Over the past decade, lawmakers have avoided the kind of unpopular decisions — tax increases, spending cuts or some combination — needed to keep the debt under control. Federal Reserve Chairman Ben Bernanke testified recently that, for investors, the underlying problem with the debt isn’t economic. “At some point, the markets will make a judgment about, really, not our economic capacity but our political ability, our political will, to achieve longer-term sustainability,” he said.
“This is all an exercise in current generations shifting burdens on future generations,” Brookings Institution economist William Gale says. “Future generations don’t vote, of course.”…
That’s also the concern of Michael Burry, the investment guru who predicted Wall Street’s meltdown and made millions by placing bets against (or “shorting”) the financial sector. Burry, one of the protagonists in Michael Lewis’s account of the financial crisis, “The Big Short,” believes the federal government is behaving like the companies that lost billions in mortgage-backed securities. He told me he sees the common mistake of focusing on short-term benefits — whether quarterly earnings or the next election.
The world doesn’t want America to go broke, he points out. Americans are the planet’s greatest consumers. But if this is a bubble, it will burst with little warning, Burry said.
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