scheme is collapsing.
Step #1 – Consumer buys imported goods
Step #2 – Dollars are sent to foreign country
Step #3 – Foreign country buys US debt
Step #4 – US Banks can loan more because foreigners bought the last round of debt.
During this entire cycle the repayment timeline keeps getting longer and the interest rates go lower so that we can service more and more debt. We are at the point where the little old lady calls the FBI and the Ponzi is interrupted. Housing was the last bubble since it can run the money out for 30 years, creates massive amounts of new debt very quickly and the interest rates can be impacted by the US Government. No other asset class has these attributes.
So Joe six pack runs out of cash and step #1 stops, which breaks the cycle.
Once the depression resets expectations back to life, liberty and the pursuit of happiness we can rebuild everything from a much higher standard of living then they had to rebuild from back in the 1940s.
The Boomers get shafted worse than most since they are too old to work and too young to have anywhere near enough cash.
Gen-X should do okay since they have learned enough to displace boomers in the workplace and are young enough to adjust quickly to a much lower standard of living.
Again.. Just my 2 cents…
Longwaver-
I think the government has allowed housing to become such a major component of our economy, as that was one of the few places where we didn’t have to compete in a global economy. It’s kind of hard to import a house. That party is now over. We now have a whole bunch of people who have got to find another way to make a living.
I visited a factory in Vietnam a few years ago where workers were making $45/month and were happy to get it. The factory wasn’t efficient and wasn’t turning out good quality goods, but they are improving. Americans have been losing jobs to overseas markets for years because those sorts of wages are tough to compete with.
I don’t see any way around a lower standard of living. If we replace housing in our economy with say manufacturing, either we will need huge tariffs to compete, or we cut prices/wages a lot.
I’m not sure I’d bet on the Gen-X vs. Boomers though- some of the Gen-Xs I’ve known are pretty helpless. [OK, some Boomers too. ] My money’s on those who know how to work hard, save money, and get by on less- whatever their generation.
Exactly right.. you don’t import or export a house.
Housing is just overhead since it is required for survival… Unfortunately due to lax regulation we were able to use housing as an asset to create massive amounts of new money.
Those trillions have been used to buy lots of cheap stuff and most of it was not invested in capital improvements / infrastructure.
So now we have to lower our standard of living since we can’t borrow any more. Every foreclosure, every car repo, every late credit card payment reduces the trust that foreigners have regarding our ability/desire to pay them back.
So those that are lucky enough to not have debt AND stay employed may be able to maintain most of their current standard of living, while most will decline.
The end result is significant deflation as debt is written off. Gas will be less than $1 a gallon in a few years, but very few people will have anywhere that they need to go…
Who needs gas when you don’t have any $$ to spend at the store or don’t need to buy anything?
The long term commitments that the government made simply won’t be fulfilled. There will be a massive return to a society of sacrifice out of self-preservation and just a few of things that will be sacrificed will be the extravagant health care and the concept that you can take care of yourself in your old age.
When you get sick and the choice is a treatment that bankrupts the next 3 generations of your family so you can live for 2 more years or dying, well it might be time to go.
When you get old and can no longer work, you might need to move in with your kids or find a nice commune to settle down in. Without income most will find it hard to support themselves.
End result is likely to be a generational “war” with baby boombers voting in whomever will promise them the moon and millenials going to the undergroung economy to avoid paying an onerous 30% FICA tax to support my fat lazy ass. The end result will not be good for America. I personally am not counting on any SS or Medicare. I have my place in Costa Rica with cheap dollar paid labor and good medical care.
David Walker came and spoke two years ago when I was in college. One of the major points that he tried to get across was that foreigners don’t have to stop buying our debt for us to be in it deep, they just have to stop buying so much. Our federal government currently enjoys the lowest interest rates in the world. Any drop in the rate our debt is purchased will have SERIOUS implications on our national budget.
That’s a great 60 Minutes segment…reminds me of the book Running On Empty in case anyone wants to learn more about this topic.
I agree with longwaver and twist that a lower standard of living and asset depreciation, coupled with a return to core values and hard work, is in our near-term futures. It does not have to be gloom and doom- quite the opposite, as a matter of fact.
Who really misses addictive consumerism when it is gone? Just the folks who make money off of it. It won’t be missed by the average american, who will enjoy reading, working out and playing sports, working hard, having dinner and long talks with family, and enjoying romance with their spouse…just a few great low-cost things that renew the soul.
Mass marketing has made us afraid of the economic tsunami to come, but that’s just the echo from years of conditioning, folks. Let me personalize this just a bit more:
I was a very highly paid executive who created my own tsunami by walking away from the corporate world in 2002. Yes, the first two years were very hard, but nowadays my wife and I both work in jobs we like, live in a cosy and warm 1-bedroom apt., save 25% of our take-home pay, and do all of the things I listed above. We go out to a fancy restaurant maybe four times a year, which make it a very rewarding experience. I feel like I got my moral core and human feelings back during this time, and I think it’s what we all face in the coming few years.
As for generational wars, we are planning to have my wife’s parents live with us and maybe my mom, once we buy a place in 2009 at a 35-50% discount off the peak prices. If we all join forces and learn to love each other every day, we’ll be more than fine.
Hey, maybe the next “greatest generation” is already amongst us, just waiting to rise to the occasion.
DCBeacon, I have been watching this unfold for almost a year now. I must say I have come to the same conclusions as you. We will have a societal shift away from consumerism and hopefully a move towards the truly important aspect of life, namely family and human interaction. This is a natural cycle and for every bad thing that comes out of this there will be good things as well. Life has a funny way of balancing things out in the end, no matter how hard we try to avoid it. We went TOO FAR as a society with greed and wealth accumulation as the “Gold Standard” of success and lost site of our humanity and the true secret to happiness….kindness, humility, compassion, family, friends and love. These are the things we will cherish at the end of our days, the rest is worth nothing and can not be taken with you.
I hope when my life is spent and my end is near I can look back at my life and rejoice in the fact that I treated my family and the people I befriended with respect, kindness, compassion and love, hopefully leaving it a little better then I found it.
Our humanity is what separates us from every other living creature on this planet, let us be the generation that brings hope and rebirth.
I agree with many of these comments. I am the average joe. Wife, 2 kids, dog, 2 cars (one is paid for and is 6 years old and the other is a very modest lease), 3 bed 2 bath home. I literally make about the median household income and own the median priced home (of course, with a mortgage). From a statiscal view my life is as average as it gets. But here’s the catch…..I CAN’T IMAGINE A BETTER LIFE!! My wife is a stay at home mom and my kids are incredible. We don’t have extra money to spend on all of the things that Americans spend money on….but we don’t need it. The sense of entitlement in this country previously was humorous to me; now, it’s just pathetic.
I’m 33 years old so I am very unfamiliar with a certaiin concept of actually buying things when you can afford to pay for them. You see, I’ve heard that a LONG time ago (in what seems like a galaxy far far away) people did crazy things like save up for a new television, or put a new dresser on “layawy,” (do stores even offer layaway anymore?). I’ve even heard (and I can’t be sure because it just seems so foriegn) that Americans would save up $ to part with when they bought a house or even a car. I beleive people called it a down payment. Of course, this could be a “big foot” type of myth as I have personally witnessed it as often as I have spotted big foot himself.
I’m rambling, but I think my point had something to do with this nation, as a whole, spending what it can actually afford (I know….it sounds unamerican).
Entropy-
I agree we went too far- and while government looks for solutions to keep the party going, I think that swinging back into balance is the only solution.
Mr. Twist and I were talking about growing up in the 1960s. My dad had a good job, so I had an “upper middle class” existence.
By today’s standards though, I had a pretty deprived life. My most expensive toy was my bike- no electronics. We had one TV with 5 channels, one land line, the station wagon and an old clunker so Mom could go to the market when Dad was at work. We rarely traveled out of AZ- vacations were usually camping. We had no pool, the neighborhood had no HOA, no greenbelts. At 1800 sq. ft., we had one of the biggest homes in the neighborhood.
I had a great childhood- I wouldn’t change a thing.
I suspect that era was a more sustainable lifestyle, and we may yet go back to that. I enjoyed it the first time, and for those of us who can appreciate the “finer” things in life, we’ll enjoy it again.
Longwaver:
>>The end result is significant deflation as >>debt is written off. Gas will be less than >>$1 a gallon in a few years
I don’t follow you, there.
I think that as the standard of living lowers, so does the value of the American dollar compared to foreign currencies. Much like it has already been lowering, but even much moreso.
So, although U.S. salaries may stay “the same” in U.S. dollar, the prices of anything imported should skyrocket – including oil.
Furthermore, in order to try to prop up a falling dollar (and keep down the inflation I note above), the fed is eventually apt to use it’s best weapon: higher interest rates. (If you don’t think a failing economy can raise interest rates to absurd levels, just look at places like Mexico and Argentina in the 80’s and 90’s, where you could double your money in the bank in one year (from 100% interest rates), but it was worth half as much).
Higher interest rates mean prices for big-ticket domestic items like housing come down, as people can afford to borrow less.
So, higher-priced oil, lower-priced housing is my call.
>>those lucky enough to not have debt AND stay >>employed may be able to maintain most of >>their current standard of living, while most will decline.
Yeah, those that still have debt when(if) interest rates skyrocket are going to get badly burned.
I agree with entropy (great sentiments!), AZSAUKI, and twist like I typically do. I also grew up in the 60s; my mom was a substitute teacher who would not take welfare (no problem using it if you need it, though), so we were poor. My pride and determination, best memories and deepest friendships come from those years…not from material advantages. My wonderful wife believes in simplicity and kindness, and laughter is always abundant.
These times will not be so much scary as enlightening…realizing the nightmare we fear is not so bad and the reality with which we became accustomed resembled a bad dream more than we ever realized.
I was born in 1965. I tell my girl’(2 beautiful daughters from a beautiful wife) how we only had 4 tv stations as a kid….AND we had to get up off our butts to change the station! Mom told us to get outside and play until dinner is ready in 3 hours. And you better be there for dinner or the brothers and sister left nothing for you…and they would always eat the damn vanilla and chocolate ice cream and leave the center stack of strawberry in the napolitano breyers, this offense is beyond forgiveness.
I have fond memories of Disney sunday night movie family time and playing boards games with the family or neighborhood card games.
I too am just an average Joe. Fortunately this average Joe hates credit cards and debt. Bought my house the right way(30yr fixed/20% down) 25% below market in 1999. I could never rent in the neighborhood I live in for what my monthly nut is.
Thanks Dad, you taught me well.
Entropy-
We missed a beautiful synergy- I always went for the strawberry!
We also watched the Disney movie every Sunday night. We did have a bit of a crisis for awhile though. I remember the day my dad brought home our first color TV- there was only a limited number of color shows on, and Disney wasn’t one of them. My parents wanted to watch the color show and Disney was bumped for awhile.
Peace and harmony was restored when Disney started broadcasting in color.
twist -
Ivan Illich nailed the upcoming crisis in medical economics in 1974(!) with his book “Medical Nemesis.”
http://www.soilandhealth.org/03sov/0303critic/030313illich/Frame.Illich.Ch1.html
About five years ago I presented a proposal to make chemical databases up to an order of magnitude more efficient for Pharma researchers. Can you imagine what that would do for our abilities to discover new drugs? In fact this sort of thing is driven by benefits to stockholders and managers, not consumers. There is something wrong with this picture. For what it’s worth, here’s my proposal. No word that it will be implemented in the foreseeable future.
http://www.daylight.com/meetings/mug03/McLeod/index.html
DCBeacon said “It won’t be missed by the average american, who will enjoy reading, working out and playing sports, working hard, having dinner and long talks with family, and enjoying romance with their spouse…just a few great low-cost things that renew the soul.
I agree. My hobbies are very inexpensive too. I buy new running shoes 4 to 5 times a year (I run 30+ miles per week). I don’t play golf and spend huge bucks to play at expensive clubs. My wife and I eat at restaurants only doing happy hour to save money. After all, at the end of the day it’s just sewage, right? Live below, not above your means and your efforts will be rewarded.
No truth, or leadership?, lack of qa/qc everywhere, and our society is more throw-away than ever before.
Maybe we threw our economy away. At least greed and selfishness are still prevalent.
As always, it’s everyone for themselves.