After Allahpundit’s post yesterday on Judd Gregg’s remarks, Hot Air reader Jennifer in NC sent the following question to me:
Sen Gregg’s statements about bankrupting the country and the path ahead being unsustainable for our children were very sobering. I trust his judgment and take him at his word. However, these statements sorely need to be expanded upon and put into practical terms.
I know it would all be speculation, but what would it mean to me now, 10 years from now, 20 year or more down the road if the US went bankrupt? I am 39 years old and in my working life have really known nothing less than prosperity and growth. I know that I’ve heard complaints about deficits as long as I can remember. What makes this so different? How would it affect my children? Grandchildren? Also, for perspective, how would it affect those we consider high-income earners, middle and low-income families? Will we all be government employees? If the country is bankrupt, will there even be a private sector? I have my own business (with only 1 employee) – will this be sustainable? Will I ever be able to retire?
That’s a good question, and a tough one to answer. My first thought was that it would look a lot like this:
This was Zimbabwe in September 2007. The man in the picture needed to pay his restaurant tab, and he made a point of paying in cash … all Z$7.6 million of it. You know what that would buy today? The drink.
But that’s too glib of an answer, so I turned to my great friend and NARN colleague King Banaian, who posted an answer earlier today:
One of the things we know in economics is that most people prefer to smooth their consumption over time. There are plungers; there are people who save too much and others who save too little, but on average people get it right. Because most people make less when they’re young, they typically accumulate debt when they are young, only to retire it and accumulate wealth when you’re old. For every individual, insolvency means you no longer can make a credible commitment to pay that debt down to zero in your lifetime.
The same applies to government. Governments cannot run Ponzi schemes, accumulating ever-higher amounts of debt. We need to demonstrate that, over time, the total national debt is on a path that leads eventually to its retirement. …
The repercussions over the last three days have been astounding. Sen. Judd Gregg is sounding an alarm over the problem CBO raises. Nouriel Roubini says “A government that will issue trillions of dollars of new debt to pay for this severe recession and socialize private losses may risk becoming a Ponzi government if–in the medium term–it does not return to fiscal discipline and debt sustainability.” In Canada Diane Francis thinks America may have reached its best-before date. …
Some of this is changing — some people are delaying retirement, others are saving more now — but it’s as if the current administration is turning its back on the very generation that brought it to office. If someone could get them the message…
So what will it look like? I’m sticking with Zimbabwe, but be sure to read all of King’s post.