[blam]

Posted earlier:

Paul Krugman: Lost Decade, Here We Come

[LS]

Ultimately, De Long is right in that we are NOT seeing any immediate pain. Given our debt and deficits, we should be looking at 15% interest rates.

But the problem with that analysis is that the math always wins---later rather than sooner sometimes, but inevitably. As Prof. Charles Calomiris points out, a crisis like this can "snuck up" on people and manifest itself pretty quickly (i.e., Greece which "seemed" to "happen overnight.") In reality, the math was staring people in the face all along.

In a sense, Ronald Reagan was fortunate that the nation had already started to experience the effects of bad policies just as he was implementing the correct solutions to those: but would he have been re-elected if interest rates had been, say, 5 points lower? Or unemployment lower?

I reiterate, I think the math is inexorable, but we may be in Greece, which is to say, like the man falling off the Empire State Building, all the way down he'd say "So far so good."

[Oceander]

In large part our putative "lenders" don't have much choice because the U.S. dollar is, for better or for worse, the only available reserve currency around; the Euro might have challenged that position, but no longer, given the Europeans' wimp-out on Greece. That means that, just like the housing bubble crash, which was so violent in large part because it was so heavily propped up by government policies, the U.S. dollar's status as a reserve currency, and the below-cost borrowing it lets the US do, will most likely also blow up precipitously instead of simply folding more gracefully under steadily increasing interest rates.

In short, the fact that we can still borrow at below-cost rates is nothing to be happy about, because it means that we are essentially going to be complicit in our own national death when the cozy arrangement blows up. The fact that Krugman thinks otherwise merely demonstrates the total poverty of his thought once he gets outside of the narrow little specialty into which he was trained.

[grumpygresh]

Grow the GDP by cutting taxes on the producers. This will improve the GDP to debt ratio by improving the GDP. It will over the long term also have the potential to reduce debt by increasing revenues through greater employment and wealth creation. We also need to reduce entitlement spending especially for those in the middle class. As the middle class spends its own money on health care and education, increased efficiency and competition will lower costs and improve access and quality as these services become increasingly provided by the private sector. The middle class will also have an incentive to become competent and productive workers as well as and wise consumers.
This would be a great time for our country to boldly lower income and corporate taxes. We would receive an enormous capital flow, and an infusion of entrepreneurial talent from Europe and other sclerotic socialist economies. With productivity incentives and new entrepreneurs, the fertile ground will be laid for an economic rebirth.