Allan Sloan at Fortune makes a great point about the Social Security system. It will be cash-flow negative for the first time since the early 1980s. Covering the shortfall will inevitably lead to either more debt or some kind of benefit reductions. Alternatively, I guess, they could just print more money and create inflation, although there are a number of economists who argue that deflationary forces (from deleveraging) in the economy are so strong right now that we don’t have to worry about inflation at all.
Fortunately I’m not an economist so I don’t really have a position on this. We’ll find out everything we need to know from the price of government debt and U.S. credit default swaps. Although it is impossible to precisely forecast what the effects on financial markets might be, supply and demand will figure it out over time.
