US Federal Budget Analysis

What is described here would ordinarily be a direct threat to the value of the currency of the country whose GDP it is. But this is not the case for the US, for one simple reason. Our currency is the world’s reserve currency. When other countries, such as the new manufacturing powers on the Pacific Rim, or India and Pakistan, trade with each other, they generally do not settle the trades in their own currencies- they use dollars. This means that the dollar is backed up not just by *our* GDP, but by the produce of the whole world that *uses* our dollars in their commerce. So when we borrow, or when our central bank (the Federal Reserve system) simply creates more dollars, the value of these dollars is directly based on the output of just about the entire world- so the Fed is not just the bank which *our* banks keep their reserves in, but also the bank which most of the other central banks use, these accounts being denominated in US dollars.
It is very much in the interest of these other countries that our currency remain stable, and not be attacked by inflation, for the reason that it is “the only game in town” in which they can efficiently carry on their foreign trade. So we could go a lot further into debt, with no trouble at all- which is good, since this is what will inevitably happen. But it also would not be a good idea to deliberately test out the limits of our status as the world’s banker, or to do anything else which might motivate too many other countries to form their own currency unions. Such unions are very unlikely to form under current conditions, and if we understand our situation properly and behave accordingly, will remain very unlikely.
This is the best we can hope for, right now. Further along into the future we might be able to form a conservative government, which will be friendly enough in its taxes and regulations to allow us to re-industrialize ourselves, which would give us other sources of income besides financial services and foodstuff exports. But as we will be stuck with Obama for another 4 years, and the Senate Democrats for at least another 2, this is only speculation at this time.

Been there, done that.  We had conservative governments.  The debt is largely theirs.  We certainly can’t afford another.  A liberal government might handle it, but Obama is the best we can do at the moment, what with the SCOTUS and the Tea Party and all.  Quantum Romney might come up with a solution, but it would have the same amplitude as all other possible outcomes, most of them worse than Obama.
George Tucker

In 2012, the total estimated federal debt will be 105% of the total US GDP. In other words, the US will owe more in debt than the sum total of its annual economic production.  To put that into prospective, the US GDP accounts for nearly  25% of the world’s gross domestic product.

So what is Congress doing?  Well they have no plan to get us out of this dilemma;  they have to borrow every dollar they spend to run the government and left unchecked, by 2022 we will be burdened with a $26 Billion dollar debt obligation and the prospect of facing the came difficult choices that Greece is experiencing today.  This is truly a mell of a hess.



About basicrulesoflife

Year 1935. Interests: Contemporary society problems, quality of life, happiness, understanding and changing ourselves - everything based on scientific evidence.
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