Over the past month economists from around the world have trained their eyes on the current crisis that is unfolding in Europe. Experts have analyzed whether or not the continent can weather the impending storm brought on by indebted countries such as Greece and Italy and if the crisis will end up being the death knell for the Euro. Here in the United States, policy makers have asked if the European crisis will motivate America to get serious about solving its addiction to debt?
In order to break down the current debt situation, The Buttonwood Gathering, hosted by The Economist, featured a panel of three private-sector investment experts who analyzed public-sector responses to the crisis. FORA.tv currently offers this event, What Are the Consequences for a World Awash with Debt?, on demand.
Kyle Bass of Hayman Capital, a Dallas-based hedge fund that made millions gambling against the subprime mortgage bond market before it crashed, believes that the world has “reached it’s credit limit.” Governments must rid themselves of debt immediately. “In the end I think [governments] are going to have to default and restructure,” Bass said. “We can’t expect rich countries like Germany or China to continue to write checks to countries that are continually on the verge of default.”
One concern among investors in the United States isn’t the amount of debt the federal government currently holds, but the unwillingness of politicians to talk about it in a public forum. Stephen Pagliuca of Bing Capital, a Boston-based investment firm, believes the system is broken because politicians are more worried about getting reelected than doing the right thing. “Consultants would tell me if you want to get elected you can’t talk about deficits,” said Pagliuca, who unsuccessfully ran for Ted Kennedy’s Senate seat as a Democrat in 2009 “You can’t talk about paying off spending or raising taxes. One way to fix this is to have term limits and get politicians to focus less on sound bites and more on the long-term picture.”
With Washington mired in political gridlock, is there any room for optimism? Nathan Sheets, a former Federal Reserve economist and current global economist at Citigroup, believes that if both Democrats and Republicans dig in their heels and refuse to solve deficit spending in the United States, it could have a positive effect on the 2012 presidential election. “If both sides of the aisle refuse to tackle debt problems in Congress, presidential candidates will be forced to talk about this on the campaign trail,” Sheets explained. “It’s possible we could emerge from [the 2012] election with something approximating a social consensus, with gridlock giving birth to progress.”