Investors worried about passing U.S. debt on to their grandchildren can stop worrying, says hedge fund manager David Einhorn.
"Our generation — not our grandchildren's — will have to deal with the consequences," Einhorn says.
One reason for ballooning debt is government workers' pay, Einhorn notes.
"Public sector jobs used to offer greater job security but lower pay," Einhorn says. "Not anymore,” he writes in The New York Times
In 2008, Einhorn notes, figures from the Cato Institute showed that the average federal civilian salary with benefits was $119,982, compared with $59,909 for the average private sector worker.
“Government employees are expensive and difficult to fire,” he points out. Bloomberg News reported that from the last peak, businesses have let go 8.5 million people, or 7.4 percent of the work force, while local governments have cut only 141,000 workers, or less than 1 percent.
The question we need to ask is this, Einhorn points out: If we don’t change direction, how long can we travel down this path without having a crisis?
“The answer lies in two critical issues,” he says. “First, how long will the capital markets continue to finance government borrowings that may be refinanced but never repaid on reasonable terms?”
“And second, to what extent can obligations that are not financed through traditional fiscal means be satisfied through central bank monetization of debts — that is, by the printing of money?”
Mortgage lenders are seeking relief from Fannie Mae and Freddie Mac as the government-supported companies force them to buy back more soured debt.
“We’re trying to see if we can’t reach some type of a system that says there is a bright line out there, if this loan has been making payments and defaulted for a reason that is neither fraud nor related to the underwriting of the loan,” John Courson, president of the industry’s largest trade group, told Bloomberg Business Week.
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