Jul 08 2009
Richard Berner: “America’s long-awaited fiscal train wreck is now under way.”
Or in other words the chickens have come home to roost, so says Morgan Stanley’s chief economist Richard Berner. He’s referring to the ever increasing federal budget deficit that Berner feels could topple our economy.
“Depending on policy actions taken now and over the next few years, federal deficits will likely average as much as 6 percent of [the gross domestic product] through 2019, contributing to a jump in debt held by the public to as high as 82 percent of GDP by then — a doubling over the next decade,” Berner wrote on Morgan Stanley’s online Global Economic Forum.
Berner isn’t just some chump off of the street, either. Along with working on Morgan Stanley’s economic team, Berner also is a member of the Economic Advisory Panel of the Federal Reserve Bank of New York, a member of the Panel of Economic Advisers of the Congressional Budget Office, and a member of the Executive Committee and a Director at large of the National Bureau of Economic Research.
As early as 2007 Berner foreshadowed the seriousness of the economic challenges we’re currently facing in an article called “Perfect Storm for the American Consumer.” The economist was correct in his predictions earlier, and what he’s saying now doesn’t sound too promising.
“…barring aggressive policy actions, deficits and debt will rise even more sharply thereafter as entitlement spending accelerates relative to GDP. Keeping entitlement promises would require unsustainable borrowing, taxes or both, severely testing the credibility of our policies and hurting our long-term ability to finance investment and sustain growth,” added Berner. “And soaring debt will force up real interest rates, reducing capital and productivity and boosting debt service.”
What Berner is describing isn’t just a recession, we’re talking about full-blown depression. Soaring interest and inflation rates, a dollar that has no value and a constantly sputtering economy that will be unable to sustain any growth.
“Not only will those factors steadily lower our standard of living,” Berner concludes, “but they will imperil economic and financial stability.”
This is an interesting concept and I am reading what he has said. Healthcare the housing crisis and taxes are key to a major turnaround and all of these things are being currently looked at by White House Officials - there is so much opposition though and so many varying opinions - Truth is I see no way to avoid higher taxes and if that means not extending the tax breaks previously instituted by Bush then so be it - everybody needs to do their part in the recovery.
In terms of the housing crisis - there is much work to be done. Lack of regulation, greed, and creative financing took us way over the line here but until we can find a fix for this industry, it may be that we sink further and further into financial crisis.
The differing in opinions is also a major holdback to things that need to happen - getting everybody on the same page is a difficult task but are we to let this difference be the cause of immobility?
Guitarman-To be perfectly honest; the more I research the economy and plausible fixes-the more confused I get.
“…barring aggressive policy actions, deficits and debt will rise even more sharply thereafter as entitlement spending accelerates to GDP.”
Isn’t deficit spending considered to be aggressive policy? It certainly worked for Clinton as well as for FDR in his first term. I’m not asking this to be confrontational. I’m asking this because I’m fuckin lost. Warren Buffet recently endorsed, albeit reluctantly, a second stimulus bill which would undoubtedly add to the present debt and deficit. Many members of the GOP seem to advocate a “do nothing” fiscal approach. Apparently they are content with 48 million uninsured Americans not to mention the ever increasing foreclosures.
I guess my question is: How do you address these problems without both increasing taxes on everyone as well as adding to the national debt and deficit? Personally; I think Buffet is right when he says that real recovery isn’t something we should expect to see soon but it will happen. He sure as hell knows more about it than I do. LOL.
http://abcnews.go.com/Business/story?id=8039651&page=1&cid=yahoo_pitchlist
Enjoyed reading your article and it is very informational. A “do-nothing” approach, which some steal from watching too much MSNBC, would be better than what has been done. What has this stimulus bill stimulated?
What Clinton did is totally different from what Obama has done. Clinton actually stopped the free spending (with the assistance of a Republican controlled House and Congress). Obama increased it. And most historians claim that FDR actually extended the Great Depression by six years, so if you believe that was a success…so be it. (This info on FDR is in Time Magazine online) (I believe FDR was one of the best presidents..overall..just FYI)
Since the private sector, in particular, small businesses, provide more jobs and put more money into the economy, shouldn’t they be the ones receiving the stimulus instead of big banks, corporations and union workers?
Most of us believe that the American taxpayer knows how to spend THEIR MONEY for THEIR NEEDS. Politicians just simply know how to spend OUR MONEY while screwing US!
Skwguitar, you point out some very good facts in your research. The more money is printed, the less it is valued. There is no doubt that inflation will be a factor in the next few years.
Health care reform is not tied into the economy, for those that think this. Look at it this way, those 48 million or what ever magical number we receive week to week, already receive free medical treatment. Those of us who work and pay taxes…pay for them!!!
And it has been reported that most of them claim they choose not to have health insurance…what…you want to force them to have it?
The housing market is a major player and key in the economy. Freddie and Fanny caused the bubble burst. Allowing individuals to purchase a home, that was way above their means, should be criminal. Also allowing those same individuals to purchase a house without any proof of income, job ect. was dirty.
We all have our opinions and I enjoy listening to each side. Again, great article SKWGUITAR! Looking forward to reading more.
@scotty- FYI; the first time I heard the term “do nothing” was from you-not MSNBC. Also, if you read the numerous articles on FDR in Time; you would have read that in his first term, he adopted the deficit spending approach and the unemployment rate fell from 20% to 10%. Once he detracted from that approach; the Depression evolved into the Great Depression. There is little room for debate when it comes to the fact that the war got us out of the Depression. Stop twisting my words Scotty-you promised to play fair. LOL. The key words in my statement concerning FDR are FIRST TERM! Later guys.
@Scotty + Truth - glad you enjoyed the article, pass on the information, that’s what I put it here for :)
@Tailback - I’ll try to keep this simple… Dean you are correct this sort of spending is very aggressive and can be used to stimulate sectors of the economy (ie: the banking bailouts, our financial industry appears to be stable once again).
Warren Buffett is right to not expect real recovery anytime soon though because the market needs to even out.
We overspent, not just as a government but as a people during the economic boom years. To add to this, the Federal Reserve artificially inflated the dollar during this point (the Clinton/early Bush years) to sustain even more growth, but somewhere around 2007 the market began to even itself out, starting (which makes sense seeing as a lot of the loans going out to people from banks are for homes) with the housing market.
What happened next was essentially a systematic collapse of our economy. People stopped spending, production fell, jobs began dropping like flies, banks froze up lending, the stock market crashed etc… But all of this was our chickens coming home to roost. The market had to even out eventually.
If you look at consumer spending like a credit card, we had “maxed out.” Well Berner is describing the same sort of thing, except with our government spending. It’s an issue that every president has essentially ignored after the campaign trail and if we continue to ignore it those chickens will come home to roost too.