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Scarier Than Zimbabwe

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September 19, 2009 – Comments (11) | RELATED TICKERS: USA , GE , BAC

Hey Fools,

On Tuesday, I had the opportunity to don a suit and attend a fascinating three-panel event put on by The New America Foundation entitled "Dealing with America's Debt Overhang." It included speakers like James Galbraith, Liaquat Ahamed, Zach Karabell, Chris Hayes, and eight others. You can see a video recording of the panel discussions here.

Coming in, I was sort of ginned up to see a repeat of IOUSA that would paint a terrifying picture of our national debt. But the event took an unexpected twist, as 11.5 of the 12 experts took a contrarian view to the shock-and-horror we-are-the-next-Zimbabwe thesis we see repeated so often in the financial media.

One presentation pointed out that as a percentage of GDP, federal debt levels are below household debt, below financial sector debt, and way below federal debt levels during World War II. It’s below today’s levels for Belgium, Japan, and the UK. In fact, our federal debt is actually in line with the average developed nation. As a percent of GDP, net interest payments on debt (1.75%) are near the lowest they’ve been since before 1980. Yes, we don’t want debt levels to rise too high, but current levels are not unprecedented, and if we can find a way to reduce growth in health care costs to GDP growth, they are arguably quite sustainable.

The twelve panelists, almost to a person, appeared faaar more concerned about household and financial sector debt levels, deflation, and economic stagnation. Some openly worried that politically-motivated fiscal austerity "hysteria" could prevent us from taking the necessary measures to stimulate and rebuild our economy. Choosing to ignore our dire economic situation would lead to a slow and painful recovery that would ultimately put us in a much worse fiscal situation.

They discussed some other related issues too, but I’m curious to hear what you think.  Are we doing too much to aid the recovery and propel future growth, or not enough? How do we balance the costs of recovery (government debt and inflation) with the dangers of not doing enough (household debt, deflation, economic stagnation, and rising unemployment)?

Ilan

11 Comments – Post Your Own

#1) On September 19, 2009 at 6:14 PM, checklist34 (99.92) wrote:

interesting.  i've seen fliers for a seminar by those guys near me and always assumed it would be a sky-is-falling typical-hyper-bear goldbug panic fest.

rec, always interesting to hear the unpopular view

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#2) On September 19, 2009 at 6:31 PM, AvianFlu (80.23) wrote:

The best way to propel future growth is to quit taking money from citizens in the form of taxation. Allowed to keep their wealth, they will save, invest, spend, and start new businesses. We pay a king's ransom in taxes. We are not getting our money's worth.

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#3) On September 19, 2009 at 6:43 PM, zloj (99.32) wrote:

The best way is to have deflation. The economy is simply overweight and would do well to lose another 50 pounds.

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#4) On September 19, 2009 at 6:49 PM, VIS46 (< 20) wrote:

The sky is not falling.As we Americans will solve these problems just as we solved them in 80's when every one was writing us off and predicting Japan will over take over the world

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#5) On September 19, 2009 at 8:44 PM, DaBronxBull (98.37) wrote:

avianflu, amen brother!

 

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#6) On September 20, 2009 at 12:41 AM, checklist34 (99.92) wrote:

avian flu

darn right we aren't getting our moneys worth...  we are paying a decent percent of our citizens to live for free while complaining at the rest of us.  

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#7) On September 20, 2009 at 1:34 AM, AvianFlu (80.23) wrote:

Checklist34:

You bring up a good point. Maybe the recipients of our money should be required to send us thank you notes. Where are their white gloves and party manners?

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#8) On September 20, 2009 at 12:41 PM, Teacherman1 (89.36) wrote:

Interesting post. Thanks.

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#9) On September 20, 2009 at 1:23 PM, uclayoda87 (30.52) wrote:

I didn't know they made clear Kool-Aid or was that just Vodka on the table?

You forgot to mention that they just had a group hug with Obama, Bernanke and Geitner just prior to the meeting.

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#10) On September 20, 2009 at 2:18 PM, ryanalexanderson (< 20) wrote:

The white gloves, party manners, and thank you notes are all distributed and worn at the investment banking parties. And you're not invited.

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#11) On September 20, 2009 at 5:04 PM, Escutcheon (< 20) wrote:

Comparing now to the end of WWII seems crazy to me. I'm not an economist, but isn't the consumer in alot worse shape? Do we think goverment tax revenue is going to remain stable or rise without raising taxes on consumers? Net interest payments on debt of 1.75% are not expected to increase? "Federal debt levels are below household and financial debt levels". Well thats nice, but don't we the people have to pay it all back? Or at least pay the interest on it. Can the treasury continue to just make The "minimum payment due" and let balance increase forever? They don't recommend it with credit cards. Come to think of it, we have never made a payment on the balance. Our debt has only increased from day one. It has only decreased in relation to GDP. Is a big GDP grouth just around the corner? I hope so. I sure hope we are not hanging our hat on the chart on the last page of you second link (one presentation). That looks like a Ponzi scheme. Oh well, time will tell I quess.

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