The ever cheerful Monty brings us another helping of financial DOOM:
Our whole “plan” (to the extent that our government even has a plan for getting us out of this mess) is founded on the belief that our borrowing costs will remain low — that the interest-rate environment will remain at or near zero indefinitely. Well, it won’t, and I don’t think enough people are thinking about what a huge dent interest-payments on the debt is going to put into our budget. Our entire federal budget will be eaten up with four things: Medicare, Medicaid, Social Security, and debt-service payments. That means any additional spending (like, oh, say, the military) will have to come from borrowed money…which will have to be borrowed at higher rates, which in turn causes debt-service costs to rise yet again. This is the vicious debt-spiral many European countries now find themselves in.
What has basically happened during the past forty or fifty years is that we’ve spent most of our actual capital — mainly on our vast welfare state and government apparatus, but also on our huge military. We are like a couple who lives paycheck-to-paycheck: any money that comes in goes right back out. Nothing gets tucked away. An unexpected expense — a busted water-heater, broken-down car, or an unexpected illness or injury — all of a sudden puts you in a hell of a financial hurt. So you borrow. You can’t really afford even the payment much less the whole loan, but what can you do? You may even cast caution to the winds and buy that jet-ski you’ve had your eye on (on credit, of course). Why not? You’re already screwed; being screwed a little bit more hardly matters at this point, right? Then something else breaks and you have to borrow again (if you can), and the monthly bills start to pinch you where you live — it’s either service your debt or pay the rent, because you can’t do both. At that point, the spinning plates will come crashing down — you will either default on your debt to avoid starving your family into oblivion, or you will force your family to live like animals in a cave so you can pay off the debt you ran up.
So the frustrated call goes up: “Okay, we’re boned! I get it! But what can we do about it?” Answer: I don’t know. Maybe nothing, at this point.
[. . .]
I’ve often said that circumstances will impose a solution on us if we don’t find one ourselves — we simply cannot continue as we are. And the reckoning is not comfortably far off in the future; it’s unfolding right now, before our very eyes.
