mangrumsNet

Two articles I read today saying essentially the same thing: the economy is in serious trouble.  At CNBC, Jochen Wermuth, the CIO of Wermuth Asset Management is quoted as saying

America today looks like Russia in 1998. Consumers, companies and the government are all highly indebted. America as a result is a bankrupt Mickey Mouse economy.

The big evil for the IMF in Russia in 1998 was the prospect of the central bank funding government debt. The Fed is now even buying mortgage-backed securities.

Even before the [Troubled Asset Relief Program] and the expansion of the Fed's balance sheet, the ratio of total US public and private debt was 290 percent, that figure is now far higher.

US credit risk is huge and America has two options, either default or let the currency depreciate substantially against currencies such as the yuan and the rouble.

Laurence Kotlikoff, in this content from Bloomberg, says

Let’s get real. The U.S. is bankrupt. Neither spending more nor taxing less will help the country pay its bills.

What it can and must do is radically simplify its tax, health-care, retirement and financial systems, each of which is a complete mess. But this is the good news. It means they can each be redesigned to achieve their legitimate purposes at much lower cost and, in the process, revitalize the economy.

Last month, the International Monetary Fund released its annual review of U.S. economic policy. Its summary contained these bland words about U.S. fiscal policy: “Directors welcomed the authorities’ commitment to fiscal stabilization, but noted that a larger than budgeted adjustment would be required to stabilize debt-to-GDP.”

But delve deeper, and you will find that the IMF has effectively pronounced the U.S. bankrupt. Section 6 of the July 2010 Selected Issues Paper says: “The U.S. fiscal gap associated with today’s federal fiscal policy is huge for plausible discount rates.” It adds that “closing the fiscal gap requires a permanent annual fiscal adjustment equal to about 14 percent of U.S. GDP.”

And have you heard that Social Security is operating in the red?  Grim.