Hard to go past this piece from the New York Review of Books where they run a symposium on the financial bloodbath with comments from a team that includes financier George Soros and economists Paul Krugman and Nouriel Roubini.
Krugman says he is concerned about the long run solvency of the US Government, racking up massive a massive deficit to save the economy. It is a finely balanced thing, he says. "We are currently in debt about 60 percent of GDP,'' Krugman says. "We have in the past been as high as 100 percent of GDP at the end of World War II without having a crisis, but your ability to go that high does depend upon people's belief that you will behave responsibly, and that is somewhat in question. I hope it is less in question than it was in the past, now that we've had some regime changes, but it is a problem."
Roubini also agrees that we have to worry about the long run. Sure you can print lots of money but that's going to result in inflation, maybe even hyper inflation. Roubini says: "We are having large budget deficits and increasing the public debt, we don't know whether it's going to be $5 trillion or $10 trillion of more debt. But there are only a few ways of resolving that debt problem: either you default on it as countries like Argentina did; or you use the inflation tax to wipe out the real value of the debt; or you have to raise taxes and cut government spending. And given the size of the deficits, over time that's going to be a painful political choice to make. So we need the stimulus in the short run, but we need to restore medium-term fiscal sustainability.
Soros says we need more regulation, but we need to be careful. "It should be recognized that exuberance actually is quite rational. When I see a bubble beginning, forming, I jump on it because that's how I make money. So it's perfectly rational,'' Soros says. "It's the job of the regulators to regulate. However, we should try not to go overboard. While markets are imperfect, regulators are even more imperfect: not only are they human, they're also bureaucratic and subject to political influences. So we want to keep regulation to a minimum, but we have to recognize that markets are inherently unstable."
The big challenge for the US is growing without excessive leverage and consumerism. What's needed is a society built around saving and infrastructure and that will be easier said than done. Read through the comments in this piece and you'll see there are are no easy solutions. It's political and economic dynamite.
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