When Pat and I wrote Goodbye America, Goodbye Britain, we foresaw that our countries would be brought down by, among many other things, excessive debt. Couple wild Government over-spending – nobody in either country has borrowed more than Bush and Brown - with large numbers of older people and fewer young ones being born and you have a whole heap of trouble. Even “Helicopter” Ben Bernanke now realizes this…..
Ben Bernanke, chairman of the Fed as Al Greenspan’s successor, has told Congress that the economy could be badly hurt if America’s finances are not put in order and Social Security and Medicare are not “revised.” Translated, this means either big cuts in benefits or equally huge rises in taxation. Perhaps a combination of the two.
Bernanke, who looks to us like the fall guy put in place to take the flak now all is going belly up, pointed out that the next few years will see 78 million baby boomers start retiring, the oldest ones from this year." If early and meaningful action is not taken, the U.S. economy could be seriously weakened," Bernanke told the Senate Budget Committee.
This huge wave of retirees will hit the U.S. budget as well as the economy, he said.
He said that rising budget deficits are likely to increase Government debt to “unprecedented levels.” That could propel interest rates for consumers and businesses upward, which would be a “worrisome development,” he said. Worrisome? It would probably finish off the economy, which is already suffering from the housing downturn which has far further to go, in our opinion – again, as we predict in our book.
He added that a vicious cycle may then develop in which large deficits lead to rapid growth in debt and interest payments, which in turn adds to subsequent deficits.
Last year the USA was forced to borrow $248 billion, much of it from foreigners, mainly the Chinese, Russians, Japanese and British. The deficit will worsen for the 2007 budget year. The Congressional Budget Office is projecting $286 billion of borrowings, while the White House is predicting an even bigger shortfall of $339 billion.
When the music stops and the world feels wary about lending such spendthrifts enormous sums of money, what happens next? It’s in our book, Goodbye America, Goodbye Britain – available from this site.