LIFE AFTER DEBT: In this month’s market upheavals in the United States and Europe, we are witnessing the end of a seven-decade economic experiment. But does anyone have any clue what comes next? “The post-war era witnessed not only the triumph of Keynesian economics, but also the establishment of public pensions throughout the Western world. Almost all these pension plans were set up on a pay-as-you-go basis that provided high rates of return to the first generation of pensioners (which, perhaps not coincidentally, was the generation that voted them into existence) at the cost of an unfunded commitment to later generations. Public pension plans are the biggest element in the off-balance-sheet obligations of states, which also include unfunded health-insurance liabilities and the 2008 guarantees to the banking system. In most countries these ‘implicit’ public debts dwarf their traditional obligations traded in the bond market. In the United States, the total long-term commitments for Social Security, public sector pensions, and Medicare have been estimated at over 300 percent of GDP on the basis of current policies.”

Debts that cannot be paid, won’t be. Commitments that cannot be honored, won’t be. Guarantees that can’t be followed through on, won’t be.