Excellent episode of Stossel this week is addressing this point (it’ll fun on Fox Business all weekend, so catch it).
You’re seeing a little glimpse of the future when our T-bill auctions are seeing less demand. It’s pushing interest rates on the debt higher.
As our federal spending grows it will reach an unsustainable point. The government will have two choices.
1) “Monetize” the debt, which means just printing more money. As easy as it sounds, this would devalue the currency and push inflation higher. But this won’t happen all at once, so there are lots of chances to repair the situation before we become Zimbabwe.
2) More likely scenario - as inflation starts to go up and spending gets beyond control, responsible people like Paul Ryan are elected. (See Christie election in New Jersey - if they choose a responsible governor, the US as a whole can come to the same choice). Responsible reform of entitlements is still possible and long-term fiscal health is restored.
A few more years of Obama make scenario #2 more likely. People are not stupid, and if New Jersey can start pension reform, the United States can too.
“More likely scenario - as inflation starts to go up and spending gets beyond control, responsible people like Paul Ryan are elected. (See Christie election in New Jersey - if they choose a responsible governor, the US as a whole can come to the same choice). Responsible reform of entitlements is still possible and long-term fiscal health is restored”
We have passed the point where responsible reform is really possible. Events are accelerating (for example, SS is in the red, years before it was supposed to). And there are so many big hits on the horizon (Europe, state budgets, CRE, etc), that any reform would be too little, too late.