Bold Prediction

Kevin Williamson:

Our budget deficit is currently about 10 percent of GDP and going higher. Greece’s is 12.7 percent of GDP — significantly higher, sure, but not outrageously so. At the end of fiscal 2009, U.S. federal government debt equaled 83 percent of GDP, 53 percent of which is held by the public. (Another 30 percent is “intra-government” debt, meaning money owed to the mythical Social Security trust fund and the like. The usual approach is to talk only about publicly held debt and to pretend that the rest does not represent real obligations, which is malarkey.) But even that does not tell the whole story: Official government debt figures do not account for the Fannie Mae and Freddie Mac obligations taken on by the government, and those amount to $5 trillion, i.e. more than all 2009 federal spending. They also don’t count remaining liabilities related to the Wall Street bailout.

So here’s a prediction for you: Obamacare is not going to happen, regardless of the fact that the president is going to sign it into law today, regardless of what happens in the 2010 and 2012 elections, and regardless of any speech given anywhere in Washington. The government’s ability to simply say “Make it so!” and ignore economic reality is coming up against its limit. If Nancy Pelosi thinks the Republicans are obstructionists, wait until she wants to borrow money from people who don’t want to lend it to her and don’t have to run for reelection.

What are the chances that he's correct?

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10%

I think a more reasonable threat is the current wave of lawsuits.

Very high chance IMO.

Very high chance IMO. Markets move quick, the very moment creditors cut the flow, it's all coming crashing down in a blink.

The cheap parts of Obamacare

The cheap parts of Obamacare could happen - the parts that boss people around, the regulations, the unfunded mandates. The parts that fine Americans for not obeying could happen, since those bring in revenue.

just curious

Forgive me for being naive, but could the US government borrow the money from the federal reserve?

The Federal Reserve can

The Federal Reserve can create new money from nothing and give it to the US government or other parties. This will give them the ability to outbid people who had to earn their money, but it will not create any new goods or services. The number of bricks, and available hours of dentists is fixed today. How many such goods and services could exist by this time next month is limited by other factors such as kilns and dental schools, which are in turn limited by further factors, such as construction crews and available land.

Roger Garrison has a great presentation on this difference between how Hayek and Keynes view the economy. Hayek recognizes this complex structure to capital, but Kaynes thinks it is one malleable lump. Hence Keynes thinks that if you just offer enough dollars, you can conjure up as many dentists as you wish.

If new dollars enter the market much faster than new goods and services, all you do is raise prices as the guys getting the new dollars just outbid everyone else and take their stuff. Pretty soon, everyone figures out they are just getting green pieces of paper (or big numbers on their web browser) in return for all their valuable stuff and they stop taking dollars.

If the US Government can't hand out dollars, they have to use their aerial drones and nukes to make people do what they command. Presumably, people will be less willing to follow these commands when they see naked aggression.

If no one follows their commands, rulers are out of a job.