Wednesday, May 20, 2009

Stop Spending Our Future - The Crisis

Our economy is in crisis, and our government says that bold action is required. So we're diving in head first to get things back on track. But... what are we diving into exactly? Take a closer look...

It is hard for me to fathom the reckless disregard with which the US is going into debt and hard to fathom the size of the debt. Our nation has never been this deep in debt. In real constant dollars adjusted for inflation, the debt is much greater than any time in our history. Expressed as a percent of GNP, the debt is just a little shy of the debt of World War II. The difference, of course, is that when the war ended there was large pent up demand. In World War II a large segment of the population was serving in the Armed Forces and not available to be consumers and the US was under rationing and many products, includig cars, were simply not produced. All it took for people to start spending money was the end of the war. We could grow ourselves out of our debt. That is not now the case.

Another factor is that in World War II much of the debt was owned by Americans; now much of the debt is owned by foreign governments. If is highly unlikely that we will experience sufficient growth to grow ourselves out of this hole we are daily digging deeper. We will have to borrow more and more to pay the interest on our debt. I see no way we can ever pay it. The debt will have to me monetized. In essence we will print money. I fear that massive run away inflation is in our future.

I think I know a little about economics but I am not a professional economist; but to me, it seems we are rolling the dice and the odds are not in our favor. If I am wrong to be so concerned, I am open to being enlightened. Please feel free to leave a comment that explains why I am wrong to be so gloomy about our future. Actually, I hope I am wrong.

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  1. I find nothing "Wrong" in your opinion, As I believe the situation will quickly get worse. This Admin. has a "Control" agenda, they have already placed their "Big Government" stamp on the Auto, financial industries etc.--due to the situation in Cal. they will shortly strap the Taxpayer again, and start placing their "Stamp" on State Governments as well-so much for Hope, but their will be change!

  2. I think it will not come until countries refuse to buy our debt and inflation shoots up... by which time it will be too late.