The National Debt: Another Financial Crisis in Slow Motion?

(MoneyWatch)  My father, a stock and options trader for over forty years, is famous for saying, "Don't tell me what you think, tell me what you see." He is referring to the ancient art of ticker-tape watching.


I remember visiting my dad at the American Stock Exchange (may she rest in peace on 86 Trinity Place) and seeing real, live ticker tape machines in the Member's Lounge. The machines were replaced by Quotrons and then computers, but the activity of "watching the tape" was always the same: by examining price movement, an investor can get a feel for market direction and sentiment. Yes, I know that this is all very unscientific.

Watching the bond market tape these days is revealing. Since the end of last year when the world was in a full-blown panic, interest rates across the globe have spiked. As governments determined that spending and borrowing was the surest way out of the deep recession, the bond market started whispering that easy money and debt today is going to be a problem down the road.

There is an eerie slow, motion quality to this problem. (It's kind of reminiscent of a little thing called sub prime, that didn't seem like such a big deal in March, 2007.) As interest rates grind higher, it costs more money for the government and consumers alike to finance debt. That's why Federal Reserve Chairman Ben S. Bernanke warned Congress that current debt levels aren't sustainable in the future. The US must "begin planning now for the restoration of fiscal balance."

Robert Reich said that the implicit message in Bernanke's comments was a nod to Congress that taxes must rise. Not to argue with a super-smart economist, but if you think that the only people who will pay the price for this problem are those earning more than $250,000, me thinks you may be underestimating the problem. These so-called "rich" can't be taxed enough to mitigate the coming wave of inflation, nor will increasing taxes on them pay for everything that's currently on the table. My read of the tape signals higher interest rates, higher inflation and higher taxes for a much larger group of Americans.