Sometime around the year 2005, perhaps a few years before or after, America will enter [the Crisis]....Step up to the plate, President Obama, use the authority you were given to get us closer to the kind of social contract you preached about, instead of kow-towing to Wall Street. Make the bankers and their investors eat their bad debts. Don't be a stooge, a Dubya II.
The new mood and its jarring new problems will provide a natural end point for the Unraveling-era decline in civic confidence. In the pre-Crisis years, fears about the flimsiness of the social contract will have been subliminal but rising. As the Crisis catalyzes, these fears will rush to the surface, jagged and exposed. Distrustful of some things, individuals will feel that their survival requires them to distrust more things. this behavior could cascade into a sudden downward spiral, an implosion of societal trust.
If so, this implosion will strike financial markets--and, with that, the economy. Aggressive individualism, institutional decay, and long-term pessimism can proceed only so far before a society loses the level of dependability needed to sustain the division of labor and long-term promises on which a market economy must rest. Through the Unraveling, people will have preferred (or, at least, tolerated) the exciting if bewildering trend toward social complexity. But as the Crisis mood congeals, people will come to the jarring realization that they have grown helplessly dependent on a teetering edifice of anonymous transactions and paper guarantees. Many Americans won't know where their savings are, who their employer is, what their pension is, or how their government works. The era will have left the financial world arbitraged and tentacled: Debtors won't know who holds their notes, homeowners who owns their mortgages, and shareholders who runs their equities--and vice versa.
At about the same time, each generation's approach to its new phase of life will set off loud economic alarms, reminding people how weakly their Unraveling-era nation prepared for the future. The Boomers' old age will loom, exposing the thinness in private savings and the unsustainability of public promises. The 13ers will reach their make-or-break peak earning years, realizing at last that they can't all be lucky exceptions to their stagnating average income. Millennials will come of age facing debts, tax burdens, and two-tier wage structures that older generations will now declare intolerable. As all these generations enter their Crisis constellation, the Unraveling era's wry acceptance that people might never get much back from Social Security will crystallize into a jolting new fear that everything from Treasury bills to remortgage instruments to mutual funds could become just as suspect.
At some point, America's short-term Crisis psychology will catch up to the long-term post-Unraveling fundamentals. This might result in a Great Devaluation, a severe drop in the market price of most financial and real assets. This devaluation could be a short but horrific panic, a free-falling price in a market with no buyers. Or it could be a series of downward ratchets linked to political events that sequentially knock the supports out from under the residual popular trust in the system. As assets devalue, trust will further disintegrate, which will cause assets to devalue further, and so on. Every slide in asset prices, employment, and production will give every generation cause to grow more alarmed. With savings worth less, the new elders will become more dependent on government, just as government becomes less able to pay benefits to them. With taxes hiked, the new midlifers will get to pocket even less of their peak-year incomes. With job offers dwindling, the new youth will face even taller barricades against their future.
Before long, America's old civic order will seem ruined beyond repair. People will feel like a magnet has passed over society's disk drive, blanking out the social contract, wiping out old deals, clearing the books of vast unpayable promises to which people had once felt entitled. The economy could reach a trough that may look to be the start of a depression. with American weaknesses newly exposed, foreign dangers could erupt.
From this trough and from these dangers, the makings of a new social contract and new civic order will arise. In the initial, jerry-built stages, people will not be entitled, but authorized to receive whatever they get from government. This will lead to conflict, as people do battle to establish where, how, and by whom this authority is to be exercised....
Let's see a little of that vision thing. Be strong, man. The plutocracy will sink us if you let them.
Dump Rubin, Summers, and Geithner. Find some heartland economist types who aren't slaves to Wall Street. Listen to Volcker, man. Look what he did for Reagan.
Any good the stimulus bill does will be undone by piling like trillions of debt on Americans to bail out the banks.
It's the debt, dude. We got too much of it. Write the bad debts off.
You're a one-term president if you blow this.