Private foreign capital is losing interest in US treasuries. Rumors are that the Indonesians, the Russians and maybe even the Chinese are starting to bail, too. So it only makes sense that George W. is planning a massive borrowing campaign.
The White House and Republicans in Congress are all but certain to embrace large-scale government borrowing to help finance President Bush's plan to create personal investment accounts in Social Security, according to administration officials, members of Congress and independent analysts.Bush's solution to the "problem" of massive borrowing for Social Security privatization has to be a continuation of super-loose monetary policy. The Fed can keep interest rates low, the Treasury can issue massive amounts of debt, and when nobody wants to buy Treasury notes, the Fed can gobble them up as it did in 2002 when it absorbed 31% of the debt growth that year.
The White House says it has made no decisions about how to pay for establishing the accounts, and among Republicans on Capitol Hill there are divergent opinions about how much borrowing would be prudent at a time when the government is running large budget deficits. Many Democrats say that the costs associated with setting up personal accounts just make Social Security's financial problems worse, and that the United States can scarcely afford to add to its rapidly growing national debt.
But proponents of Mr. Bush's effort to make investment accounts the centerpiece of an overhaul of the retirement system said there were no realistic alternatives to some increases in borrowing, a requirement the White House is beginning to acknowledge.
Unlike the 1970s, we won't get cost-push inflation in tow; there just aren't the wages to force it any longer. Instead we'll have more investment bubbles and more wealth affect consumption.
Greenspan was able to ride the bubbles for the last five years, so I suspect Bush figures Greenspan and his successor can ride them out another four.