The bills for decades of profligate spending and borrowing are finally coming due, and governments can’t pay them. Morgan Stanley warns that defaults are inevitable:
“Governments will impose a loss on some of their stakeholders,” Arnaud Mares in the firm’s London office wrote in a research report today. “The question is not whether they will renege on their promises, but rather upon which of their promises they will renege, and what form this default will take.” The sovereign-debt crisis is global “and it is not over,” he wrote.
By most measures–but by no means all–the United States is farther from the brink of default than many other countries, although many states and municipalities are in dire trouble. But Standard & Poors says that the U.S., too, must take steps to preserve its bond rating:
The United States government needs to take steps to preserve its top AAA-rating, a Standard & Poor’s Ratings (S&P) official told Dow Jones newswire in an interview published on Thursday. …
David Beers, S&P’s global head of sovereign ratings said in a July report the U.S. does not have unlimited fiscal flexibility and the best-case scenario for the U.S. would be for its debt-GDP ratio to peak at around 80 percent, although there was a chance it could exceed 100 percent.
“So we don’t think these political decisions on tackling the public finances can be put off forever,” Beers said in the report.
One big advantage we have over many other countries is that most Americans understand the peril we are in as a result of unrestrained government spending and borrowing. Unlike Greece, where the mildest of austerity measures resulted in rioting by citizens who apparently think they can freeload forever, most Americans have responded to the crisis by taking action, e.g. through the Tea Party movement, to pull this country back from the brink before it is too late. We should see the culmination of that movement–or rather, of its first phase–on November 2.