Business & Economics: July 2011 Archives
I knew the general facts but didn't realize the implication: the United States can't default via inflation because most of our debt has a short maturity and needs to be continually rolled over.
Here in the U.S., total Federal debt to GDP is also approaching 100%, but the debt held by the public (outside of that held by Social Security and the Federal Reserve) amounts to about 60% of GDP and rising, due to recent budget deficits of about 10% of GDP annually. This is presently manageable since so much of that debt is of short-maturity and is being financed at very low interest rates. And though U.S. Federal tax revenues have historically run near 19% of GDP (they're presently only about 16% due to the sluggish economy), those depressed interest rates mean that debt service doesn't consume a huge chunk of revenues just yet.Still, it's precisely that short average maturity that makes the debt problematic from a long-run perspective, because it can't be inflated away easily. In the event of sustained inflation, the debt would have to be constantly refinanced at higher and higher yields. Contrary to the assertion that the U.S. can easily inflate its debts away, it is clear that sustained inflation would create enormous risks to our long-run fiscal condition by driving interest costs to an intolerable share of revenues. At that point, any shortfall in GDP growth or government revenues would result in a rapid spike in debt-to-GDP (as Greece and other peripheral European nations are experiencing now). Prior to embarking on an inflationary course, the first thing a government would want to do is dramatically lengthen the maturity of its debts.
If our debt was mostly 30-year notes we could inflate it away without worrying about interest rates, because the rates would be locked in for decades. But if we have to keep re-borrowing the money every few years we'll have to do it at ever-increasing rates... in inflation can't "save" us. We are so totally screwed.
(HT: Tyler Cowen.)
Companies are fleeing California in droves, but don't worry, the state is creating yet another government agency to study the matter!
Later this year, California will set up a new agency that will serve as a focal point for economic development and job creation, [Lieutenant Governor Gavin Newsom] said. Among its goals will be to reverse the perception that California is business-unfriendly.
Yeah, the real problem is the perception of unfriendliness, not actual unfriendliness! Those corporations are so dumb and misguided... I'm sure the new agency will set them straight.
The economic crisis is really about to hit home: bacon prices are about to skyrocket.
The global debt crisis has sparked riots in Greece and elsewhere in Europe, but while you were watching the mayhem on TV, you might not have noticed that there's a riot brewing at your kitchen table.Bacon prices are expected to soar this summer -- just in time for peak BLT (bacon lettuce and tomato sandwich) season. ...
But this year, just as the U.S. is worrying about its own debt crisis and a possible "double-dip" recession, the price of bacon --that sizzling, smoky comfort food we most need during tough times -- is expected to surge. The price of pork bellies, which is where bacon comes from, jumped to more than $130 per hundredweight (100 pounds), and some analysts suggest it's going to top last August's level of $150.
(HT: Instapundit and his strategic bacon reserve.)
More "good" jobs would be nice, but what America really needs is more "bad" jobs.
Think of the path to successful middle class living as a ladder; the lower rungs on that ladder are not nice places to be, but if those rungs don't exist, nobody can climb. When politicians talk about creating jobs, they always talk about creating "good" jobs. That is all very well, but unless there are bad jobs and lots of them, people in the inner cities will have a hard time getting on the ladder at all, much less climbing into the middle class.Many sensitive and idealistic people in our society work very hard to keep from connecting these dots and admitting to themselves that bad jobs are something we need. Quacks abound promising us alternatives ("green jobs" is the latest fashionable delusion), but ugly problems rarely have pretty solutions. We need entry level jobs that will get people into the workforce, and we need ways that they can learn useful skills at affordable prices that will help them climb the ladder and move on.
To get these jobs, we have to change the way our cities work. Essentially, we have created urban environments in which the kind of enterprises that often hire the poor -- low margin, poorly capitalized, noisy, smelly, dirty, informally managed without a long paper trail -- can't exist. The kind of metal bashing repair shops that fill the cities of the developing world are almost impossible to operate here. Plumbers, carpenters, electricians, pushcart vendors and day care operators need licenses; construction work has to comply with elaborate guidelines and city bureaucracies disgorge the required permits slowly and reluctantly.
We've created cities that can only accommodate the wealthy and have no use for the poor.
