Debt, Deficits, and the Demise of the American Economy Hardcover – Import, 20 May 2011

This book is a "must read" for anyone who has an interest in the world's economy (which would be just about everybody). The book tells the story of where we are now, how we got here, and where we are going. It was very informative and easy to follow.The economies of the world are becoming increasingly dependent upon each other. This book highlights the negative consequences of poor fiscal management by even just a few nations upon the entire global financial system.I will definetely keep in mind the investment suggestions of the authors over the next few years. I can only hope that our government and the other governments of the world will do their part as well.

The worst part about "Debt, Deficits and the Demise of the American Economy" is the title and the (literally) incendiary front cover. The authors point toward a quite negative outcome, but not the "demise" of the American economy. Rather, they make the straightforward argument that current projections put the US on the path toward a painful debt crisis, and while this outcome is avoidable, the political will - among the public and the politicians - does not exist to avoid it, so it is essentially inevitable, and it is the timing and the tipping point which are in doubt.More detailed version: As of 2010, US public debt to GDP (defined to exclude internal borrowings from the Social Security Trust fund, etc.) was 63%, and even given optimistic economic forecasts of five percent annual growth the Congressional Budget Office (CBO) has it near 100% by 2020. Given that growth will very likely be less than that, the US will hit the magical number earlier. The authors note that defaults by some heavily-indebted EU countries will not destroy the value of the Euro - they simply make it less attractive in the short-term due to volatility - and so once Europe works through its crisis by getting rid of the sicklings, investors will demand higher rates from the US as compensation for the Fed's attempts to monetize the debt by printing money, interest payments on debt will surge from less than $300 billion to close to $1 trillion, and the debt crisis will have arrived, with government at last forced into intense austerity. While I disagree with some of the subsidiary arguments, and think it will take longer than they suggest, unfortunately I think some version of this is very likely.This is a rundown of the contents -Chapter One: It's the Deficit, StupidOutlines the basic facts and explains key concepts. This chapter will be valuable for people whose eyes normally glaze over when they hear discussions of the debt threat. Uses CBO projections as a baseline and then expresses assessments based on the authors' views.Chapter Two: The Crisis BeginsLays out the basics of the European debt crisis to present; little will be new to those who have followed the story, but many Americans haven't. A key conclusion on p. 27 is that Greece, Ireland and Spain will likely default in either late 2011 or 2012. Greece is terminally insolvent for sure; Ireland is also as long as they continue to equate private bank debt with sovereign public debt; Spain I'm not so sure. They don't emphasize Portugal much, although that country has already had to ask for a bailout as of the present date and, in my view, is much more likely to default than Spain.Chapter Three: The Miserable State of the StatesFocuses on US state finances; takes for granted you know about California and Illinois and focuses on Pennsylvania. Provides some broad numbers for states as a whole, with an emphasis on the short-term deficit crisis without getting much into the pension crisis. They believe that the national debt crisis will arrive years before the pensions reache critical, so they don't focus on it.Chapter Four: Inflation, through the YearsProvides a historical overview of inflation crisis to come; if you know your economic history not much will be new here, although I know some (like the Fed) will disagree with the projection. When you have more money (money printing) with a given amount of goods and services, inflation is inevitable. This point is key to their broader investment points later in the book. The authors note that there are many historical examples of inflation that took place at times of high unemployment.Chapter Five: Europe on the BrinkReturns to the European debt crisis, but in this chapter looking forward instead of reviewing recent events. The most important point they make, which I think many don't get, is that the inevitable debt restructurings in Greece et alii will harm those countries and the (mostly) German and French banks which lent to them, but will not destroy the Euro. In fact, it will be stronger once the PIGS leave, and that will be the impetus for investors focusing on the US.Chapter Six: The Crisis Hits the United StatesReturns to the theme of chapter one, but more forward looking now. The statistic cited I consider most important (p. 76) is that even a sustained increase in interest rates to four percent would, by 2015, double the yearly interest payments of $460 billion they project. That is, around $900 billion. And I consider that quite likely.Chapter Seven: The Way BackIncludes a range of broad proposals for fixing the problem, including the need for less spending, less QE (money printing) and more saving. Emphasizes that while post-2008 there was some increase in private saving, this positive was overwhelming by public spending which cancels it out.Chapter Eight: Forging AheadThis is the policy prescription chapter. The authors advocate a range of more specific proposals; cutting taxes broadly (corporate, payroll, individual) but introducing a VAT (value added tax), extending the retirement age and means testing benefits, reducing regulations and raising the bar for education through increasing competition.While some of these proposals might help, I don't see how they prevent the crisis; they are all aimed at increasing growth, but given spending trends even increased tax revenues from growth will only partially offset them. And while more competition in education may be good, I wouldn't cite higher education for this, as the authors do. Competition has caused universities to compete through lower standards and increased campus perks for students on an extended adolescence, and to the extent that they cite international surveys showing that US universities are the best in the world, given what they now produce, I would question the methodological validity of the surveys.Chapters Nine, Ten & Eleven: Investing in a Time of Crisis/Gold is Still Good/The World Still Runs on OilHere the authors take the coming crisis as a given and provide some investing advice. The essence of it is to be careful about stocks, stay away from long-term bonds given the coming inflation, and buy gold and the stocks of companies whose value is secured by the long-term prospects for high oil prices.Chapter Twelve: Understanding the Investment Risks we FaceGood overview of the concept of risk in investing if you've not studied the topic of risk. If you have, not much will be new.ConclusionSummarizes the argument and admonishes investors to remember that people make money in all kinds of environments. Suggests that the crisis could come as early as 2011 and imply without firmly predicting that it will come in the next few years. I think 5-10 is more likely because I think it will come a bit more gradually through investors demanding higher returns on Treasuries to offset the impact of the Fed's money printing.

I read this book because I am concerned about the economy and am looking at ways to weather the coming economic storm. It appeared that the authors had the details correct, and presented a logical conclusion based on those details. Clearly, economics is black magic and there are a lot of underlying factors that none of us can ever know that will affect the outcome, good or bad. The one area that could have been better was strategies for investing in this period of uncertainty. Gold always comes up but gold is hard to handle/spend, and precious metals mutual funds traded in what could be worthless dollars hardly seem to be a good investment.

I cannot believe that Nassim Taleb recommended this hackneyed excuse for original writing... I have known Monsieur Taleb and of him since London in the 80's... His writing is energized and original... This is an epiphenom-book ... It has an expert problem...It is an uninspired rehash of yesterdays newspapers... Stylistically the writing makes reading the phone book of Plano Texas seem like pure joy...Breathless and boring are the two most descriptive words I can think of for this attempt at a financial tome... Which if god is really great, will certainly end up in a literary tomb.The NNT mention got me to spring for this banality masquerading as a book... Just as did his recommendation of Liar's Poker caused me to spring for it... Some you win and some you lose...Thanks to god it was a Kindle book so I do not have to publicly burn it...

Not much new here in what is a long line of books on the financial doom and gloom for America, and the inevitable meltdown caused by our mounting national debt. The author's solution? More tax cuts for the wealthy. Brilliant.