The Debt Bomb

Medicare & Social Security Deficits Chart

Image via Wikipedia

Steve Randy Waldman has a great insight: Americans tend to view Social Security and Medicare benefit as property, similar to Treasury bonds. Once you’be put your money in, you have a right to the benefits. This bodes ill for entitlement reform.

Several things have happened in the last few years: banks made housing loans that could not realistically be repaid; governments (particularly Greece and Ireland, but also Japan and the US) have borrowed money that they can’t repay; Chinese banks are lending money for development where the prospects for repayment are very dubious. The world is awash in bad debt. How will it end?

Here’s a clue: what can’t be repaid won’t be repaid.

Oh, there can be the pretense of repayment. In the end, governments can print money. This, of course, debases the currency which, in turn, makes everything more expensive. Standards of living will drop, as we’re seeing already in Greece.

Barring some technological miracle, the next generation, and probably the one after that, will have a lower standard of living – perhaps much lower.

The alternative is entitlement reform – reducing the old age benefits that we hold so dear. Should we sacrifice the well-being of our children for the well-being of our parents? Or the other way around? Tough call.

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