…because I’m an economist and a mom–that’s why!

The Next Crisis

May 26th, 2009 . by economistmom’s Mark Zandi gave the Friday luncheon speech at the National Tax Association conference last week (the Obama Administration’s Austan Goolsbee gave the Thursday speech).  Mark said the “worst is over“–not that the recession is over, but that the downward spiral seems to be in less of a freefall lately, and Mark now predicts the recession will end in October of this year.  (I believe he even confidently predicted a very specific October 10th–with a big grin on his face.)  Mark did warn, however, that the recovery will not be “V-shaped,” but “U-shaped”–that this time the steepness of the drop will not be matched with an equally quick and dramatic recovery, because of continued weakness in the housing sector and hence personal consumption, and the lingering drag that’s been put on state and local governments.

But even more interesting to me was Mark’s choice for the final slide in his powerpoint (sorry, do not have the slideshow to link to) which was called “The Next Crisis.”  It was a chart showing U.S. government debt (federal, state, and local combined) as a share of GDP, which he was predicting would reach 100 percent within ten years.  (By reference, CBO has estimated that under President Obama’s budget proposals, federal-only net debt would reach more than 80 percent within ten years.)  As our nation reaches that extraordinarily high level of public debt, it will be another crisis, because it’s likely to cripple the flow of funds to our economy as interest rates rise and the ability to borrow from increasingly-reluctant foreign lenders reaches its limits.  It’ll be the next crisis though, not this crisis, because right now the federal government is indeed the “spender of last resort,” and those in the private sector (households and businesses) are busy getting back to living within their means (i.e., saving more).  In a few more years it will be the government’s turn to start saving again, when it’s obvious that the next crisis is not just coming, but here.

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