Sovereign Debt
Once again the vast majority fails to see a crisis in the making, even as it stares at them from close range. Just as market observers in 2007 told us that the credit crisis would be confined to the subprime mortgage market, current analysts tell us that sovereign debt problems are confined to Greece, Spain, Portugal, and perhaps Italy. They were wrong then, and I believe that they’re wrong now…
Just because we can inflate does not mean we can escape the consequences of our actions. One way or another the piper must be paid. Either benefits will be cut or the real value of those benefits will be reduced. In fact, it is precisely because we can inflate our problems away that they now loom so large. With no one forcing us to make the hard choices, we constantly take the easy way out.
When creditors ultimately decide to curtail loans to America, U.S. interest rates will finally spike, and we will be confronted with even more difficult choices than those now facing Greece. Given the short maturity of our national debt, a jump in short-term rates would either result in default or massive austerity. If we choose neither, and opt to print money instead, the runaway inflation that will ensue will produce an even greater austerity than the one our leaders lacked the courage to impose. Those who believe rates will never rise as long as the Fed remains accommodative, or that inflation will not flare up as long as unemployment remains high, are just as foolish as those who assured us that the mortgage market was sound because national real estate prices could never fall.
When the subprime mess hit the prevailing wisdom was that “no one saw coming.” Did no one really see it coming? I asked myself, and then went on a search to test this statement. It turns out there were some people who saw it coming. Peter Schiff was one of those people. I have been following his writing since. And he makes some dire predictions for the US’s future if we fail to clean up our debt.
2 points:
The quality of knowledge should be judged based on its ability to predict accurately. Knowledge is useless if it does not help you modify future behavior in order to better your plot in life.
People like Schiff who make accurate, albeit dire, predictions often go ignored, not because of the accuracy of the prediction but because they are viewed to be “un American” or too “gloom and doom.” People tend to react by saying things like, “we’re better than that. We can overcome anything.” Essentially blinding themselves to the POSSIBILITY of large catastrophic events so much that proper, preventative action is never taken.
