The debt US is in…the money never left Earth…..so where is it?

Did your father raise you and pay for your education?

But, let’s blame those greedy workers for expecting payment of deferred wages. Workers invest their labor, the rich invest their money. Wages deserve protection before capital, not after!

Please tell me again how deferred compensation, in the form of a defined benefit pension promise, is not worker saving but deferred compensation in the form of a defined contribution (401k) is.

I am sympathetic, but the younger cohort was not a signatory to that contract. The boomer generation signed the contract with itself:

“We pledge that our children will pay off the debts that we are now incurring and rebuild the infrastructure that we allowed to rot and maintain the housing we have created and keep paying us inflation-indexed benefits even as working wages drop.”

But as you can see, the age cohorts do not see eye to eye. Thus, gridlock. We will have debt-financed consumption until the capital markets refuse to fund it.

The ONE really serious threat to the Eurozone and the stability of the € is and was ALWAYS that of a prolonged economic downturn, with differing policy stances required for the member states, yet unable to be enacted. You cannot apply the same approach to Germany as say to Greece. This was the great polemic in the early 1990s about political union being a necessary precondition for EMU – monetray union. There is no mechanism in place for fiscal adjustments without national Treasuries involvement. One size fits all monetary policy just does not work. The ECB needs to find a mechanism and FAST to address the Greek problem before it blows up. The effects will not be confined to Europe but ricochet around the world including the US. A great deal of statitical fudging has always been present in Europe- they have never had their accounts signed off as being a true and accurate reflection of the state of European finances. The reason that the UK has not joined has always been that it would have locked £ sterling into a rigid system that allowed no flexibility of FX rates. Precisely what happened in 1992. We may have learned one lesson, even if we have forgotten many others – there we are not alone! The US cannot ignore this whilst preoccuppied by domestic policies as it will result in dislocation and damage to world trade and jobs on both ides of th Atlantic. I suggest that it is worthwhile looking at the lock-up that occurred as a result of Britain’s attempt to restore the Gold Standard. it is a sobering even frighteing experience and only a rearmamnent boom brought about the end of the Depression. Economic history teaches serious lessons.

To the extent that wages of current employees are cut but wages of retirees/medicare beneficiaries etc. are held steady, cutting the national consumption gap will mean a massive consumption cut for currently working employees (accomplished through huge tax increases) to preserve the consumption power of the boomer generation (which has a huge savings gap).

While the boomer generation might claim “we were promised this, the nation owes this to us”, recognize one truth:

When the “nation” promised those benefits, it was controlled by the boomer cohort – which did not save. They assumed 8% annual growth in equity values to fund future pension payouts. They assumed housing values would go up forever, and built houses with constantly increasing square footage. Thus, they did not fully fund those pension systems, and NOW those pensions have a huge gap – your argument presumes that the current productive cohort should harshly cut its own consumption (e.g. increase taxes massively) to pay for a gap that was incurred by the previous cohort – and thus allow the previous cohort to preserve its FULL consumption.

To the extent the current “capitalist” system is failing its elders, much of that is because its elders designed that system. Now that they’re starting to realize their mistake, their response is to demand that the next generation pay them their FULL benefits even though the real economy that they built cannot generate those benefits.

The new cohort is starting to flex its political muscle, and will not agree to that. Hence, political gridlock.

Nothing exemplifies this contradiction like the phrase:

“Keep your government hands off of my Social Security!”

The inevitable outcome? Govt will go into massive debt rather than raise taxes or cut transfers. I must question whether American democracy can force the politically nasty tradeoffs that need to occur. We are rapidly approaching national insolvency.