Sunday, August 26, 2012

Cassandra calling.

In 1945 the US commanded forty percent of the world's wealth. By 1987 it had declined to half that.  More decline has occurred since.  While the US is wealthier in absolute terms, relatively it is not. This relative decline is inexorable, and it will continue.

The slide is aggravated by several other factors.  Our military spending briefly went down after 1945, but soon shot up again; it now stands at record levels.  The Golem of automation is destroying jobs throughout the industrial world.  Many of the jobs that remained have fled to Asia.

All this means that we as a nation cannot long continue to live in the profligate way we have been.

I am not an economist.  Yet these facts are readily available to any thinking person.

Obama has no concept of how to deal with the debt; he just wants to kick the can down the road and continue to pay off his client constituencies.  Romney has his clients too, the big money guys.  To pay them off will be even more costly, so that Romney, if he takes office, will take us faster and farther down the road to insolvency.

In short things will get worse before they get better--if indeed they ever do get better.

NOTE.  The debt problem is very real.  Here is a friend's summary.  "The revised Congressional Budget Office (CBO) federal budget deficit projection for FY 2012 stands at $1.1 trillion (a staggering 7.3% deficit-to-GDP ratio). If Congress fails to resolve the impending “fiscal cliff” by January 1, 2013, and the series of tax-increases and spending cuts come into effect (which is expected to reduce the fiscal deficit to $641 billion or 4% of GDP), the CBO expects a 0.5% contraction in 2013 (RGE believes the resulting cliff will lower Q4/Q4 GDP by about 3% in 2013), also pushing the unemployment rate up to 9%. Under an alternative fiscal scenario where tax measures are extended indefinitely and automatic spending cuts are not imposed, the CBO expects 1.7% growth between Q4 2012 and Q4 2013. Although we have factored the concerns on the fiscal drag into our growth forecast of 1.7% for 2013, even our well-below-consensus forecast might prove to be too high amid rapidly slowing growth."


Blogger Burk said...

Mr. Dynes-

You seem to be worried about the debt, without knowing quite why. Have you been watching Fox news?

Firstly, about our relative decline, would you have our armed forces march all over the world, destroying other economies to keep them in their benighted post-WWII condition, relative to ours? I doubt it. Indeed, we extended the Marshal plan, which successfully did a little bit to help other economies to grow into the mature developed countries which now join us in a world of high absolute wealth. Why the sad face?

Secondly, our national debt is not subject to insolvency or instability of any kind. We are not like Greece who owe money to others, let alone like Lehman, etc. We all owe it to ourselves, and you know what? We have never paid it back, ever. Because it forms the wealth you are stashing away in your retirement accounts, etc. And as for China suddenly selling their US bonds, the only thing that would happen is that their currency would gain value relative to ours, helping our export balance and returning some jobs to the US. They buy them explicitly to keep their currency undervalued.

So what Obama is doing is standard, textbook economics, which incidentally the Republicans used to agree with before they gave entirely to their current jihad of class-warfare crazy. We can't all save at the same time. That is how depressions happen and destroy everyone, you included. Someone has to spend, and that someone is the government now- while inflation, interest rates, and growth are a record lows.

I really have to add that the Republicans are completely idiotic on this front. The method to their madness is that their plans don't address the deficit at all- their plans add trillions more to the debt for yet more tax cuts for the rich. Are you for that?

2:18 PM  

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