The world’s hottest deficit hawk Niall Ferguson brought his message of fiscal doom & gloom to the Aspen Ideas Festival, where he warned that politicians were lacking urgency over the crisis to come.
And American politicians don’t have a sense of urgency, Ferguson contended. They feel the country can limp along for another 20 years or so in its current financial health without making tough decisions about fiscal policy. He believes they are wrong. The federal government’s debt has grown so large in the past decade that the United States will inevitably devote an increasing amount of taxes to it. Meanwhile it’s facing a greater burden through the Medicare and Social Security programs as Baby Boomers age. It’s also currently fighting two wars. All that while revenues have plummeted in the recession.
“If you really want to see when an empire is getting vulnerable, the big giveaway is when the costs of serving the debt exceed the cost of the defence budget,” Ferguson said. That will happen in the United States within the next six years, he predicted.
He also warned that the US economy could unravel very quickly, a la the Soviet Union, and that there was no reason to presume it would sink slowly into the mire.
Meanwhile, Ferguson’s unofficial adversary Paul Krugman has a post up about interest payments in debt-heavy Japan, in which he argues that the country’s debt service isn’t as high as people seem to think. Worth a quick read.