Our main fiscal issues are three (see my testimony to the Senate Budget Committee earlier this month). The most immediate problem is that our largest banks and closely related parts of the financial system blew themselves up in 2007-08. The ensuring recession and associated loss of tax revenue will end up pushing up our government debt, as a percent of GDP, by around 40 percent. Very little of this debt increase was due to the fiscal stimulus; mostly The Baseline Scenario this time,
No, even without network theory we know that long term yields have dropped over the last ten years, We do not have enugh room to spread rates and accommodate a restructuring anymore. The balance sheet problem has reached the top end, after three or four recessions since the Reagan era.
Second, network theory tells us that we do not have GDP growth unless we have closely coupled production variation with which to complete the Kling pattern and Search problem. Government is part of the economy, and government will become channel coherent, or we remain in recession.
Top end rates are dropping because the balancing act has temporarily floated out to the periphery again, this time the Middle East. After some resolution of that, even war, that imbalance comes shootig back to us with a vengance. And you cannot invent a recession cause to justify your personal politics. We suffer oil shortages...from the Middle East. Remember, we were a safe haven during the second most severe depression of modern times, 2008, remember?
Finally, we are undergoing one of the greatest information transformations of all time, and these transformations almost always cause severe war. The idea that we seize upon every little change in rate as an excuse to go farther into debt is gone, we figured that game out.
You do not have to go far, just look at Sarah Palin, she is seizing upon the Middle East problems to get us embroiled into a trillion dollar war, with the aid of some idiot at Instapundit. That is not an artifact, that is dissonance caused by the temporary channel incoherence. Just because George Lakoff cannot figure it out does not make is go away. We have a very delusional president easily subjected to dissonance when the channel does not jive. It is a very dangerous time for economists to start making things up to suit their ends.
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