In a recent interview Mr. Greenspan issued a warning.
I think the real problem is over the long run, we’ve got this significant continued drain coming from entitlements, which are basically draining capital investment dollar for dollar
The long run will eventually become the present. The trends are clear. Even with very conservative estimates, entitlements are going to sink the federal government. The CBO makes a whole bunch of rosy assumptions about the future. Low interest rates forever and no recessions. They produce this.
He continues:
Without any major change in entitlements, entitlements are going to rise. Why? Because the population is aging. There’s no way to reverse that, and the politics of it are awful, as you well know
I am going to show you how bad the politics of it really are. Open up google search and type “how do I qualify”. The search engine begins to complete my thought based on its algorithm.
Does the public care about any of this? Let us take a look at a Gallup poll from 2011.
Let me translate the results.
‘I see there is a problem. However, don’t raise taxes and don’t cut entitlements.’
This is very simple. There is no such thing as a free lunch. Across the entire political spectrum people understand this. The voting block of the western world has schizophrenia.
When will this end? How much longer can it go on for? I don’t know. No one does. It can last a lot longer than people think it can. The movement of interest rates will play a key role. I doubt the bond bull market is dead. So don’t be surprised if another 20 years go by without an issue.
I want to make an important observation. If inflation began to pick up, the idea that the Federal Reserve would stand by idly and watch it spiral out of control is absurd to me. If the CPI has a print of 8% the Federal Reserve will act to shrink the monetary base and interest rates will rise. The US government interest expenditure will sky rocket. The bond bull market that started in 1982 will not last forever. One day it will end.
I have ideas about how it will all play out. Like any prediction about the future it is speculation. There is one thing I am certain of though. Promises will be broken in one form or another.