Kotlikoff: 'Our Country, Frankly, Is Bankrupt' - Financial Advisors' Daily Digest
By SA For FAs :
Boston University economist Laurence Kotlikoff is warning that America's fiscal fuse is nearing its end unless the U.S. undertakes serious structural reforms. As part of this scary vision, the Boston University economist - in a podcast interview (24:42) we conducted today - foresees a time when bond vigilantes stage an open revolt against U.S. fiscal impropriety.
If interested, please tune in to the podcast and hear what he has to say. In deference to those readers who have commented that they dislike the podcast format, I will offer my own brief comment here. I believe the problems Kotlikoff discusses - primarily the enormous debt that leads him to conclude the U.S. is "bankrupt" - to be real. And yet, I have been on the scene long enough to have observed some of the most brilliant people in industry and academia calculate that U.S. insolvency will lead to a bond market collapse no later than 2013, and then 2014, 2015, 2016, and 2017. So far, their prophecies of doom have not materialized.
Kotlikoff himself addresses this idea in the podcast when he says "the fact that the bond market hasn't crashed until now is no real evidence that it won't crash in the next 10 minutes."
I think this point is correct. That is not to say that financial collapse is inevitable. Just that its absence to date should not lull us to sleep. There are a number of economic problems - particularly in the area of entitlements - that are eating away at America's fiscal soundness. My biggest worry is that an economic overhaul has become too divisive politically - over the past several decades - to be meaningfully addressed.
Nevertheless, U.S. society is dynamic and ever-changing, and as the scale of debt increases - both on the books and off-balance-sheet - together with an aging population that presses U.S. finances - the hope remains we will take some steps in the right direction rather than the money-printing-press approach favored by demagogues past.
Please share your thoughts on this issue in our comments section. Meanwhile, below please find links to other advisor-related content on today's Seeking Alpha.
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- Charlie Bilello goes over the subtleties of mortgage rates' influence on the housing market .
- For more content geared to FAs, visit the Financial Advisor Center .
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