“The Time for Action is Now”
Posted by Larry Doyle on March 25, 2011 4:34 AM |
Having spent the better part of the last two weeks in Europe, I have gained an even greater perspective for the need to address our massive fiscal deficit here at home. While selected analysts would discount the global impact of the debt strapped peripheral nations of Europe, we do so at our peril. Why so? Have you looked at some of the European peripheral bond markets lately?
Investors in these markets are getting increasingly nervous that they will be compelled to suffer principal losses if and when the debts of these nations are inevitably restructured. Do not discount the possibility that a similar reality may come ashore here in the United States. Prudent risk management warrants that we gain a greater appreciation for that potential outcome. John Lipsky of the International Monetary Fund addressed these issues in a recent speech delivered at the China Development Forum.
Bloomberg Businessweek highlighted Lipsky’s insightful remarks in writing,
The mounting debt burden of the world’s most developed nations, set for a post-World War II record this year, is unsustainable and risks a future fiscal crisis, the International Monetary Fund’s John Lipsky said.
The average public debt ratio of advanced countries will exceed 100 percent of their gross domestic product this year for the first time since the war, Lipsky, the IMF’s first deputy managing director, said in a speech at a forum in Beijing today.
“The fiscal fallout of the recent crisis must be addressed before it begins to impede the recovery and create new risks,” said Lipsky. “The central challenge is to avert a potential future fiscal crisis, while at the same time creating jobs and supporting social cohesion.”
While Ben Bernanke and his minions at the Federal Reserve may care to delude our nation by propping markets the simple fact is without significantly credible and long term focus on our deficit, we run the risk of our interest rates here ratcheting higher in similar fashion to other debt strapped nations.
The belief that we can address the deficit later because we need to address the economy now is similarly delusional. ‘Later’ is knocking at our front door. If you would like to gain a greater appreciation for the size of our debt problems, check out the debt monitor in the right hand sidebar right below the Comments here at Sense on Cents. Those figures are real. Although Bernanke may care to debase the value of our dollar to repay these debts, the accompanying cost is inevitably higher interest rates, even if core inflation remains in check.
Our national addiction of continually kicking the can down the road has failed us yet we continue to allow our politicians and bankers to play that charade. The ticking of the clock is getting louder and the hands are moving toward midnight. As Lipsky concludes,
…to move toward a future of strong, sustainable, and balanced growth, these fiscal challenges need to be addressed urgently. The time for action is now.
Please subscribe to all my work via e-mail, an RSS feed, on Twitter or Facebook.
I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.