And pretty soon you are talking about real money. What I’m concerned about is an economic reinforcing feedback loop similar to the climate change loop that is accelerating warming. For instance, as warming melts ice and snow which reflects the sun, dark colored earth or sea, which absorb more heat, become exposed, thus intensifying the cycle.
Now we have the figurative printing presses of the fed and treasury running full speed making more than two trillion dollars of new money. Part of it is being used to buy treasury bonds with the purpose of increasing liquidity; that is, there’ll be more cash to lend in case anybody wants to borrow it. The other half will be used to exchange good (though somewhat depreciated) cash for toxic trash investments. The purpose of that is to relieve the banks of responsibility for stupid decisions and incidentally give them a lot more leeway to reward fantastic bonuses for spectacular failure. Without their ‘best and brightest’ where would the banks be today?
By the way, the
The money press run immediately caused the dollar to slide 4% against the Yen and Euro. When the value of the dollar goes down, the cost of imported commodities - food, industrials – goes up to compensate. This also causes the trade deficit to go up requiring the
Either way, printing money or borrowing, inflation will be the result. Inflation combined with today’s very low interest rates are bad for savers: saving needs to replace borrowing and spending if the
While it’s true that some people understand the severity of the present downturn as equal to the Great Depression, the general feel for tackling the problem relies on thinking of it as just one more recession, albeit a grave one. That thinking allows the pundits, including some I have a lot of respect for, to use statistics like debt as a percentage of GDP to justify these great public expenditures, saying the
Yes, but the population of the
Yes, but the US owes its senior citizens nearly three trillion dollars because it’s been borrowing from the Social Security Trust Fund for the past 25 years, using the excess received from payroll taxes to pad its general budget; funding, for instance, it’s wars and tax cuts for the wealthy. Very soon the extra 200 billion dollars a year from payroll taxes it has had access to will reverse and the government will have to start paying that back further stressing the budget.
A perfect storm is brewing for the
Prevailing wisdom says don’t worry about the debt, all we have to do is get the economy back on track and tax revenues will increase to cover it. But what if the economy isn’t resusitatable? What if it stays in the doldrums and then food prices spike? There are a lot of conditions that could bring that about. What happens if commodities like oil rise again? It’s still a limited resource and we’re still using it up at a fast pace, even if not as fast as during boom times.
I fear Obama, as smart and well-intentioned as a president can be, is making all the wrong moves. The only consolation is that everyone else who might’ve occupied that office in his stead would’ve reacted at least as poorly. Still, not much consolation when the perfect storm hits.