For more than half a decade, the US has been pursuing risky economic practices. In the current crisis, the cumulative impact of past practices, old debt and new debt is balanced against other priorities. With some justification, stakeholders including the Fed are attempting to buy more time.
Policies of the Fed and the new administration are a huge gamble. Even if realpolitik motivations are acknowledged, one wishes for more stringent choices.
When people get into debt problems, the sensible ones meet with their creditors and agree to a plan. Thus we see Geithner in China, and no matter what officials say, it's difficult to believe there haven't been tacit agreements with the Chinese since this crisis began. The {assumed) agreement would have been "no default".
Now, as the ugly numbers have crystallized, the question is whether default can be avoided, at all.
You may get better, but you'll never get well. That's the current wisdom about the US economy. If default is avoided, there's still the question of paying down debt, which will impose an enormous burden on the economy.
But those are the choices: pay now, pay later: but pay. Hard landing or soft landing, the US has an enormous burden to discharge and nobody really knows if it can be done.
Unless and until US debt to GDP becomes reasonable, the US and its creditors play a game where the pot shrinks as soon as someone calls. High stakes indeed.
Jim |
