The Coming Tipping Point For Liberals In America

Here's a quote attributed to Margaret Thatcher,

"The problem with socialism is that eventually you run out of other people's money [to spend]."

So true. For Britain, with its smaller economy, Thatcher was present in the 1980s to take advantage of that event, and turn the country's economy and political sentiments around.

The US, having the world's reserve currency and, until recently, a competing global communist power to frighten investors, has had it much easier.

We've run deficits for almost every one of the past 70 years!

However, as I contend in a discussion with a colleague this weekend, the US is about to arrive at its economic day of reckoning. Rather than a politically-driven change in American tolerance of its liberals-cum-socialists in the current administration and Congress, the stimulus will be economic.

Per Thatcher's remark, I believe that 2010 will see the first Treasury auctions go less than fully bid. Along with significantly higher rates for what is bought.

With a health care bill potentially passed and signed this month, more stimulus spending and the prospect of 'cap and tax' legislation, investors are beginning to doubt America's ability to service its debt.

Whether spending were reined in, or not, it's going to be the tax increases which light the domestic powder keg of anger and frustration.

My colleague routinely and, I believe, correctly notes that the average American voter doesn't really pay attention to, much less understand, what Congress and the administration are doing. But when global limits on US borrowing and an uncontrollable higher interest rate on US debt combine to force higher taxes, I predict political change will be coming.

With a vengeance.

I'm not talking about anger over a single bad health care bill, or runaway spending by one Congress.

I'm talking about the payback for 70 years of unrestrained use of the national credit card by Congress and too many administrations.

Perhaps I'm overly optimistic, but the size of the economic and financial dilemma which will almost certainly soon face us may well provoke similarly outsized political reactions. Sweeping Congressional losses, a redefinition of parties as they sit in Congress, and maybe even a Constitutional Convention.

My colleague estimated a 1 in 5 chance of a failed Treasury auction or similar economic event that could start this ball rolling.

I estimate a 4 in 5 chance.