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News Is economic collapse in the United States imminent?

  1. Aug 27, 2009 #1
    http://www.nytimes.com/2009/08/26/business/economy/26deficit.html

    http://www.americanbankingnews.com/...predicts-1-6-trillion-dollar-deficit-in-2009/

    If you need more stories then google it. (I posted the New York Times article because they're notorious for liberal spin and I figured I'd preclude any "FOX LIES" type comments.) Anyway... I'm having trouble wrapping my head around how any of this could be anything but unimaginably disastrous. I'm also wondering why people aren't urinating themselves in fear over the idea of having an $18,000,000,000,000 national debt along with a GDP of $14,000,000,000,000.

    Isn't the only possible outcome of this that nearly every nation in the world decides to stop investing in the United States and effectively destroy the dollar? The USSR had the second largest economy in the world at one time... now it's almost a stretch to describe them (by "them" I mean the nation that currently occupies the piece of land formerly known as the USSR) as a second world country.

    What am I missing here? Why is no one talking about this?

    Please, discuss and enlighten me for my own sanity.
     
    Last edited by a moderator: Aug 27, 2009
  2. jcsd
  3. Aug 27, 2009 #2
    Also, not sure who wrote this and when (I know I heard it long before all the current economic chaos, but like everything else I'm aware it could be a complete fabrication by modern day idealogues.)... perhaps someone can tell me. Either way, it's pertinent.

    "A democracy is always temporary in nature; it simply cannot exist as a permanent form of government. A democracy will continue to exist up until the time that voters discover that they can vote themselves generous gifts from the public treasury. From that moment on, the majority always votes for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse due to loose fiscal policy,(which is) always followed by a dictatorship."

    "The average age of the worlds greatest civilizations from the beginning of history, has been about 200 years. During those 200 years,
    these nations always progressed through the following sequence:

    From Bondage to spiritual faith;
    From spiritual faith to great courage;
    From courage to liberty;
    From liberty to abundance;
    From abundance to complacency;
    From complacency to apathy;
    From apathy to dependence;
    From dependence back into bondage."
     
    Last edited by a moderator: Aug 27, 2009
  4. Aug 27, 2009 #3
    No it doesnt mean collapse of the economy, debt is actually the way the economy works. If there were no debt there would be no economy, as a captalist economy needs continual growth to survive.

    Thats the reason why governments borrow money as opposed to juset making it themselves (well that and hyperinflation which DOES kill economies).

    Many countries after the recession have debts approaching GDP (UK is in the same position). This isnt a problem however as they arent required to pay it all back at once. So as long as they can keep paying back interest on the loan there is no problem. You only need to worry when the govt cant repay what it absolutly has to (like Iceland when the govt went bankrupt this year).

    It also may interest you that reason why debts can get so high, (more than all the money availalble) is that banks can literally magic money into existence. Captial requirement ratio allows them to lend more moeny than they actually have, on the promise of payment.



    Theres bound to be someone more knowledgable of the situation on here that can explain both why im so wrong about it.
     
  5. Aug 27, 2009 #4
    I don't understand what you mean when you say "If there were no debt there would be no economy." I'm sure that we haven't had a deficit every year since America's conception. In fact we had a $69 billion surplus in 2001. Why is it impossible to create growth without losing money on your investment?

    Yes, I'm completely ignorant when it comes to economics... but debt as a goal doesn't make sense in any universe. And is the time when our interest payments exceed our GDP really that far off? If you go doubling your debt every decade (as we're doing this decade) it won't take long to catch up with your income.
     
  6. Aug 27, 2009 #5
    also watch the 'moeny as debt' series on youtube (its 5 parts). It's cartoony but informative.#


    linky:
    http://www.youtube.com/watch?v=vVkFb26u9g8&feature=fvw


    There is a deficit simply becuase they spend more than they get in from taxes. However they are the government, they are the only people who can mint their own moeny. By extension of that can you thnik of any logical reason why they would choose to borrow their own moeny from a bank and pay interest as opposed to make themselves some more?

    It's all explained in the link.
     
  7. Aug 27, 2009 #6
    Yes, they can print their own money but that doesn't make it worth anything. If everyone were to print themselves a million dollars no one would have any more wealth. Currency becomes worthless when you destroy its value... which in turn destroys economies.

    Won't this debt cause our debtors to slowly lose faith in our ability to repay debt thereby making them more apprehensive about loaning the money in the first place?

    (Watching your link now, quite interesting.)
     
    Last edited by a moderator: Aug 27, 2009
  8. Aug 27, 2009 #7
    Just watch the linky.
     
  9. Aug 27, 2009 #8
    If there's truth to all of that then I suppose I'm alright with being a wage slave to line the pockets of fat cats for the simple fact that that particular problem is well above my pay grade ( :P ). I've always been open to conspiracy theories and whatnot as I feel it's just stupid not to keep an open mind to any and all possibilities. History has shown us that people will always try to screw other people. (I don't mean to dismiss you as a nut, it's just that I've been lied to before.)

    Either way your perspective is noted and I plan on investigating this matter further. Though, I'm beginning to think I'll need a primer in actual economics to formulate any real opinion on anything.
     
  10. Aug 27, 2009 #9
    It's not a conspiracy theory video, it may seem counter intuative, but thats how captialism and banking acutally work.

    By all means look into this deeper, that set of viedos is mega simplified for the layman (such as you and I), the acutal mechanics of an economy are beyond my comprehension.
     
  11. Aug 27, 2009 #10
    What the hell has that got to do with anything regarding economcs?

    Check the forum guidelines regarding conspiracy theorys. We dont deal with them here.
     
  12. Aug 27, 2009 #11
    nirax: How about not being a troll and derailing the topic with crap that's against the rules in the first place? You won't last long here.

    Chris: I got a bit of a conspiracy theory vibe when they started quoting assassinated presidents as if they were making the insinuation that they were snuffed out by powerful banks lest they tear down the whole house of cards and destroy their scam.

    I understand that this country was built on money that doesn't exist (yet?) but as the video pointed out it's unreasonable to think that it can continue forever.
     
  13. Aug 27, 2009 #12
    I'll disagree that the 'vibe' is there,0 if you are determined to see ione you will, the quotes are innocent and are there merely for social commentary. in vids i tend to just ignore and make my own judgement abou that.

    The important aspect of the video is the mechanics of lending and borrowing are correct, as is the way banks make money.

    It also shows that if everyone was stupidly rich and didnt borrow from banks, banks would not need to exist as they wouldnt be profitable. Whech them leads to the spiral, that no new money would be created unless it was dug out of the ground. Basically if people just deposited in banks, and iddnt borrow, we would go back to having a huge vault with the cash just sat there. As an interesting note, there isnt enough cash in the world if everyone wanted to close their accounts and withdraw their funds.

    It also comments about how 'spending your way out of a recession' is the thing that is done. Although it seems counter intuative, this is what they have done with stimulus packages and encouraging peopel to borrow money again.

    As the general public doesnt understand, they just think 'Wasnt it debt that got us into this mess in the first place, borrowing would be stupid??". The answer is yes and no, for the individual it would be very bad, for the economy very good. Just like alcohol for the humans, debt is the casue of and solution to all economy problems.
     
    Last edited: Aug 27, 2009
  14. Aug 27, 2009 #13

    Like one of the quotes said it's like a game of musical chairs. So long as the music keeps going nobody loses. The key with a capitalist system is to keep the music going at all costs.


    This is also why communism (well the true verson of communism of stateless common ownership and people doing things for the general good) is technically a better system, its more sustainable longterm as it doesnt require constant growth to operate. It's just a shame it'll never ever work with humans being the greedy self serving bastards they are.
     
  15. Aug 27, 2009 #14

    Ivan Seeking

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    From your first link

    I don't know where you get the 23 trillion. Also, right now we are probably close to 80%.

    After WWII, our debt to GDP ratio was at 122%. This was followed by a period that produced the highest standard of living, and the greatest wealth, the world had ever seen.

    Imo: We need to restructure and prepare for a new century, but we will be fine as long as the American people keep their eye on the ball. Electing Obama was key to getting this all straightened out. We are increasing the debt now, but instead of simply spending on foreign wars and a cold war with the Soviet, we are FINALLY beginning to invest in our own country again.
     
    Last edited: Aug 27, 2009
  16. Aug 27, 2009 #15


    Fox must also have discussed it the way you want since they don't like Obama policies much. So what kind of panic you are looking for?
     
  17. Aug 27, 2009 #16

    Ivan Seeking

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    It's kind of like all of the ideal wires, ideal voltmeters, ideal mechanism etc, that we deal with in physics. They may look great on paper, but the real world is far more complicated.
     
  18. Aug 27, 2009 #17

    Wax

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    The deficit is a problem but we are safe as long as the dollar is the largest reserve currency in the world. Being the largest reserve currency in the world means that countries like China have an invested interest in keeping the dollar value high. China artificially undervalue their currency so they can sell goods and services to Americans and other countires at a cheaper price. If China one day decided to dump the dollar then it would be worthless, causing the value of the dollar to drop and China's own currency to rise. If China's currency rises then they would no longer be able to export their goods and services at a cheaper price. Their economy would literally stop. However, this can not go on forever.

    In order for countries with surpluses to break away from the American dollar, they must get their people to spend but this process doesn't happen over night. It has been estimated to take a period of 10 years for China to economically break away from the dollar. So, the Americans have roughly 10 years to get their financial mess in order. The only way I see this happening is if America can turn itself into the leader of alternative energy.
     
  19. Aug 27, 2009 #18
    Alas! for the moment tis true.

    I like to think that in the future though we'll be able to get rid of greed and the self serving nature, the day we start living for the community is the day our problems will melt away.


    How idealistic do I sound... urgh.
     
  20. Aug 27, 2009 #19

    Ivan Seeking

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    I wouldn't bet on human nature changing any time soon. But, just as we have plenty of greed and selfishness, we also have many great philanthropists and humanitarians who help to take up the slack. The list of these people includes Bill Gates, Warren Buffet... many more, up to and including the man or woman who runs the local Boy Scout troop or soup kitchen, and the coach of the nearest little-league team.

    One might even include people like PF members who spend an untold number of hours assisting with homework problems, for free.
     
    Last edited: Aug 27, 2009
  21. Aug 27, 2009 #20
    Native Americans?
     
  22. Aug 27, 2009 #21

    Ivan Seeking

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    I don't understand your point. Do you mean that now we would never treat people the way Native American's were treated?

    Also, I added an "Imo" to my original post to make it clear when I am stating my opinon.
     
  23. Aug 27, 2009 #22
    That debt did not cause the economic growth. It had to be paid down. At the time, we did not have an enormous, bloated entitlement structure to deal with however.

    The only reason the U.S. economy boomed after World War II is because everyone else had been bombed out, meanwhile the U.S. had all this infrastructure built up. The U.S. economy thus dominated during the 1950s, although by the 1960s, the economy was stalled again. In the 1970s, we went into stagflation because the economy was far too hamstrung.

    Barack Obama is not going to straighten anything out, because not a single one of his policies has ever shown success anywhere. Right now, he seems hellbent on castrating our intelligence capabilities, and driving our economy into fiscal oblivion.

    We do not need to spend money on the economy. It is cutting spending that will allow our economy to grow. Government spending does not grow the economy.

    A national debt is fine as long as it is kept manageable, and at a reasonable level.

    These other nations with enormous national debts have rather lousy economies, and their debt and entitlement levels are so high that they cannot afford a military worth anything. The only reason the European nations have been able to invest so much of their national economies into their entitlement systems is because the United States has essentially been subsidizing their security for the past 60+ years.

    Remember, interest has to be paid on the debt.
     
  24. Aug 27, 2009 #23
    Thats just the point, governments DO spend their ways out of recession. By doing so it injects money back into the economy, which is why it's usually spent on infrastructure. So the debt tis then used for something useful after the recession.

    Cutting spending at the widescale economy level HARMS the economy as it reduces borrowing and thus the total money available.

    This is the critical leap that people dont make, what is good at the individual level is harmful for the wider economy. As all money is debt, the government borrowing from banks has actually created money.

    You are correct about interest, and thats the point on a government loan from a bank, the interest acually for outweighs the borrowed amount in the end. It's also why they shouldnt spend like mad during a boom.
     
    Last edited: Aug 27, 2009
  25. Aug 27, 2009 #24

    Wax

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    This was a good read.
     
  26. Aug 27, 2009 #25
    No, that's the theory of how to recover an economy, on paper. In practice, it has never worked. The people who advocate it simply say we never have spent enough money. Europe told President Obama "No" when he asked them to stimulate their economies because they have experience with it increasing their debts and deficits and increasing inflation.

    The Japanese tried ten separate stimulus packages, all of which failed.

    On paper perhaps, in practice, not so. You are going by the discredited Keynesian-style economics. The government did just this during the great depression of 1920, upon which the economy quickly recovered.

    Yes, government should never spend like a madman at any time. But that doesn't make for good politics:

    Questioner: "Mr. Candidate, what will you do as President of the United States?"

    Candidate: "Well, technically I'd like to do nothing. I will keep government spending in line, leave the People alone to live their lives, handle international affairs and the national defense, otherwise, the economy is the economy, it regulates itself for the most part. All I can do is keep spending in check and hope the Federal Reserve sets interest rates right."

    That just doesn't go over well. Yes, if the entire financial system is going to collapse unless bailed out, government should act, but because if the financial system collapses, you grind the economy to a halt. But otherwise, the economy is for the most part self-regulating, and interest rates that are centrally controlled are controlled by the Federal reserve, which is accountable, but still independent, of the government.

    Notice, all the areas where a president can do work, are areas the government has already screwed up, such as healthcare, education, energy, Medicare, Medicaid, and Social Security.
     
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