K-12 Tax & Spending Climate: A Bankrupt Nation Wakes Up; David Stockman on the Debt

Christopher Caldwell:

The high point in The Gallery of Antiquities, Balzac's great novel of debt, comes when gendarmes are arresting the young Count d'Esgrignons for a forgery committed to cover his borrowing. The loyal notary Chesnel, attached to the d'Esgrignons family by generations of service, has already spent his own modest fortune to get the young count out of such scrapes, but he is at the end of his resources. "If I don't manage to smother this story," he tells the count matter-of-factly, "you'll have to kill yourself before the indictment is read out." The count realises in a flash that people have lent him money not because they have more than they know what to do with, or because he's a nice guy, or because his privileges are the natural order of things. They have lent him money because they have made certain assumptions about his honour - misplaced assumptions, as it turns out.

Americans came face-to-face with their government debt this week and discovered that they are in the position of d'Esgrignons. There are several ways to measure how apocalyptic the situation is. The recent announcement by Pimco bond analyst Bill Gross that he was selling his long-term Treasury holdings has shaken people, and not just those who watch the business channels. In a memo laced with words like "staggering" and "incredible", Mr Gross described himself as "confident" the US would default on its debt if did not reform its entitlement programmes (pensions and government healthcare). Mr Gross cited an estimate by Mary Meeker, a venture capitalist, that government unfunded liabilities stand at $75,000bn. To spend time with the federal budget is to suspect that the US is the sick man of the global economy.

Lloyd Grove:

Stockman described the impending showdown as a "wakeup call"--the political equivalent of getting whacked in the head by a two-by-four containing a rusty nail.

"And then," Stockman added in a tone of lethal glee, "they're going to be calling their own bluff. Because at that point the problem will remain 98 percent as large as it was the morning before."

The 64-year-old Stockman, who made millions as an investment banker after serving as a Michigan congressman and then Reagan's fiscal guru in the early 1980s, makes Debbie Downer sound like a cockeyed optimist. During a conversation punctuated by mirthless laughter, he characterized America's elected officials as "the fools inside the Beltway," dismissed House Budget Committee Chairman Paul Ryan, generally celebrated as the GOP's brightest policy star, as "an earnest young man" who offers discredited ideology over practical solutions, and predicted a long and agonizing epoch in which incomes will fall, the economy will stall and reality's bite will leave painful tooth marks.

Related: Videographic on Pensions.

Posted by Jim Zellmer at April 9, 2011 2:26 AM
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