Saturday, January 19, 2008

Returning to the armchair of Economics...

Some time ago, I authored a post discussing the nature of the economic dangers presented by the current operation of the American economy. That post detailed the dangers of inflation caused by the ever-increasing national debt. Interestingly, it appears our credit has finally run out.

Anyone who watched Chairman Bernanke's address to Congress last week knows that the economy is in a dangerous place. Without an explicit statement, the Chairman suggested that Congress pass an economic stimulus bill that does not increase the national deficit. This demonstrates the danger inflation currently presents to the economy. Add to that almost 30 years of wasteful government spending without seeming end, and the United States could easily end up bankrupt (no guarantee on how long this link will last).

This paper, published by the Federal Reserve in St. Louis, shows that our current economy will collapse absent a radical change towards a stronger dollar and stable economy. Current swings in the market clearly demonstrate the presence of these dangers driven largely by the fall out from the sub-prime mortgage debacle.

The sub-prime situation should be a sound lesson for legislators and investors alike. This situation has presented an example of what happens when debt comes due quickly and the debtor can't pay. Recent economic data from China suggests that a down-turn in their markets will likely advance the debt owed by the United States. If this occurs, the United States will end up in the hot-seat, destroying the value of the dollar and resulting in hyperinflation. This would be the end of the American economy as we know it. At this point, the United States really does look bankrupt. Maybe it is time for our governmental leaders to realize that the best economic shot in the arm starts with fiscal responsibility at home.

1 comment:

Joe said...

"Don't spend what you don't have" seems like base-level common sense. Based on spending habits displayed by Americans both on the consumer and governmental levels, it would appear that common sense has emigrated.