Tuesday, August 14, 2018

Former Treasury Secretary Robert Rubin: A Debt Crisis is on the Edge of Exploding

Former Treasury Secretary Robert Rubin is out with an op-ed in the Washington PostAmerica’s debt has exploded. Why does no one care?

He uses somewhat measured words but he is essentially saying a debt crisis could explode at any time

Here are the important takeaways from his essay:

At a panel I recently moderated in New York about our country’s unsustainable fiscal outlook, someone asked a simple question: So what? Nothing bad has happened despite immense fiscal deterioration — our debt-to-GDP ratio has more than doubled in less than 20 years, from 33 percent in 2000 to 78 percent today , and is on course to reach nearly 100 percent in 10 years and continue rising — so why worry now?...

[A]dverse effects have not been felt for a long time, masking our fiscal reality and reducing pressure to act. But, while the “when” is uncertain, the “if” is not. Also, the longer we wait, the greater the damage — and the harsher the response needed...

The European financial crisis that began in early 2010 shows how markets can ignore unsound conditions for a long time — until they don’t. For many years, Greek sovereign bonds traded at virtually the same yields as their German counterparts, which made no sense. Then, when the bond markets suddenly focused on the fiscal problems plaguing Greece and the other weaker countries, interest rates spiraled into crisis.

Rubin is, of course, correct here. In the words of the economist. G. L. S. Shackle markets tend to move along in a general trend and then they turn in kaleidoscope fashion and none of the former trends and correlations appear in force anymore. When the debt crisis is finally triggered, it will be a  kaleidoscopic event.

In other words, you don't want to hold long-term government bonds for any reason. Interest rates could soar and long-term debt will trade well below current values. Federal Reserve debt monetization is very likely to occur and add a strong dose of accelerating price inflation on top of everything else.

Robert Wenzel is Editor & Publisher of

1 comment:

  1. At their surface they are quite correct but no one wants to come out say its happening as a slow motion crash into the panicked tipping point.

    The hollowing out of the middle class the bait and switch tactics of the Idiocrat in Chief and Stealth inflation in areas like food packaging and strategic durable good obsolescence is never mentioned or discussed so no one believes it will get so bad.

    Stop and ask those who are sitting on an ever increasing pile of debt to somehow HOPE they can avoid filing bankruptcy and see what they say about what we are in NOW!!