Our Deficit Will Come Down. It’s Just How and Who Decides.

The events in Egypt were just one more in the long list of things that took everybody, or at least almost everybody, by surprise.  The financial system breakdown, and its near collapse, in the United States is another example.

Looking back at both of these events, after they happened, we can see how they happened and why it should have been obvious they were going to happen.  Except, of course, it wasn’t obvious.  Because it if had been obvious, people would have done something different.  Hosni Mubarak certainly would have.  I assume that people in the United States would have, too.  But we kept doing what we were doing because it wasn’t obvious.

Things continue as they are until, all of a sudden, they change.  What had been occurring, what seemed like it was going to keep on occurring, no longer occurs.  Even though continuing for a few more months or a couple more years really wouldn’t make things significantly worse, all of a sudden, what had been happening can no longer continue.

It happened to Greece last year.  They had been borrowing and borrowing.  And then, all of a sudden, people wouldn’t lend to them.  It wasn’t a matter of having to pay a little more interest – or even a lot more interest.  Lenders just wouldn’t lend.  And without loans, the government couldn’t pay its bills, its workers, its retirees.

I mention this because I wonder (fear-?) that the United States could be approaching such a time.  Our budget deficit is out of control.  Things can’t continue as they are.  And they won’t.  They will stop.  The question is how and with what effect. 

If we do it ourselves, we will be able to choose how it happens and what the impacts will be.  If we don’t it ourselves, if we keep spending and borrowing until lenders refuse to lend any more, then we will not be able to pick and choose.  It will be forced on us at a moment of crisis. 

The problem is that we did not know when that moment of crisis will come.  All we know is that the longer we wait, the longer we put off solving our problems for ourselves, the more likely it is that the crisis will come and we will have much less choice as to what we must do.  The other thing we know is that when the crisis comes, it will be a surprise, except that after the fact, it will be obvious.