Paper from the Economic Policy Institute, June 1999, entitled The Ticking Debt Bomb: Why the U.S. International Financial Position is Not Sustainable.

Link

-- Jack (jsprat@eld.net), July 13, 1999

Answers

Thanks for the in-depth article! Maybe I (or someone) can comment after digesting it, definitely not a quick read. In my cursory reading, though, the bad news is that this article covers only some (mostly overseas debt and borrowing) of the problems with this economy. Hope hes right that if not corrected we could have problems anytime "in the next few years". Personally think its a lot closer, esp. with Y2K of course. Not critical of the report though --- interesting to see how those brilliant "de-bunkers" handle this one.

-- Jon Johnson (narnia4@usa.net), July 13, 1999.

I haven't read this particular article, but have read numerous articles about the debt bomb. It is my understanding that the debt must grow until it explodes since paying-off loans would shrink the money supply, and not continuing to go into debt would not allow growth in the money supply.

This, coupled with concerns about "weapons of mass destruction" are why I worry about Y2K.

-- Anonymous99 (Anonymous99@Anonymous99.xxx), July 13, 1999.

Fascinating article that definitely points out how fragile our economy really is. It would take so little for all of it to collapse. Will y2k be the catalyst?

-- Nadine Zint (nadine@hillsboro.net), July 13, 1999.

Thanks Jack.

Diane

-- Diane J. Squire (sacredspaces@yahoo.com), July 13, 1999.

This is a snip from the above article

"First, the U.S. cannot act alone, and it cannot continue to serve as the worlds consumer  of last resort indefinitely."
 

And an interesting quote from Alan Greenspan (Below), and I disagree that consumer items must be held stable. This seems to artifical and will backfire.

>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
FRB: Federal Reserve Board Testimony from 06/17/1999

Testimony of Chairman Alan Greenspan
Monetary policy and the economic outlook
Before the Joint Economic Committee, U.S. Congress
June 17, 1999

This all leads to the conclusion that monetary policy is best primarily
focused on stability of the general level of prices of goods and
services as the most credible means to achieve sustainable economic
growth. Should volatile asset prices cause problems, policy is
probably best positioned to address the consequences when the
economy is working from a base of stable product prices.

For monetary policy to foster maximum sustainable economic
growth, it is useful to preempt forces of imbalance before they
threaten economic stability. But this may not always be
possible--the future at times can be too opaque to penetrate. When
we can be preemptive we should be, because modest preemptive
actions can obviate the need of more drastic actions at a later date
that could destabilize the economy.

And something unrealated (kind of)

FRB: Reporting Forms, Financial statements

>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

The Reporting Forms are an interesting developement. It is not mentioned in the
"Ticking Timebomb" article yet must have serious implications. The Forms are disclosures for derivitive investments buy the larger players in the financial markets.

I see this as a significant move by the FRB to control the situation. Is Their anyone that follows this kind of thing? It is not my field and is more of a curiosity. But there seems to be a movement by the FRB not to get caught with egg on their faces again.

-- Brian (imager@home.com), July 13, 1999.

Thank you for posting this article. The .pdf file with the charts helps to understand some of Blecker's points.

IMHO: It will be a Herculean feat to "engineer a soft landing" because today's markets rely on real time exchange of data, all of which are threatened by Y2K disruptions.

Blecker's closing points appear to be unrealistic: With computer spending down and a likely recession that may also reduce new auto and other USA export demand, it seems unlikely that foreign demand for US finished goods could increase (unless of course if Y2K takes out foreign production assets but in some way leaves sufficient US capacity functional to satisfy foreign and domestic demand. Not very likely in my opinion.)

Also, it seems unlikely that raising USA workers' wages could enable them to pay off debts; rather I expect most would take on additional debt especially in a low interest rate environment per Blecker.

My take on this: Further confirmation of an emminent hard landing. Factor in Y2K and the speculative bubble could break into many pieces. I think a low interest rate environment coupled with Y2K will benefit gold and silver.

-- Bill P (porterwn@one.net), July 13, 1999.

And thanks for all your comments and observations. I was especially intrigued by the article in that Y2K was basically ignored -- the "bubble" that grows larger and larger appears ready to pop without Y2K's help. (Personally, though, I think that Y2K will be the "pin" that will do it!)

-- Jack (jspart@eld.net), July 13, 1999.