Is the US economy in peril? What can be done about it?

[rockymountaindem]

I'm not talking jobs and family income here, I'm talking about our international situation. It's no secret that we've got a massive debt. What's more, much of that debt (about half, I believe) is supported by foreign institutions. Some of them are in countries that aren't exactly on friendly trade relations with the US, such as China and Japan. I'm afraid that our mounting debt/defecit may severely undermine our economy.

I'm in my second year of university economics and I've learned a few things. First among them is that economics should be required course material in US high schools. Even with a rudimentary knowledge of the world economic system, things make a lot more sense to me now than they did before. Secondly, I now realize that the debt is not just some number, it's a real problem. Not paying it back can result in many negative consequences for the US, including but not limited to high interest rates and high inflation, which would cripple our economy.

If we default on our loans, then we're really sunk. A steady flow of loans into and out of a country is necessary in any economy, even a very healthy one. If we default, nobody will loan us money anymore, and our economy may never recover.

In addition, the weakening dollar means that an import-heavy economy is placed under great strain. Currencies are like commodoties, in that their value fluctuates with supply and demand. If someone wants to buy US goods, they must pay for them in US dollars, meaning that they must first have a stock of US dollars to use in the transaction. To get our dollars, foreign consumers and investors pay for them with their own currency. Right now, demand for our money is low, meaning that we must pay more US dollars to buy Euros, Yen and Pounds. This drives up prices for imports.

As the deficit/debt continues to rise, all these problems will continue to get worse. And, in case you haven't noticed, the stock market isn't so hot either. Do any of you out there share my concern? What can be done? All I can come up with is that if we were ever on the verge of defaulting on our debt or devaluating the dollar to stop inflation, then the government would be forced to make an appeal to the citizens to pay higher taxes to pay down the debt to forestall the ruin of our country. All those anti-tax, so-called patriots would be in a real bind then...

[papau]

1. unpleasant sudden changes in economic well being could indeed

happen -

The deficit MUST be addressed - although it need only be credible 10 year plan to get back to surplus.

There may well be inflation and higher interest rates - made much worse if the deficit reduction plan is not credible.

Kerry's approach will work - I think!

IMHO

I hope!


:-)

[lindashaw]

2. Yes. And not much. If you have a portfolio, put yourself in as good

a position as possible. We've gotten out of stock and have short-term CDs now. If you have bills, pay them. Fortunately, everything we have is paid for. But even so, I worry that we won't be able to live very well if things go down. Those of us who have seen really hard times know that we can keep body and soul together. But the question is a good one. It's the best one. Too bad that most everyone thinks things will go on like they always have. Not this time.

[LSK]

7. I agree

The only thing in my power is to keep myself out of debt and to try and have a savings to fall back on.

I fear economic disaster as well because of our national debt and because of growing economic powers worldwide (EU).

[phantom power]

3. The most immediate thing we could do would be to get back to

a balanced federal budget.

Rebuilding some kind of manufacturing industry would be excellent, but what, exactly, we'd manufacture is still up in the air. It would need to be something that India or China would have difficulty competing with us on.

[rockymountaindem]

5. We can't just do that.

You have to have a comparative advantage in whatever you're producing. You can't just decide to make something in a free trade economy, you have to be able to compete. The only way we could do what you suggest would be to raise mega tarrifs to support "infant" industries the way Japan does.

[idlisambar]

21. and Japan does just fine...

Actually Japan makes more use of non-tariff barriers and subsidies than "mega-tariffs" but the idea is the same. Japan learned how to protect its industries without large tariffs because it had to -- for the first few decades after its reopening it was bound by treaty to place no more than a 5% tariff on U.S. goods.

That aside, the main point I want to make is that a nation's competitiveness in the production of a good is not fixed -- far from it. There are lots of industries that the U.S. could be much more competitive in if it would devote the necessary resources.

[gpandas]

4. one thing i learned in high school...

is there is no free lunch. americans, and people in general, imho, have not mastered this simple logic.

[ixion]

6. well, of course the first thing that must happen is

BushCo must be shown the door.

As long as this mob controls the helm, we are screwed on many, many levels.

And you really can't discuss international debt without including jobs and personal income. Taxes from income is what is used to pay off the debt. When income drops, and the job market is weak, this number drops, hence reducing the money available to both pay back debt and operate on as well.

Like any industrialized nation, we must also participate in the global economy, rather than simply trying to cheat other countries to our favor. While this may bring in money for the short term, in the long term it is not at all a sound practice, as it reduces the list of returning customers.

If the US government were a business, it would have had to file for bankrupty long ago. However, since it operates above the law in this respect, it is up to the current administration to steward over this environment.

Personally, I think those in charge should be held accountable for four years of extremely poor fiscal judgement (if not looting). If politicians were held responsible for taxpayer money they wasted, we would have much less trouble, I believe.

[davekriss]

8. Trouble

The only thing that has sustained the mass consumption binge of the last 20+ years is the fact that most of the world's oil is priced in U.S. Dollars. Without that the dollar would have tanked to the extreme long ago and we'd be paying for coffee with wheelbarrows of cash.

About a year before our illegal invasion of Iraq (iirc), Saddam began selling Iraqi oil in Euros. It was not that Iraq, with quota restrictions, was a direct threat to our economy, but the fact that they stood as an example to other oil-producing countries who might have also decided to sell their oil for non-US currencies. Our oligarchs recognized the danger inherent in letting the Iraqi example stand unpunished. Thus the Orwellian march to war.

(Note I don't claim the oil-for-Euros angle was the sole reason for the illegal invasion, it was one of several. Others included fear of the future collapse of the House of Saud and the need to establish a firm imperialist garrison right on top of the majority of world oil supplies; the need for The Enemy to Loom on the Horizon during the run-up to the 2002 elections; etc. But the oil-for-Euros issue was a major component of the scenario that led to the invasion.)

So now we run-up $700 billion trade deficits and $700 billion federal deficits (when the social security surplus is included). And the dollar has already tanked 25% to 33% since Georgie the Boy King took over. What do you think will happen to the U.S. economy if left to the current trajectory?

Ever hear of hegemonic overreach?

[gjb]

17. Very astute .....

...and coincides nicely with recent rumours that Saudi Arabia is flirting with Euro denominated oil. Also Bahrain entered online banking with dinar e-cash backed by gold.

You could be on to something. The Iraq war and a permanent military foothold in the region may be intended to keep Arab states from moving away from the dollar. It would also explain the obsession to prevent Euro trade in the region by BushCo.

Given that the present Current Account Deficit could not have occured if the US$ was not the world's reserve currency it makes all the sense in the world.

By the way this is my first post. Hi Ya'll

[amazona]

20. hey hi back atcha!

And welcome to DU!

[BillZBubb]

9. The US economy is in peril. Of that there is little doubt.

This misadministration has used up all the tricks trying to create the illusion of growth. They've ran up massive debts and use deficits to grow GDP, they've expanded government, they've balooned defense spending (America's hidden national jobs program), the Fed has lowered interest rates to their lowest level in decades, and they've let the dollar slide. The bag of tricks is empty now.

Our country is awash in red ink, both public and private. Our housing market is in a bubble. The concentration of wealth in the hands of those at the top is at record levels. It will not take much to create a serious debt based panic.

One possible source: If growth in Asia falters--particularly China--we are in trouble. They control a lot of our debt. If they need to get out of US debt instruments in a panic, the bottom falls out.

It may turn out that inflation is exactly what will be needed to lessen the debt load. This may seem absurd to you, but think about it.

[rockymountaindem]

10. I see what you mean.

In response to an earlier poster, I still say that jobs and personal income aren't directly related to this problem. We could have a strong economy, while still sewing the seeds of future problems if we misspend our money. Having money isn't the point, spending it wisely is.

[NewJeffCT]

13. good points

China is the key right now - see my post below. China has their own problems (banking problems, unemployment, corruption that makes Florida look tame, and they, like the US, need to upgrade their power grid)... but, their economy has been growing rapidly, though the Chinese gov't is trying to slow growth down there, however. If they have a reason to stop buying US Treasuries, we're really up the proverbial creek without a paddle.

Agree that the bag of tricks is empty. Either Bush or Kerry is going to be facing major economic problems in the next 2-3 years.

[ElsewheresDaughter]

11. YES .....GET RID OF BUSH!

[NewJeffCT]

12. It started under Reagan

Prior to Reagan, the US had always been a net creditor nation. However, when he slashed taxes on the rich & bloated the defense budget to provoke the Soviet Union and prolong the Soviet empire, he quickly turned us into a net debtor nation and we haven't looked back since. Reagan at least tried to cut spending on some things to rein in the soaring deficits, or at least give that appearance.

Bush 2, on the other hand, does not even give the appearance of trying to rein in spending. His philosphy is driven by what is called "Starve the Beast" - run up the deficits so high that we'll have no choice but to slash (fully privatize) Social Security & Medicare.

The Iraqi oil being traded in Euros is nothing compared to what will happen to the US dollar when China decides their economy is strong enough to let the yuan float on the market (FYI - yuan is pronounced something like "ren"). Right now, it is tied to the dollar at about $1 per 8.125 yuan. Most experts think if the yuan was on the open market, it would trade at closer to $1 per 5 yuan. Imagine if overnight, all of our imports suddenly cost Wal-Mart, Target & Cosco 30% more? Your $25 toaster suddenly costs $35.

What could also happen before China lets the yuan float is for them to switch the yuan to being tied to the Euro from the dollar. Maybe China is tired of buying US Treasuries with little or no return? This would also kill our economy. Then, nobody would want to buy the US dollar and we'd have to raise interest rates to get people to buy the dollar & our treasuries... it's a vicious circle.

[rockymountaindem]

14. "It's a vicious circle". Tell me about it!

What can we do to stop this?

[NewJeffCT]

18. I'm no Bob Rubin

I'm not Bob Rubin or Paul Krugman, so, I can't venture to guess.

But, what *I* think we should do for the long term is to pay down the deficit, even if it means taking a few short-term lumps by raising income taxes a bit on the wealthiest. However, the last time we raised taxes on the wealthiest, the economy & stock market took off... but, I think it would actually have to be more than just those over $200,000 to 38%. Probably to 40%, and then maybe raise those over $100,000 to 35% (which would include the Mrs and me...)

Then, put a bunch of people to work on modernizing our power grid. It's government work, but it will employ a ton of people over the course of a decade, I'm guessing.

Invest in new technologies, as well as improving existing ones.

Ensure that everybody is covered by health insurance - right now, it is a major business expense that US corporations have, but European ones do not. Leveling the playing field will make our companies more competitive.

Once the deficit is down, then we can get back to seriously lowering taxes. Lower deficit also gives the country more flexibility when it comes to trade. Right now, we're at the mercy of China, Japan & the EU many times.

[Sarrek420]

15. Abolish the FED

I have never taken an economics class and don't proclaim myself to be an economics expert. But in my opinion we'll NEVER solve our national debt -because- our currency system is based on a debt system.

Not until we abolish the (non)Federal (no)Reserve "fractional reserve" bank will we ever be able to pay down our debt.

For those who may not be aware of what this system does to us; let me see if I can give a straight forward summary.

BTW, the Constitution of the United States doesn't grant the authority to anybody but "Congress" to issue the nation's money..

Anyway, the "privately owned" Federal Reserve (FED) buys U.S. Bonds with paper notes they have printed up (our money). The scam is: the printed up money is created out of NOTHING, and is then used to buy our U.S. Bonds, which now we are indebted to pay back -plus- interest. Its no different then if you wrote somebody a rubber check and charged them interest. This system is really no different than if you borrowed money from your visa card and then when the bill came in, you paid it with the same visa card. As you can see, you'll NEVER get out of debt.

Now that's just for starters.

Now lets get into the "Fractional Reserve" (Fraud) part of this. Those U.S. Bonds they bought with this fake money, they hold in reserve and loan out against them. But not at a 1 to 1 ratio. Oh no. But rather at a 10 to 1 ratio. In other words, the FED buys 1 billion dollars of U.S. Bonds with fake money, and then prints 10x that much money (10 billion dollars) to loan out to regional banks. There is now 10 billion dollars out in circulation with only 1 billion in reserve to back it up. This is called "fractional reserve banking". And it nothing other than "Fraud".

But NOTE, I said the FED loans out this "inflated" money to the regional banks. Those banks in turn "inflate" their inflated money by 10x as well. So now we have 100 billion dollars in circulation with 1 billion in reserve to back it up.

THIS is the cause of money INFLATION. This is the reason why when many of you were younger a candy bar only cost less than 25 ¢ but now cost over a dollar. The candy bar hasn't increased in value, rather the money in circulation representing the value of that candy bar has increased.

So what does this mean to you and me?

Well for starters, fractional reserve banking is a fraud. Its also a "hidden tax" inflicted mostly on the poor and working classes. Because when this "new" money is first spent into the economy, those early spenders and receivers of it have a monetary benefit from it. But as the economy adjusts its prices to reflect this inflation; the later spenders and receivers (the poor and middle classes) of it have to pay the inflated prices before their salaries are increased. And usually people's salaries don't fully adjust to the same rate. So leaving your labor worth less than it was before.

And then when your salaries do increase to adjust for inflation. The FED has already inflated the money supply again. So you see, you're like the proverbial mouse on the tread-wheel. Working you ass off, but going no where. All the while, rich criminals are extorting you without you even knowing it.

UNFORTUNATELY it doesn't stop there.

How this also effects you and myself is this: The system of fractional reserve banking works for the rich when its reversed too.

Remember that 1 billion in reserve with 100 billion in notes (money) in circulation representing it?

Well, when that 1 billion U.S. Bond is sold off. That 100 billion comes out of circulation. This "Deflation" or "Money Retraction" IS the cause of EVERY depression that has ever happened. There has NEVER been a depression that hasn't followed a Money Retraction. And in a depression it is important to understand that wealth IS NOT destroyed - it is simply "transferred". This is the Republican idea of redistribution of wealth, i.e.. Concentrated it in the hands of a few.

The way this transfer of wealth after this money retraction happens, is. There's obviously less money to represent the value of goods and services like your labor. So as a result, the "monetary" value of your labor is decreased. --BUT-- if you have loans outstanding, such as a mortgage; the monetary value you contracted for stays the same. So you see how many people will no longer be able to afford to pay their debts? And of course when that happens, the banks will foreclose on those debts and you will lose all you've vested into them.


Here's a video. Its in two parts and rather long, but does a very good job as far as I am concerned and going over this and the history behind it.

Since its 3½ hrs long. I would suggest that if you watch it. You watch it in three different sessions.


(disclaimer): Because some of the names referred to in this video are Jewish names, and is cited by racist type people against Jewish people. This problem has NOTHING to do with any race of people... Period!!! Its simply fraud, nothing more, nothing less...

http://www.propagandamatrix.com/multimedia/Money_Masters_Tape1_Part1_all.wmv

http://www.propagandamatrix.com/multimedia/Money_Masters_Tape2_128KBps.wmv

[rockymountaindem]

16. Don't worry, I'm not offended.

I myself am Jewish. However, I don't know if this is at the root of the problem. The economics classes I have taken have only covered generalities, not the specifics of the US system. I'd just point out that the Federal Reserve was also around during the greatest period of prosperity the US has ever seen (1950-1972), so obviously it can also contribute.

The national bank of any country (which is essentially the Fed in the US), or whatever mechanism controls the output of currency and bonds, has within its power to raise or lower the money supply. This can have many different effects, which I can't talk about in depth right now. However, no country operates without a centralized currency management bureau (countries which use the Euro allow their monetary policy to be controlled by the EU central bank). I don't think abolishing the Fed will solve our problems.

[amazona]

19. i share your concern

I can't work so I am REALLY concerned that Snow's "soft dollar" policies have destroyed my savings and investments.

I have no idea of what to do about it, other than, if you want to visit Europe, do it now, soon you won't be able to unless you are filthy rich.

[rockymountaindem]

22. Kick

[Wright Patman]

23. The U.S. economy,

what's left of it, is now best described as a "hedge fund." People are making money on money--the "carry trade." Debtors declare bankruptcy all the time, but the credit card companies just raise their levels of usury a bit higher and drop some more helicopter money on the deadbeats so that they can continue going to the Great Wal-Mart of China.

There is no bringing back any base of production (resulting in good-paying jobs) to this country. The financial elite of this country worship the free trade religion. The devotion is so deep that U.S. economists will tell you that it is still to "our" benefit if we are the only country with no tariffs or non-tariff barriers while protectionism is practiced against us everywhere else.

Even the once-invulnerable service industries are now being outsourced and offshored. The free trade cult will answer this complaint by saying this makes everything more affordable to those who still have jobs.

But that's just the point. Fewer people in the U.S. have good, stable jobs anymore. It's better for them, but not for the tens of millions of displaced workers who are now working two or three menial jobs to try to replace the income from their former good job.

I agree with all the criticisms of the Fed, but the bankers have very ingeniously branded anyone who speaks of their inherently fraudulent system as anti-Semitic, even though well over 90 percent of the banker are gentiles. So your disclaimer at the end of your Fed analysis does no good. People will brand you as a Jew-hating conspiracy nut, no matter what. If you were defending a scheme as profitable as the Fed, you would stop at nothing either.

I think the Rove GOP smear machine must have studied at the feet of the bankers who have smeared all critics of their system for the last 91 years.

[newportdadde]

24. My personal opinion is that the American economy is in the greatest peril

since the Great Depression and we will at best be in a flat period ala Japan the next several years.

Your analysis of the debt is dead on. Thats bad enough but then you have to start taking in other factors.

1) Consumer debt. Credit Card debt is extremely high. Mortgate loans are a joke fueld by no money down loans, interest only loans. Cheap money has resulted in a housing bubble people are practically trading homes like stocks in 2000 becuase it just goes up and up.

2) Devaluing dollar... so many issues here like you mentioned. Also we get into what if oil goes to Euro based trading we will get hurt bad.

3) We didn't back up from the recession properly. Historically during a recession saving rates climb as people tighten up etc during bad times, this didn't happen this time they just spent more and borrowed more. The stock market never properly corrected it remained overvalued it has to correct down fully to start a real building back up.

4) If you look at a chart during the depression after the first initial collapse the market sprang way back up it did this several times as it stair stepped its way down. Whats worse so many of us are tied into the market more now 401k etc. So what happens if those older folks close to retirement gambling now to make back what the lost after 2000 pull out of stocks?

5) Social Security boomers coming as well.

My take to survive play this out is the following:

Hope you bought a house before prices got out of whack the last few years and then you refinance at the cheap rate for your existing balance and you didn't take out additional cash. I got lucky and did this because I bought a home in 2000 when interest on a 30 year was 8.5% and homes were still cheaper. I'm now locked in at a 15 year for 4.75.

Stocks... well its a tough call. I would say gold stocks or oil stocks(which I got into in July via an ETF) bad thing is if I cash out its just dollars anyways not great if inflation goes crazy. Otherwise I'm just sitting in cash and if things get really bad I will lock in a long term CD. Back in the 70s my fathers neighbor had a CD getting something like 16% long term then hang on as rates eventually make their way down and that rate is still locked in.

Stay as debt free as possible. No brand new cars or other crap you don't need.

I'll be honest I don't know if Kerry can stop what I feel might happen. However I explain it this way to people. Voting Kerry is like jumping out of a plane with a parachute you will fall but the landing will be softer. Voting for Bush is like jumping out of that same plan with a load of bricks in your arms.