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Bloomberg reports on the Senate’s failure on it’s first try to address the burgeoning fiscal crisis facing the United States.

The Senate voted 53-46 against legislation that would have mandated that Congress adopt recommendations made by a newly created budget panel. This panel could have recommended tax increases, changes in entitlements or other structural changes.

First strike for our country mastering the fiscal beast.

Nouriel Roubini writes an oddly titled piece in Project Syndicate called “The Risky Rich”.

He talks about the tensions of western nations faced with slowing economies and substantial debt loads and political spending burdens…

“…The US and Japan might be among the last to face the wrath of the bond-market vigilantes: the dollar is the main global reserve currency, and foreign-reserve accumulation – mostly US government bills and bonds – continues at a rapid pace. Japan is a net creditor and largely finances its debt domestically.

But investors will become increasingly cautious even about these countries if the necessary fiscal consolidation is delayed. The US is a net debtor with an aging population, unfunded entitlement spending on social security and health care, an anemic economic recovery, and risks of continued monetization of the fiscal deficit. Japan is aging even faster, and economic stagnation is reducing domestic savings, while the public debt is approaching 200% of GDP.

The US also faces political constraints to fiscal consolidation: Americans are deluding themselves that they can enjoy European-style social spending while maintaining low tax rates, as under President Ronald Reagan. At least European voters are willing to pay higher taxes for their public services.

If America’s Democrats lose in the mid-term elections this November, there is a risk of persistent fiscal deficits as Republicans veto tax increases while Democrats veto spending cuts. Monetizing the fiscal deficits would then become the path of least resistance: running the printing presses is much easier than politically painful deficit reduction.

But if the US does use the inflation tax as a way to reduce the real value of its public debt, the risk of a disorderly collapse of the US dollar would rise significantly. America’s foreign creditors would not accept a sharp reduction in their dollar assets’ real value that debasement of the dollar via inflation and devaluation would entail. A disorderly rush to the exit could lead to a dollar collapse, a spike in long-term interest rates, and a severe double dip recession.“~~~

The choices we are facing are these:

• Reduce the social safety net – particularly for the elderly through Social Security and Medicare
• The Federal Reserve continues to monetize the debt and unleashes inflation (or hyperinflation)
• Raise taxes
• Selectively default on the liabilities we owe to counterparties (debt exchange like “Brady bonds”)

Spending freezes, like President Obama has proposed, poke around at the problem…

But the economic structural issues are much more substantial… a hollowed out manufacturing base, small numbers of engineering and math graduates… substantial national resources invested in foreign wars and encampments… a “financial sector” that dominates and produces no real value… a “service” and “personal consumption” dominated economy… it’s a ruinous brew of shortsightedness…

Where can the Senate go?

How about a series of hearings on the state of the economy? On the fiscal outlook? On the costs of our multiple wars? And a review of how other nations have addressed these challenges?

The first order of business should be understanding the financial crisis…  like “what is the ‘shadow banking system’?… or what can we do with Fannie and Freddie? … or should megabanks be broken up before another Lehman implodes?

Instead we get Harry Reid browbeating Ben Bernanke to step up the Fed printing press… clueless.

Bloomberg reports from an IMF press conference today the global outlook… ~~~”The global financial system remains “fragile,” with sovereign debt posing a risk to markets and substantial losses expected from commercial real estate, the International Monetary Fund said…”~~~

The IMF is talking about us… the great leaderless nation… the nation who fully recapitalizes Goldman Sachs through AIG and allows 17% unemployment.

We could go over the cliff soon… buckle up.