CapitalistMarks

The road to a government crisis. Debt for tat.

Posted on 15. Sep, 2009 by scott in economic daydreaming

It is difficult in today’s environment to place blame for our national debt.  Surely President Bush did more to damage the reputation of our Treasury than any other President to date.  But sadly President Obama does not seem to be doing much to mitigate the damage.

As he mentioned in his recent speech on health care, Obama is being careful to place the blame on the prior administration.  Yes indeed, he did inherit a trillion $$  problem, but he has, at the same time, done nothing to improve it.

I have read economic texts that state that a federal deficit is nothing to worry about.  How can that be?  Someone has to come up with the money the government is spending above and beyond any income.  Lately it has been China, but Saudi Arabia, Russia and Brazil and other have been buying our Treasury debt as well.  Are these the ‘partners’ we need and want?

Part of the government’s response has been to let the $$ decrease in value when compared to other global currencies.  Aslo, the Fed has pegged interest rates at record lows (basically zero for short term inter-bank loans).  This has been good for the U.S. because our roughly $8 trillion of debt requires less interest right now (certainly for short term rates — i.e. 2 year Treasury notes are paying ONLY 0.94% and 6 month Treasury notes are at the fabulous rate of 0.19%).

Dang it affects all of us too.  Many are afraid of putting their savings into the stock market (and they should be too) but what are the alternatives?  I checked with a national financial institution today and their rates on savings of over $1,000,000 are ONLY about 0.30%.  That means you will only get about $30,000 a year for ‘investing’ your money in their Money Market Savings account.  Most of us have only a fraction of that are are earning only pennies every month on our savings.  True, check your most recent statement.

Jeese Louise folks.  Who could possibly say that deficits don’t matter??  Only government funded economists that want to convince you and I that it is true.  Bull-crap!

Of course deficits matter.  Don’t let anyone tell you different.

And our deficit this year (part Bush’s and part Obama’s) is going to be about $1.6 trillion!  By far the highest in history and one that makes the highest of the Bush era seem like ‘chump change.’

In fact our national debt (about to be $8 trillion) will be around one half of our entire GDP.  In another couple of years with more trillion $$ deficits we will be approaching  75%-85% Of GDP.  Are you kidding me?

How are we going to pay for this?  At only 2% our debt service could be $200 billion per year.  But how long is China, Russia and Saudi Arabia (you know . . . our closest friends and allies) and other governments (or investors) going to be willing to pay only 2%??  Not long when inflation of only 2% will eat up their profits.

The Treasury is going to have to start paying much higher rates to get anyone to buy and keep our debt afloat.

What will happen if inflation and other factors (most of which are inevitable: a declining economy, high unemployment, even more increases in government spending) cause the rates to go to 5%??  Or what if they soar to say 8 or 9%??  Or even higher?  Holy Mackeral, Batman!

How is our government going to manage to pay a $1 trillion per year debt service?  Total government spending this year is only about $3.7 trillion . . . income (taxes etc.) only about $2.1 trillion.  A third of spending on debt?  Half of income going to debt service??

Come on folks, this is just not sustainable.

You don’t have to be a genius (or a fake one with the title of ‘economist’) to figure out the coming problem is one of monumental scope.  And here is the worse news . . . the figures I have given you do not even contemplate the unfunded obligations of our government for Social Security or Medicare/Medicaid!

In a couple of years America will be on sale and it will be A FIRE SALE!!

Our big business will be bought for fractions of their real value by foreigners (China if those business have anything to do with natural resources).  Our real estate will be cheap even by today’s standards.  Our stock markets?  If we allow this to continue the shock of the past 20 months will seem like nothing more than a bump in the road.

So, we’ve got more to worry about.  And we, as Americans, must do everything possible to prevent this.

How?

1 – Make Obama live up to his promise . . . not a dime additional spent on health care reform (which we need).

2 – Get rid of the idiots in congress by NEVER voting for incumbents (term limits is the best solution but our elected leaders will NEVER let that come to pass — so don’t EVER vote for any of them).

3 – And finally press your elected leaders to do something now about unemployment and the debt (they both go together).

A strong America is an America out of debt.  A strong America is an America that is fully employed with good ‘tax paying’ citizens.

Just that easy.

Copy everyone you know with the blogs from this site and lets you and I and 300 million others start taking America back!

Join the band wagon.

Today.

Thanks for reading.

Scott

Tags: fiscal year deficits, GDP, government spending, national debt