Debt Panic Watch

I am busy today, so I have no time to write at length. Please dampen the applause.

But.

How can I pass this by?

For all you debt panic types: today’s auction of US Treasury bonds went off without a hitch. Those cagey be-all and know-all types in those cut throat credit markets, you know, the ones who are about to leave us high and dry because we are “broke”, bid in droves for our soon-to-be worthless paper.

The Treasury sold $32 billion of three year debt at a yield of 1.298%. The auction attracted bidders with 3.22 times the amount actually sold – this is up in the recent average of 3.06 times. And that yield is nominal not inflation adjusted. You do the math to see where it would be in real terms.

So.

Where’s the imminent panic over our debt?

Not in the credit markets that’s for sure. And since that’s the only place that actually counts, why do we still hear rubbish about our debt levels?

Yes they are high. We just went through a mother of all recessions. Duh. But the credit markets seem to think we are just fine.

So the ghosts of our implosion haunt only the minds of those who seek to exploit the situation for short term ideological gain.

Yes we have a short term debt problem. But it will go away – sort of – once the economy is humming and tax revenues return to their previous levels. What we should concern ourselves with is the long term, or structural debt problem, which is the result of the deliberate attempt to suffocate the government by reducing tax revenues without cutting costs – this is the Reagan/Bush legacy; and our current inability to rein in health care costs which are running at unsustainable rates of growth.

So the plan should be: get the economy up and running at full speed by stoking demand. Then limit the rate of growth in health care spending by getting some form of rationing in place – either by price or control. Oh, and we should raise revenues back to a level consistent with the services we all demand. Sorry, that means higher taxes for some of us.

And along the way we should be leery of politicians who claim the end of the world is nigh and who want to apply leeches to bleed dry the very services that will undergird a healthy economy down the road. Cutting education funding and demonizing teachers is just plain stupid. If you like that idea, please never, ever, complain about our lack of competitiveness with China. They pour money into education. Some people think we cannot afford to any more. That’s more than stupid – it is self destructive.

By the way: much to the chagrin of the negative folks, Social Security is in ruddy health compared with Medicare. A tweak here and there and it will roll on forever. Why? Because the outgoing cash is a very predictable stream. All we need to do is to rebalance the input and output to keep the program ticking along nicely. Medicare is not at all the same. Its problem stems from the complete uncertainty surrounding the outgoing cash. The costs of health care are both rising and unknown: we cannot predict with any precision what services will be consumed at any point in the future. Thus we cannot calibrate income easily to cover those expenses. This is why rationing is inevitable. Get used to it. The only way to control consumption is either to make it so expensive we limit access to a smaller group of affluent users; or to make it scarce by limiting availability some other way, like banning the public funding of certain procedures, especially end of life care. That’s rationing under either scenario. Either the rich get whatever they want and the rest of us don’t. Or we all get somewhat less than what we want. Tough, but true.

Meanwhile back to panic watch: put away those “end of the world” placards. It’s not here yet.