As Vox notes, no matter how poorly economists use Excel, when it comes to managing our massive debts:
"... there are only four options: slow growth and austerity for a very long time, elevated inflation, financial repression and debt restructuring. And the only one that offers any possibility of success without massive social disruption and violence is the last one."It ought to go without saying* that policy makers are not going to go for debt restructuring any more than they are going to support actual austerity.
Imagine what would happen to every pension in the country if the gov't gave a 50% "haircut" to every t-bill floating around in Retirement Land - which would only reduce our debt to 2008 levels - and let's even assume that such a haircut would affect no other assets. Every pension's assets would be significantly reduced, and that reduction would make their impossible return targets double-dog impossible. No small number would go insolvent, throwing their claims back on the Pension Benefit Guarantee Corp, which is sort of a Fannie Mae for old men in checkered pants. Reducing federal obligations like that bankrupts pensions, which increases federal obligations. Our system is riddled with such Catch-22s. And even if we did it, at the current rate of spending, we'd be right beck to this spot by the end of Obama's second term. Voluntary restructuring is not going to happen.
Anyone following the screaming about a temporary 2% cut in spending that's backing up airports all over the nation** ought to realize that the necessary cuts, which run 10x the Sequester cuts to even be called a good start, are not going to happen, either. There is no place the government can cut that does not ultimately have a constituency that will react nastily at the end of the free lunch. Federal workers hold up the lines. Welfare professionals march in the streets. Angry, scared, old people vote. Politicians are masters of avoiding the short-term pain*** threatened by all three. Slow growth may (will) happen, but voluntary long-term austerity is not in the cards.
Bennie and the Jest are currently trying, unsuccessfully, to create inflation, for only inflation promises**** a way to manage these debts by mercilessly reducing their denominator. Failing this, we will pass into brutal financial repression, while they again try to create inflation. Failing that, they will try cruder, more time-tested methods to create more inflation, and they will eventually succeed. At least until the wolves' teeth meet behind the trachea.
* but doesn't, apparently
** in an attempt to bludgeon Americans into demanding the beast be fed. Call it the Washington Monument Strategy.
*** It is telling that the only time in recent memory that we had actual (if temporary) budget cuts, it happened in spite of the efforts of both parties to avoid them.
**** "No signed paper can hold the iron. It must come from men. The words of Ten Bernanke carries the same iron of life and death."