My worst fears about the potential loss of conﬁdence in our leaders, institutions, “and capitalism itself” are being realized. We have been digging this hole for a long time. We really must be serious in our attempts to resuscitate the “average hour worked” and the fortunes of the average worker. Walking across the Boston Common this morning, I came to realize that the unpalatable (to me) option of some debt forgiveness on mortgages looks increasingly to be necessary as well as the tax changes I discuss here.
To go further, if we mean to prosper long term, I am sure we need to act to make debt less attractive to everybody: it really is a snare and a delusion.
Danger: Children at Play
“Peace in our Time” and the Art of Can-Kicking
Tough decision-making is never easy, and wishful thinking and trying to postpone the day of reckoning is always tempting. The British of the late 1930s probably hold the world record for wishful thinking, and the agreement signed in Munich in 1938 certainly provided the ugliest example of expensive can-kicking: Czechoslovakia was sold out to Hitler to, at best, buy a few months of peace. More recently, Japan has been the reigning world can-kicking champ for 20 consecutive years. But today Japan is suddenly being challenged by both the U.S. and the Euroblock. (The Brits, in contrast, with their draconian cost-cutting program at a time of acute economic weakness, look brave. Possibly recklessly conservative, and probably with rotten timing. But certainly very brave, Mr. Minister.) Climbing the Greecey Pole.
I am not an expert in euro ﬁnance by a wide margin. But I know one thing. Forget the debt for a second: the current uncompetitiveness of Greece, Ireland, Portugal, Spain, and Italy did not occur quickly. It took 10 long and obvious years. They had to work at it. The cure was always going to cause a lot of pain and threaten the well-being of the euro. So why didn’t the bosses attempt to ﬁx it early on when it would have been so much easier? There was no material squawking by the Germans or the ECB. In fact, the Germans back then were themselves busy weaseling on their own rules of good ﬁnancial behavior. Along the way, the local bosses – just like Greenspan here – were cheerleaders for the disastrous behavior of excessive spending. Today these problems have become much tougher, but still the decisions are only half made and the cans get kicked and kicked again.
Also challenging strongly to assume the can-kicking title (having already snatched “The Most Dysfunctional Government” title from Argentina) is the United States. Exhibit 1 shows the build-up of U.S. gross national debt as a percentage of GDP.
Full document can be found below in scribd:
Jeremy Grantham GMO Letter 2011