...Those of us who have suggested that the irresponsibility of recent American policy may produce a similar disaster have been dismissed as shrill, even hysterical. (Hey, the market's up, isn't it?) But few would describe Robert Rubin, the legendary former Treasury secretary, as hysterical: his ability to stay calm in the face of crises, and reassure the markets, was his greatest asset. And Mr. Rubin has formally joined the coalition of the shrill.
In a paper presented over the weekend at the meeting of the American Economic Association, Mr. Rubin and his co-authors, Peter Orszag of the Brookings Institution and Allan Sinai of Decision Economics, argue along lines that will be familiar to regular readers of this column. The United States, they point out, is currently running very large budget and trade deficits. Official projections that this deficit will decline over time aren't based on 'credible assumptions.' Realistic projections show a huge buildup of debt over the next decade, which will accelerate once the baby boomers retire in large numbers....
'Substantial ongoing deficits,' they warn, 'may severely and adversely affect expectations and confidence, which in turn can generate a self-reinforcing negative cycle among the underlying fiscal deficit, financial markets, and the real economy. . . . The potential costs and fallout from such fiscal and financial disarray provide perhaps the strongest motivation for avoiding substantial, ongoing budget deficits.' In other words, do cry for us, Argentina: we may be heading down the same road.
Bushies belittle Krugman by calling him "shrill", "hysterical" and a "girlie-boy" (I made up the last one.) Kudos to Krugman for adopting "shrill" as his slogan.
The Economist is beginning to mutter the same sort of thing -- hard for them since they sold out to the Republicans two years ago.
This forecast, and the real estate bubble, are good reasons not to put all assets in a hot market, and to look for investments that go up if the US goes down. (But do they exist?)