SOURCE: Newsweek
10-11-08
comments powered by Disqus
10-11-08
Fareed Zakaria: There Is a Silver Lining
Roundup: Media's Take
... Since the 1980s, Americans have consumed more than they produced—and they have made up the difference by borrowing.
Two decades of easy money and innovative financial products meant that virtually anyone could borrow any amount of money for any purpose. If we wanted a bigger house, a better TV or a faster car, and we didn't actually have the money to pay for it, no problem. We put it on a credit card, took out a massive mortgage and financed our fantasies. As the fantasies grew, so did household debt, from $680 billion in 1974 to $14 trillion today. The total has doubled in just the past seven years. The average household owns 13 credit cards, and 40 percent of them carry a balance, up from 6 percent in 1970.
But the average American's behavior was virtue itself compared with the government's. Every city, every county and every state has wanted to preserve its many and proliferating operations and yet not raise taxes. How to square this circle? By borrowing, using ever more elaborate financial instruments. Revenue bonds were backed up by the prospect of future income from taxes or lotteries. "A growing trend is to securitize future federal funding for highways, housing and other items," says Chris Edwards of the Cato Institute. The effect on the projects, he points out, is to make them more expensive, since they incur interest payments. Because they "insulate the taxpayer from the cost"—all that needs to be paid now is the interest—they also tend to produce cost overruns.
Local pols aren't the only problem. Under Alan Greenspan, the Federal Reserve obstinately refused to inflict any pain. Russian default? Cut interest rates. Worried about Y2K? Cut rates. NASDAQ crash? Cut rates. The economy slows after 9/11? Cut rates. Whatever the problem, the solution was to keep the money flowing and goose the economy. Eventually, by putting the housing market on steroids, the strategy created problems too large to untangle.
The whole country has been complicit in a great fraud. As economist Jeffrey Sachs points out, "We've wanted lots of government, but we haven't wanted to pay for it." So we've borrowed our way out of the problem. In 1990, the national debt stood at $3 trillion. (That sounds high, but keep reading.) By 2000, it had almost doubled, to $5.75 trillion. It is currently $10.2 trillion. The number moved into 11 digits last month, which meant that the National Debt Clock in New York City ran out of space to display the figures. Its owners plan to get a new clock next year....
Read entire article at Newsweek
Two decades of easy money and innovative financial products meant that virtually anyone could borrow any amount of money for any purpose. If we wanted a bigger house, a better TV or a faster car, and we didn't actually have the money to pay for it, no problem. We put it on a credit card, took out a massive mortgage and financed our fantasies. As the fantasies grew, so did household debt, from $680 billion in 1974 to $14 trillion today. The total has doubled in just the past seven years. The average household owns 13 credit cards, and 40 percent of them carry a balance, up from 6 percent in 1970.
But the average American's behavior was virtue itself compared with the government's. Every city, every county and every state has wanted to preserve its many and proliferating operations and yet not raise taxes. How to square this circle? By borrowing, using ever more elaborate financial instruments. Revenue bonds were backed up by the prospect of future income from taxes or lotteries. "A growing trend is to securitize future federal funding for highways, housing and other items," says Chris Edwards of the Cato Institute. The effect on the projects, he points out, is to make them more expensive, since they incur interest payments. Because they "insulate the taxpayer from the cost"—all that needs to be paid now is the interest—they also tend to produce cost overruns.
Local pols aren't the only problem. Under Alan Greenspan, the Federal Reserve obstinately refused to inflict any pain. Russian default? Cut interest rates. Worried about Y2K? Cut rates. NASDAQ crash? Cut rates. The economy slows after 9/11? Cut rates. Whatever the problem, the solution was to keep the money flowing and goose the economy. Eventually, by putting the housing market on steroids, the strategy created problems too large to untangle.
The whole country has been complicit in a great fraud. As economist Jeffrey Sachs points out, "We've wanted lots of government, but we haven't wanted to pay for it." So we've borrowed our way out of the problem. In 1990, the national debt stood at $3 trillion. (That sounds high, but keep reading.) By 2000, it had almost doubled, to $5.75 trillion. It is currently $10.2 trillion. The number moved into 11 digits last month, which meant that the National Debt Clock in New York City ran out of space to display the figures. Its owners plan to get a new clock next year....
comments powered by Disqus
News
- The Debt Ceiling Law is now a Tool of Partisan Political Power; Abolish It
- Amitai Etzioni, Theorist of Communitarianism, Dies at 94
- Kagan, Sotomayor Join SCOTUS Cons in Sticking it to Unions
- New Evidence: Rehnquist Pretty Much OK with Plessy v. Ferguson
- Ohio Unions Link Academic Freedom and the Freedom to Strike
- First Round of Obama Administration Oral Histories Focus on Political Fault Lines and Policy Tradeoffs
- The Tulsa Race Massacre was an Attack on Black People; Rebuilding Policies were an Attack on Black Wealth
- British Universities are Researching Ties to Slavery. Conservative Alumni Say "Enough"
- Martha Hodes Reconstructs Her Memory of a 1970 Hijacking
- Jeremi Suri: Texas Higher Ed Conflict "Doesn't Have to Be This Way"
Trending Now
- New transcript of Ayn Rand at West Point in 1974 shows she claimed “savage" Indians had no right to live here just because they were born here
- The Mexican War Suggests Ukraine May End Up Conceding Crimea. World War I Suggests the Price May Be Tragic if it Doesn't
- The Vietnam War Crimes You Never Heard Of