As it is often the case with populism -and Sebastian Edwards explains in his conference about the long and dramatic experience of Latin American countries with it - , US might be entering a debt-default crisis stage. That might be what is behind the sustained hike in the 10-year bonds and interest rates on US debt.
Unlike what happens with populism in the developing world, in US there are not one but two populist parties: the Democrats practice "Left" wing populism inflating entitlements to get minorities' votes and Republicans do the "Right" wing version subsidizing Wall Street and the military-industrial complex with tax cuts. Both policies -deeply ingrained in the parties' platforms- are predicated in increasing spending.
The arguments -or excuses- for either side are that public spending creates jobs and fuels demand (a distorted version of Keynes' -who warned against debt and justified public spending only for short periods of time-) (the Left wing argument) or that low taxes attract investment and create jobs. Notice that "jobs" is the key populist word here.
The invariable result of the swings between tax cuts and spending is the growth of the national debt, now reaching 20 trillion dollars, a level that goes over the 100 % of US GDP (104 % to be precise)
and would put any other country in imminent risk of default, as economist Kenneth Roggoff and Carmen Reinhardt explain in their study of 500 years of debt, "This Time is Different"
and would put any other country in imminent risk of default, as economist Kenneth Roggoff and Carmen Reinhardt explain in their study of 500 years of debt, "This Time is Different"
Alan Simpson and Erskine Bowles produced a detailed and uncontested diagnostic of the debt problem created with these two-sided seesaw that both parties are using to chop down our shared economic tree. They recommended both spending cuts (in defense and social entitlements) and tax hikes to return the runaway deficit to sustainable levels.
Simpson used his gift for the vernacular to describe the reception they got as"the one that you get when you fart at a garden wedding". Both Obama and the Republicans promise to act on it and they did. They both stop talking about Simpson-Bowles.
Populists politicians might brag when the stock market goes up -much as a rooster bragging about bringing sunrise- only to fall silent when the inevitable "correction" comes back and erases paper gains.
Now, the "correction" menaces to erase more than previous gains with record falls that bring stock values below what they were 2 years ago, making all Americans feel the pinch in their savings -which in turn can aggravate the crisis by depressing consumption-.
The real bad news is that the cause of this continued fall and two serious symptoms: higher 10-year rates (which baloon the existing 20 trillion debt) and inflation (which hits cost of living for millions). That combination costed Jimmy Carter and Gerald Ford their presidencies, and took a disciplined Fed years of high rates and dreaded "austerity".
If the current trend continues to unfold, the first openly populist president since Jackson will face the challenge of managing an era of austerity. Looking at how other populist leaders did it in Latin America - Maduro, Kirchner, Rousseff- it might not be easy
