The only silver lining? It's worse in Europe, as this article from the London Telegraph details:Like America’s political class, I have also been thinking about America circa 2020. Indeed, I’ve written a book on the subject. My prognosis is not as rosy as the Boehner-Obama deal, as attentive readers might just be able to deduce from the subtle clues in the title: After America: Get Ready For Armageddon. Oh, don’t worry, I’m not one of these “declinists.” I’m way beyond that, and in the express lane to total societal collapse. The fecklessness of Washington is an existential threat not only to the solvency of the republic but to the entire global order. If Ireland goes under, it’s lights out on Galway Bay. When America goes under, it drags the rest of the developed world down with it. When I go around the country saying stuff like this, a lot of folks agree. Somewhere or other, they’ve a vague memory of having seen a newspaper story accompanied by a Congressional Budget Office graph with the line disappearing off the top of the page and running up the wall and into the rafters circa mid-century. So they usually say, “Well, fortunately I won’t live to see it.” And I always reply that, unless you’re a centenarian with priority boarding for the ObamaCare death panel, you will live to see it. Forget about mid-century. We’ve got until mid-decade to turn this thing around.
Otherwise, by 2020 just the interest payments on the debt will be larger than the U.S. military budget. That’s not paying down the debt, but merely staying current on the servicing — like when you get your MasterCard statement and you can’t afford to pay off any of what you borrowed but you can just about cover the monthly interest charge. Except in this case the interest charge for U.S. taxpayers will be greater than the military budgets of China, Britain, France, Russia, Japan, Germany, Saudi Arabia, India, Italy, South Korea, Brazil, Canada, Australia, Spain, Turkey, and Israel combined.
When interest payments consume about 20 percent of federal revenues, that means a fifth of your taxes are entirely wasted. Pious celebrities often simper that they’d be willing to pay more in taxes for better government services. But a fifth of what you pay won’t be going to government services at all, unless by “government services” you mean the People’s Liberation Army of China, which will be entirely funded by U.S. taxpayers by about 2015. When the Visigoths laid siege to Rome in 408, the imperial Senate hastily bought off the barbarian king Alaric with 5,000 pounds of gold and 30,000 pounds of silver. But they didn’t budget for Roman taxpayers picking up the tab for the entire Visigoth military as a permanent feature of life.
There have been warnings that we may be in for a repeat of the calamitous events of 2008. The truth, however, is that the situation is potentially much bleaker even than in those desperate days after the closure of Lehman Brothers. Back then, policy-makers had at their disposal a whole range of powerful tools to remedy the situation which are simply not available today.The only problem is: Europe's problems are America's problems in a global economy. And vice versa.
First of all, the 2008 crisis struck at the ideal stage of an economic cycle. Interest rates were comparatively high, both in Europe and the United States. This meant that central banks were in a position to avert disaster by slashing the cost of borrowing. Today, rates are still at rock bottom, so that option is no longer available.
Second, the global situation was far more advantageous three years ago. One key reason why Western economies appeared to recover so fast was that China responded with a substantial economic boost. Today, China, plagued by high inflation as a result of this timely intervention, is in no position to stretch out a helping hand.
But it is the final difference that is the most alarming. Back in 2008, national balance sheets were in reasonable shape. In Britain, for example, state debt (according to the official figures, which were, admittedly, highly suspect) stood at around 40 per cent of GDP. This meant that we had the balance sheet strength to step into the markets and bail out failed banks. Partly as a result, national debt has now surged past the 60 per cent mark, meaning that it is impossible for the British government to perform the same rescue operation without risking bankruptcy. Many other Western democracies face the same problem.
The consequence is terrifying. Policy-makers find themselves in the position of a driver heading down the outside lane of a motorway who suddenly finds that none of his controls are working: no accelerator, no brakes and a faulty steering wheel. Experience, skill and a prodigious amount of luck are required if a grave accident is to be averted. Unfortunately, it is painfully apparent that none of these qualities are available: Western leaders are out of their depth.
So have yourself a cheery day! It's raining cats and dogs in Milwaukee.