Friday, September 19, 2008

What happens when the whole economy does debt consolidation?

These bad private debts are now being consolidated into one place; the federal debt. It's like paying off a bunch of credit cards with one super loan from some credit card counseling agency. Debt consolidation.

When the federal government bails out all these banks, insurance companies, bad home loans and so forth, people say the taxpayers are picking up the tab. Actually the tab is being added to the federal deficit, rather than being picked up by taxpayers. Unless taxes increase, or increased economic activity leads to growing revenue collection, new spending and risk just gets added to the federal debt. Taxpayers are not likely to see it in next year's taxes, for instance.

What happens when this is all added to the debt? Will that debt ever need to be paid back?

Good questions.

Except for some brief periods when there was a slight federal surplus, we never even start paying off that debt.

We had federal budget surpluses one year under the Johnson administration during the 1960s, if I remember correctly, and a few years under the Clinton administration.

Both Johnson and Clinton were Democrats in the White house.

Most years, including some years that Democrats and all years that Republicans were in the White House, during my lifetime, the debt keeps piling higher.

When Clinton ran a surplus and paid down a tiny fraction of the accumulated debt, I thought, "this is a rare and fragile situation." It didn't last long.

Now, consolidating so much of this private debt under the "one roof" of federal debt is uncharted territory. The deficit is likely to balloon even faster.

What happens when people realize that it may never be paid back?

Who knows.

Now might be a good time to try and not think about money and material wealth too much. There are other aspects to life than our culture's obsession with material wealth.

About now, right before it looks like we're falling over the precipice, Garrison Keillor from A Prairie Home Companion might transition us to "it's time for some Beebop Areebop A Rhubarb Pie." Or maybe it's catsup. Yes, catsup comes to the rescue with it's mellowing agents.

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