FINANCIAL ARMAGEDDON?

Here’s a video from CNBC featuring investment guru Julian Robertson. He has an interesting take on the US debt situation.

Generally, I find that economic issues and politics are very closely linked. Unfortunately, for most of the American public, this is the sort of thing that makes eyes glaze over, however, the economic situation is often where the real news is as that the major motivator behind many policies, both foreign and domestic. I find that the real news is often opaque, while the infotainment nonsense designed to divert everyone’s attention is everywhere and you can’t get away from it.

Our nation is in one hell of a fix and this is the one area where I’m really at odds with the administration. They’ve basically continued the Bush policy of bailing out the financial oligarchs with our tax money under the moral hazard policy of “too big to fail”. Moreover, the US federal reserve has been very accomodating to the same interests by printing money to give to them. Utlimately, this leaves us with two problems that will confiscate the income of the average person; an increased national debt and inflation. It appears that the Federal Reserve and the Treasury are planning to address the national debt problem by just printing up some money. That action is not without consequence.

It is the twin issues of a growing national debt and inflation  that Robertson is concerned about as that may drive major US debt holders like China and Japan stop buying US debt or, worst yet, sell off their holdings altogether. The immediate effect of that would be skyrocketing interest rates and our nation’s inability to raise money to finance itself. That has all sorts of policy implications. Afterall, we’d be hardpressed to expand the Afghanistan war if China refuses to finance it. (Not to suggest that we need to be doing that anyway, but that’s the subject of another post).

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