Sunday, March 22, 2009

Judd Gregg Predicts That Federal Government Will Go Bankrupt

CNN claims that Judd Gregg is “known as one of the keenest fiscal minds on Capitol Hill”. Known by whom? After the following, one has to wonder how anyone can think he is fiscally keen:

The practical implications of this is bankruptcy for the United States,” Gregg said of the Obama’s administration’s recently released budget blueprint. “There’s no other way around it. If we maintain the proposals that are in this budget over the ten-year period that this budget covers, this country will go bankrupt. People will not buy our debt, our dollar will become devalued. It is a very severe situation.

Admittedly, the President’s own budget predicts that the debt held by the public will rise to around 67% of GDP by 2019, which is the same level it was in 1951. Of course, the U.S. Federal government did not go bankrupt back then either as financial markets saw U.S. fiscal policy as committed to eventually reduce Federal debt. As we eventually exit the current economic crisis, this Administration at least makes the claim that there are also committed to long-run fiscal sanity. What would Senator Gregg suggest – a return to fiscal sanity now ala Hebert Hoover economics.

Of course, the past Administration allowed the debt/GDP ratio to rise each year even when we were near full employment. Funny thing – I did not hear such dire predictions from Senator Gregg when U.S. fiscal policy was clearly irresponsible.


stuetze der gesellschaft said...

Yeah. And Europe is bankrupt now. If you look at most Eu countries debt/GDP ratios, 67 % is not that bad. And EU countries are still in business.

Shag from Brookline said...

I'm curious about a report that Gregg sought out the Commerce cabinet position. More details might suggest that Gregg had a scenario to embarrass Obama by first accepting, then withdrawing and now criticizing.
Or was it the revealing of Gregg's potential conflict of interest with certain investments that may have been connected with former US government properties in NH? Eventually the full story will come out.

wellbasically said...

Interest rates were much lower in 1951 because the dollar was tied to gold. Obama like Bush has overpromised fiscally and the method for dealing with this is to inflate the obligations away.

Anonymous said...

Then why does Gregg oppose restoring the Clinton tax rates ?

Jack said...

It is always striking to recognize how impervious to change are the activities of an economic system and the governments which are responsible to the citizens for the reasonable performance of those economic systems. It is this resistance to change that often results in upheaval. Just below I've provided a brief paragraph from the Introduction of Mignet's "History of the French Revolution." (1824). It is remarkable to me how Mignet's description could have appeared in last week's Time or Newsweek. The names change, but the inclination to personal aggrandizement seems to be the persistent thread that runs through economic-political
interactions throughout history. For those who may be interested the work can be found at:

"The notables, chosen by the government from the higher classes, formed a ministerial assembly, which had neither a proper existence nor a commission. It was, indeed, to avoid parliaments and states-general, that Calonne addressed himself to a more subordinate assembly, hoping to find it more docile. But, composed of privileged persons, it was little disposed to make sacrifices. It became still less so, when it saw the abyss which a devouring administration had excavated. It learned with
terror, that the loans of a few years amounted to one thousand six hundred and forty-six millions, and that there was an annual deficit in the revenue of a hundred and forty millions. This disclosure was the signal for Calonne's fall. He fell, and was succeeded by Brienne, archbishop of
Sens, his opponent in the assembly. Brienne thought the majority of the notables was devoted to him, because it had united with him against Calonne. But the privileged classes were not more disposed to make
sacrifices to Brienne than to his predecessor; they had seconded his
attacks, which were to their interest, and not his ambition, to which they were indifferent."

Note that Mignoet is describing the situation as of mid-1787, and we all know what happened two years latter.

Ken Houghton said...

Gregg won a decent-sized lottery prize a few years ago. Given the competition, that may well make him "one of the [500 or so, not counting staffers and Treasury Department officials] keenest fiscal minds on Capitol Hill.”