January 18, 2010

Is a US default inevitable?

Imagine four hurricanes hitting the East Coast in a single season. Well, according to Goldman Sachs CEO Lloyd Blankfein, that’s what the financial crisis of 2008 was all about. And that’s how “they” happened to be blindsided. Yeah, they never saw it coming, and somehow they “just missed … that home prices don’t go up forever,” in Jamie Dimon’s (JP Morgan) words. Ok, there were also those birds of ill-omen who warned a housing bubble was being created like the dot-com bubble, and a few others Cassandras who predicted the Empire of Debt was coming down—um…, just as, today, there are those warning that the US, with consecutive deficits running 10 percent of GDP, is risking an eventual default on its national debt...

Consider the five largest elements in the budget—Social Security, Medicare, Medicaid, defense and interest on the debt—and ask yourself how one shouldn’t believe it imperative to stop the exploding national debt from surging above 100 percent of GDP… even though, unfortunately, it is not possible to see how, politically, this can be done. Well, it’s somewhat paradoxical, but that’s more or less how Pat Buchanan puts it. Which is the same as to say that a US default is (perhaps) almost inevitable. [Thanks: Tom Carter]