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"Never waste a crisis" certainly applies to this "budget."
Have we become subprime as a nation? It appears that way. $1.3 trillion is somewhere around 10% of GDP and is almost certainly understated (it always is), which means you and I should expect the deficit for next fiscal year to top $2 trillion in red ink - or a roughly 20% increase in the national debt.
IF the world will let us borrow that much from them and IF we do not garner ourselves a sovereign downgrade as a consequence of this gambit - a bet I'm not so sure I'd be willing to take.
To put that in perspective this is somewhere in the neighborhood of the entirety of the FX reserves of China and Japan, plus a few other nations (depending on how far "over" we wind up.)
I thought I read somewhere that China and Japan, however, were having their own recessions (or worse.) Has anyone in this country thought about the possibility that these nations might need their reserves for their own people?
There's another $250 billion in that figure for a "future" financial rescue program; taking that back out, however, still leaves the government spending more than 30% above its income level.
We are in this mess precisely because a significant number of individuals in this country managed their personal finances in exactly this sort of irresponsible fashion. Always spending more than they make, they then turned to credit cards and, when those were exhausted, they tapped the ATM embedded in the wall of their house to keep the merry-go-round spinning.
As a nation we have learned nothing, and it appears that only when the rest of the world forces us to live within our means (probably about the time they conclude that they need their resources for their own people instead of our profligate money-burning exercises) that we will repent and begin to truly heal as a nation.
For today Uncle Sam has chosen to answer the question "Cash or Credit?" with one word: CHINA!
(Now we know what Hillary was doing over there, eh?)
A healthy economy requires that there is a balance between supply and demand. Here supply means the production of goods and services offered to entire society, and demand means society’s demand for such things. Thus, economic balance requires that
Supply = Demand
Without this balance, there is either high unemployment or high inflation. The main source of supply is labor productivity, whereas the main source of demand is the real wage, or people’s purchasing power in Sarkar’s nomenclature. When productivity rises, production or supply goes up and when the real wage increases, consumer spending, and hence investment spending, go up. Because of this investment and new technology, productivity grows over time, which means supply rises over the years. Therefore, demand must also grow proportionately to maintain the economic balance, implying that the real wage must rise in proportion to productivity. However, Greenspan loved to see the rise in productivity but hated the rise in the real wage. He even wanted to abolish the minimum wage, and always argued against its rise, although relentless price increases in the United States had all but demolished its purchasing power. In this respect, the maestro had a lot of company, including the support of President George W. Bush and economic establishment. As a result, the U.S. minimum wage, which peaked at $10 per hour in 1969 in terms of 2008 prices, is now less than $7. Incidentally, the unemployment rate in 1969 was just 3.5 percent, among the lowest in US history.
If the real wage fails to grow as fast as productivity, then over time, a wage-productivity gap develops and
Supply > Demand
Then how do you maintain the indispensable economic balance? This is where the special genius of Greenspan, along with that of conventional economics, came into play. This is where liberal and conservative economists alike, some of them Nobel Laureates, preached their gospel and in the process failed the world.
There is another way through which demand can be raised—new debt. It is an artificial way, and cannot be used forever, but it can postpone the problem for a long time, while the potential economic imbalance builds and cumulates. From 1981 on, U.S. budget deficits, with Greenspan and company advising President Reagan, grew apace. Economists called it fiscal policy, but in reality it was a debt-creating policy. This is how the supply-demand balance was maintained in the presence of the rising wage gap. Thus, for a while, economic balance occurs when
Productivity growth = growth of the real wage plus debt
new debt = supply – demand
Originally posted by stevegmu
. I know China is buying up Panama, but I can't imagine Panama switching currency from the US dollar to the Yuan.
Besides, the dollar had been getting stronger of late.