Because in the “new normal”, its going to be around for a while:
…Washington and Wall Street are coming around to the idea that the economic future we’re stumbling towards will be far less generous from the normality we long for. The “New Normal” — a disarmingly benign term coined by Mohamed El-Erian, co-chief investment officer of the big California investment firm Pimco — envisions a future of sluggish growth, international discord, increased uncertainty and minuscule returns on capital. Government revenues shrink while spending remains high…
It is that last bit which ensures that we will flounder – “while spending remains high”. There is, to be sure, a demographic reality which will be hard to cope with: soon, some time within the next few decades, the human population of the world will probably start to decline. But that problem is manageable (and will probably be relatively short-lived…I expect that as secular people die off, the believing remnant – especially the Christian part of it – will rise to greater power and thus start to enforce policies which encourage family formation and child-rearing): what is not manageable is our debt. We simply have too much of it.
It appears that the real debt of the United States is about equal to all the money in the world. Meanwhile, the rest of the world has not been slack at piling up unsustainable debt, on its own. The net of all this is way too much debt being supported by less and less wealth – and this debt prevents us from developing the economic sinews which would allow us to offset the coming decline in population.
It could get very ugly – but at best is will just be bad. Maybe a bit of growth here and there, from time to time, but mostly stagnation. The debt prevents us from doing what we need – balance the budget and start paying off debt, and ever more money will flow in to the productive economy. Its really a pretty simple choice – the only thing lacking so far is the political will to really cut spending.
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