Remember what happened to the last president who said we needed to live within our means.

We’re going to get an inflation like you wouldn’t believe. But don’t worry, Boomers—your SocSec and Medicare are going to be protected.
Until they aren’t.
The Boomers have a hell of a lot to answer for.
Your servant,
Lord Karth

Is this doomer porn week?
Niall Ferguson makes a lot of noise – but for a Harvard professor he seems to have a problem with factual analysis. Maybe that is because he is a Harvard professor.
1) Greece has a history of unstable government – military dictatorships, leftist (real leftists as in communists) experiments, kicking out their monarch. My first trip to Greece in the 70′s featured tanks in the streets and troops with machine guns in the airports – put me off travel for awhile. The US has a stable government – stupid maybe – but stable. 2) Greece has widespread tax evasion and therefore very low tax receipts. They also have a “black market” economy. The US economy is by and large on the books and people actually pay their taxes. 3) as much as we complain about government workers – we have a much smaller (as a percent of the workforce) public employee sector than Greece. Much smaller. And generally speaking our public employees show up for work. 4) this one is really important – our currency floats – and we have control over our own monetary policy. The Greeks don’t. 5) the interest rates on our debt – which we issue – is 2% right now – the Greeks are paying interest in the 15% range. Goes to number 3 – we have control over our monetary policy. Poor Prof Ferguson must have forgotten all this – I guess he was distracted. Having a wife and mistress at the same time must be time consuming. (Ferguson famously invited his wife to his mistress’s 40,000 pound ((money)) birthday party in London).
Sure we have a huge deficit and sure we face tough times ahead. Count on both tax increases and cuts. But unlike Greece – which is in a very bad place that will get worse over time – we can close our budget deficits. The debate is about how to close them. I would suggest deficits -are not the truly scary problem – deficits aren’t structural. The loss of real wealth – de-valuation of assets – that is structural and almost certainly the real problem. We are all poorer now.
Lord Karth – why is it you hate boomers so? Were your parents boomers? I thought you were pro life and here you are week after week promoting death to boomers. All boomers. No exceptions.
I wish I had a generation to blame everything on !
Rod – IMF issued a report this week on the world’s financial situation – may be harder to read/understand than Niall’s mumblings but I bet it would be an eye opener. Maybe a bit more credible too.

A lot more than Boomers deserve credit for this mess. No worry deficit spending was put into place by members of the “Greatest Generation.” Boomers were just gullible enough to vote for those guys. The first Boomer president made a half-way decent attempt to get things under control.
captcha = “the unwashed”

“When you’re spending more on your debt than on your army and your navy, it’s all over for you as a great power.”
alas, if we weren’t spending what we are on our army and our navy, we wouldn’t have the debt that we do.

When the crunch comes, the first thing that will go away is our huge military and interventionist foreign policy that fuels the need for it.

What’s up with this “doom” nonsense? Even if everything Ferguson says is true, does Rod really see DOOM coming? In the sense that, I guess, everybody dies violently and grotesquely? The world ends? Tens of millions of corpses stack up in the streets of America?
Dreher seems to have a preoccupation with “doom” that’s a little creepy, as if it titillates him. It’s either childish or religious or both. (And I don’t mean to equate being religious with being childish — some of my best and most intelligent and mature friends really are very religious.)
The fact is, everything Fergie says is going to happen could happen and, the world being an unpredictable place, life in the States could even get BETTER in certain ways. Who knows? Certainly maintaining a worldwide military empire underpinned by debt and insane consumption hasn’t done anything positive for my lifestyle as an American. If that regime collapses in debt, maybe the result won’t be DOOM> Who knows what will happen? But DOOM, as I understand it, seems distinctly improbable.
Doomer porn, as another commentator put it, indeed.

You must be new here, merkinal. Rod keeps us on our toes by presenting an end-of-the-world scenario at least once a week. Peak Oil, Peak Guano, the imminent extinction of Europeans, you name it.
Meanwhile the world keeps chugging along somehow. But is our Rod deterred? No, sir! There are new and unexplored ways the world could yet end. Gotta love the guy.

Re: He points out some startling statistics on debt that show the United States is in many significant respects no different from Greece.
Yes, we are populated by human beings, the vast majority of whom speak an Indo-European language, and we use 21st century technology.
The US economy is quite a bit different from Greece’s, and any comparison between the two countries needs to begin with that fact. The US can afford it pay its bills, but for political reasons has chosen to run up debts instead. Unlike the Greeks who in fact cannot afford their bills.
Re: The only realistic options we have today are 1) printing money, and 2) sovereign default.
Nonsense. Reform the tax system and take in more revenue. Reform entitlements and cut defense (drastically) and other programs and the problem is solved. If there’s problem here it’s purely political, not economic. The GOP, like the French aristocrats of the 1780s, won’t accept paying higher taxes.

Buy gold, EEV and VXX.

This was well worth watching, thanks for posting. An excellent, well-reasoned, and connected case.

Niall Ferguson has become more of a brand than a scholar; he’s hardly unique in that regard, but his public comments tend to be rife with marks of confirmation and selection bias.

Lord Karth: “The Boomers have a hell of a lot to answer for.
Don’t fret my lordship, for there’s a deal already in the works to take care of the financial demographic “problem”.
Captcha: in erasmus

I’m impressed, and not in a positive way, by the number of dismissals of Ferguson’s case based on an evaluation of his person. I freely admit that I have a weakness for this sort of doom-and-gloom analysis, but tell me, why is Ferguson wrong on the numbers? If you take the time to watch his presentation, you’ll see that he says that the greatest difference between the US and Greece in facing crushing indebtedness is that we Americans, having our own currency, are free to print money to inflate our way out of debt. In fact, Ferguson indicates we are likely to do just that, because the only other realistic choice is default, which would be absolutely catastrophic. If Ferguson’s numbers are wrong, or his analysis of the numbers is wrong, then please explain why. I’m asking that sincerely. I would rather not face years and years of punishing inflation as the price of our recklessness, but I don’t see any way out of it. Note too, Jon, that Ferguson does say that we have it within our political capabilities to do far better about paying our debts (raise taxes, slash benefits), but (he says) the historical record strongly suggests that we will not be able to muster the political will to do it. And at a certain point, the weight of indebtedness exceeds even the ability to effectively address the problem through lower spending and higher taxes.

Thanks for posting this Rod. You are quickly becoming the site I check multiple times a day.

Rod – excellent post/video. John Tierney in today’s NYT Science section had a piece entitled “Doomsayers Beware, a Bright Future Beckons.” Reading that along with the comments here leaves me with a question. To grossly simplify it seems that people are making two arguments. One – because we can imagine actions that will make things better, those actions will very likely occur (e.g. fiscal discipline/innovation/growth/etc). Two – if those actions occur, we (Americans) will continue to enjoy the benefits of those actions disproportionately vis-a-vis the rest of the world. My question is even if we accept point number one, why must point number two be true? Isn’t it possible to imagine that all sorts of wonderful global innovation occurs (for example) but that the U.S. not only ceases to enjoy the lions share of the benefits but actually slips significantly “downhill”? I’m not saying that this *has* to happen but I wonder at those who seem to think that it *cannot* happen. My fear is that if we, as a nation, think that we *cannot* seriously decline, we will never be sufficiently motivated to make the hard choices that would make us a stronger and longer-lived global super-power. Oh, and one final point for all those who dislike American military commitments – I for one would rather trust the (however imperfect) U.S. as the global superpower than any of the BRIC nations. How ’bout you?

Rod – In fairness to some of his detractors here, Ferguson does seem to have made a cottage industry out of “oh noes, the US is Greece” punditry. I don’t have time or expertise to wade through his argument, but there are a variety of economists who have taken it on. I’d point you to Paul Krugman, but know well the response from some. Or point to Ezra Klein’s recent interview with Jamie Galbraith, but again likely the same objections.
The Financial Times did however run a Ferguson column, which brought this response from the Senior Economic Advisor at UBS Investment Bank:
http://www.ft.com/cms/s/0/41bc1916-1776-11df-87f6-00144feab49a.html
“Sir, Niall Ferguson is a wonderful and insightful economic historian, but the assertion that contemporary America is inches away from a Greek-style debt crisis is uncharacteristically superficial (“A Greek crisis is coming to America”, February 11). There is no likelihood that the US will repudiate its debt, and precious little chance that it can default via inflation in the foreseeable future. Prof Ferguson and others who have long expected bond yields to jump because of rising public debt and inflation are in for a very long wait.”
More at the link.

The thing that got me is that by 2040 all projected federal revenues would have to be used to service the debt.
And for those on this thread who are doubtful of doom, eventually the man who cries wolf is right, but no one wants to believe that the wolf is at the door.

Rod
To add some light to the darkness, see the link I posted above. Reading it I am struck by the implication that crunchy-conism is a dead end.

The link that “Chris” posted is the Tierney piece I referenced in my earlier comment.

Rod – re: the numbers – I would say two issues here
first – the actual numbers – I can’t be sure where Ferguson gets his numbers but they do look like he is comparing apples and oranges in that – the percent of GDP that Greece and the other Euro countries indebtedness will be is AFTER the Greeks and EU friends make their big budget cuts and raise taxes. The percent of GDP that is our indebtedness is BEFORE we make budget cuts and raise taxes. We cannot say with any accuracy what in fact the per cent of GDP our debt will represent UNTIL we start to make those cuts and raise those taxes (which is starting to happen).
The whole “we’ll print money” thing is a misrepresentation of what it means to “print money”. Monetary policy is pretty complex stuff and I admit to only understand the most basic parts of it – but it is not just printing money. Ferguson – like a lot of other commentators – is failing to explain exactly what is behind “printing money” and the whole history of manipulating the money supply to correct problems in the economy. Money has no intrinsic value – only the value we assign it. Governments that control their currency can control the amount of money in the economy – hence can create recessions to correct imbalances in trade, they can create deflation to also address wage inflation, they can create inflation etc etc. I suggest you read up on monetary policy for a better understanding of it – if nothing else learn more about Bretton Woods and the relationship of our money to oil. Krugman – who I normally am not so wild about – has a good post up this week about the need for countries like Spain to deflate wages so they can make their manufactured and agricultural goods more competitive and hence earn the money to pay off their debts. That is related to the “printing money” thing and is a necessary adjustment made to economies. Ferguson simplifies it into some silly slogan. Inflation or deflation are not things that just happen – they depend upon the money supply which can and is manipulated by markets,central banks and governments. With the price of oil falling the way it is – the worry is not inflation – it is deflation which is frankly much worse. A 2-3% inflation rate – which you will see the Fed eventually create – will help “print” our way out of some of our deficit. That is tolerable.
Second – I think more than the numbers – it is the basic assumptions Ferguson and others who make the same argument use that are problematic. They are not accounting for the whole economic system in all its parts and interactions when they focus so exclusively on deficits. For example – governments must run some level of deficit spending to prevent recession. Ferguson is an apologist for empire – this is a guy for whom big is better – so part of his assumption is that the current system is good and a demise into more localist and regional economies would be bad, that a reduction in military expenditures would be bad. I think that is why it is really necessary to understand who is making an argument and what they are promoting (hence my comment re: his 40,000 pound birthday party for the mistress which I admit was snarky ). I think you support very different social structures and values than Ferguson – I think one must be careful about the economic arguments you buy into cause you are also buying into a social and political philosophy. Deficit mania – when deficits are not really understood relative to other issues – can be a way to transfer more wealth to the already wealthy and take more wealth away from the already not so wealthy. This is exactly what has happened in Greece – the Greek people have been impoverished ( in twenty years their current level of indebtedness will consume 149% of their GDP – suicidal)- not bailed out – and the hedge fund and bond folks have been enriched. While guys like Ferguson rail on about deficits the really scary issues are ignored – one of the most disturbing functions of our current situation is that it has accelerated an already disturbing trend towards greater disparity in the distribution of wealth. Then there is the de-valuation of assets – that has yet to be written off the books. Those are the things that will make life difficult for folks like you and I. But Ferguson et. al. rail on about deficits. Know your enemy.

Rod,
Long-term economic forecasts are not worth the bandwidth they occupy. This is why all those “five-year plans” the Communists were fond of were such flops. And you are old enough to recall predictions of Ruinous and Eternal Debt twenty years ago– which prophecies the late 90s handily debunked.
If Ferguson is talking about political difficulties in closing our budget deficit he may have something useful to say: I have made that point on a number of occasions here. Our problem is not economic, but political. But if he really thinks he can predict the economy in ten years I’d put more faith in an astrologer.

Ferguson’s thinking is driven by the old-fashioned pondering of empires/great powers and their trajectories, originating in the British obsession with their Roman predecessors. He’s not an economist, he’s just tying numbers to this favorite way of thinking of his.

LOL – Cannoneo – you just said in two sentences what I babbled on for several paragraphs saying. I do need to work on brevity.

Ferguson’s thinking is that he can earn the best money selling fodder for an ideological perspective to those eager to consume it. Caveat lector.

“Nonsense. Reform the tax system and take in more revenue. Reform entitlements and cut defense (drastically) and other programs and the problem is solved. If there’s problem here it’s purely political, not economic. The GOP, like the French aristocrats of the 1780s, won’t accept paying higher taxes.”
Uh, NOBODY in the US will accept paying higher taxes. People work 5+ months a year to satisfy their tax burden and government is STILL indebted far into the future. And for that matter, when was the last time you saw anybody on a construction site get an actual paycheck with Income/FICA/SS withholding, etc.? IT is full of free-lancers as well. Do you think Millenials workinging for tips will pony up for a a debt they weren’t given a vote on?
On to entitlements, which are a demographic time bomb. ‘Nuff said.
Slash defense and pursue a non-interventionist foreign policy? I’m all for it but hey, there are still women afraid to vote in Afghanistan, Israel is surrounded, and children the world over lack acess to McDonald’s.
Apologies for my bad mood.

Mr Ferguson has pointed out, quite rudely, certain embarrassing observations on the Emperors wardrobe.
The information presented here is so seismic that it will meet a howl of derision and a wall of denial.
That’s fine. Just carry on regardless! Buy another SUV!