The Teetering Globe
We’ve been watching, almost since the start of the recession, as economists have insisted that recovery was just on the horizon. Why? Well, because it always is. If they could tell us what the engine would be, they’d be investors, not economists, and hey, nobody can predict the future.
Now the darker view has expanded beyond us Internet cranks:
Bass could be wrong on Japan. The island nation (and the world’s second-largest economy) has defied skeptics for so long that experienced traders call betting against it “the widowmaker.” But he may be right on the bigger picture. If 2008 was the year of the subprime meltdown, 2010, he thinks, will be the year entire nations start going broke.
The world has issued so much debt in the past two years fighting the Great Recession that paying it all back is going to be hell–for Americans, along with everybody else. Taxes will have to rise around the globe, hobbling job growth and economic recovery. Traders like Bass could make a lot of money betting against sovereign debt the way they shorted subprime loans at the peak of the housing bubble.
National governments will issue an estimated $4.5 trillion in debt this year, almost triple the average for mature economies over the preceding five years. The U.S. has allowed the total federal debt (including debt held by government agencies, like the Social Security fund) to balloon by 50% since 2006 to $12.3 trillion. The pain of repayment is not yet being felt, because interest rates are so low–close to 0% on short-term Treasury bills. Someday those rates are going to rise. Then the taxpayer will have the devil to pay.
So what’s coming our way, in 2010 — recovery or global bust? It’s a frightening predicament, especially with Tin-Ear Barack still pushing federal takeover of healthcare and promoting government as the nation’s job engine. My federal tax return finally enabled me to catch up on bills that were months overdue. If things hover as they are, my family will weather the storm for a while longer. If they don’t improve, who knows. The boss has said layoffs are coming on Friday, and the town, state, and country in which I live are run by people without the economic knowledge or political will to take necessary steps.