The End of Debt Denial

Opinion Zone,James A. Bacon

Wow! The public's perceptions of the national debt have changed faster than a flat tire in a NASCAR pit. A year ago, it was the received wisdom on the left that only Tea Partiers and other tinfoil-hat conservatives took seriously the notion that the United States might one day borrow so much that it would wind up defaulting on its Treasury securities.

Now, consider this passage written by Graham Bowley in the New York Times last week about warnings emanating from two major credit-rating agencies that the U.S. might lose its AAA status if the national debt keeps growing:

The two statements, made within hours of each other, were seized on by deficit hawks, as further evidence that the government must reduce spending and debt to avert disaster. This is just what many Tea Partiers insist.

But many economists say the reckoning, if it comes, is years or even decades away.

Let that last line sink in. Mr. Bowley, who covers world financial markets for the Times, wrote the story in a commendably even-handed way. The story's sub-head goes, "Is Wall Street listening to the Tea Party?" In passing, he alluded to a different, presumably more mainstream, view by noting the opinions of unnamed economists who concede that, yeah, sure, the deficits are a problem, but default is a long way off, if it comes at all, so don't get in a lather about it.

Yet the fact that the "many economists" are admitting that a "reckoning" is potentially in the cards, even within "decades," constitutes a sea change. A year ago, White House economic advisor Alan Goolsbee declared the idea of the U.S. losing its AAA credit rating preposterous. As for the U.S. government actually going into default, the idea presumably was too absurd to mention.

A year ago, as I neared the completion of my book, "Boomergeddon," I felt certain that, absent massive policy changes, the federal government was heading to default.  But I felt like I was going out on a limb by suggesting that such an event, which I call Boomergeddon, could be 20 to 30 years off. Indeed, when my publisher entered the book description in in  the spring, we used that two- to three-decade time frame.

By the time I made final editing revisions to the book in June, the bond crisis in the euro zone had convinced me to move up the timing for Boomergeddon to a 15- to 20-year time frame. Beholden as I was to source materials that reflected the conventional thinking of the establishment, I worried that I was being too provocative.

Now Bowley is telling us that there are economists, presumably reputable ones whose opinions are taken seriously in Manhattan, who are conceding that a financial crisis could be only "years" away. Even those who downplay the problem and say the crunch is "decades" away sound just like I did a year go. Maybe I'm making too much of a single line in a NY Times story, but it strikes me that a dramatic shift in opinion is underway.

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