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June 07, 2010 at 05:02 AM
George Santayana once said, “Those who cannot remember the past are condemned to repeat it.” I wonder what the Spanish-American philosopher would say if here were alive today? Very recently, the blatant disregard for fiscal prudence reached a pandemic state.
Most of the “developed” world spent the greater part of the last 30 years on a debt spree that would make Imelda Marcos blush (I wonder is Barack Obama is related?). This debt binge was part of the reason the developed world, well, developed. In fact, debt is an integral part of economic life for, without it, growth would be sluggish at best. Individuals, businesses, and government, in the aggregate, typically spend more than they make and this fuels prosperity.
However, the greater the debt and accumulation period, the longer it takes to unwind. And during the unwinding period, the economy will tend to be more lethargic. Excess debt is the chief reason for the recent near collapse and current woes of global financial systems.
That which took 30 years to create will not be corrected in 15 short months. Moreover, here at home, the Fed is out of ammunition. As a result, America is somewhat at the mercy of consumers and businesses and, of course, the rest of the world. Yes, the rest of the world.
