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US going bankrupt?

  1. Jan 16, 2008 #1

    Galileo

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    So what are the US PF'ers thoughts on this.
    Do you fear for the US's economical future, or do you think it's bs?
     
    Last edited by a moderator: Sep 25, 2014
  2. jcsd
  3. Jan 16, 2008 #2

    EnumaElish

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    1. The metaphorical "house" backing up the debt is not only future production and income, it is what people in the future will believe how much income can be produced in THEIR future. And so on.

    2. Government not only has the power to tax; it also has the power to print money as a last resort. It is difficult for a sovereign government to become bankrupt because of debt denominated in national currency, like the soc. sec. is. Although that is not an impossible scenario, I don't think we are at that point now.
     
    Last edited by a moderator: Sep 25, 2014
  4. Jan 16, 2008 #3

    mgb_phys

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    Or not so last resort!

    A country is only bankrupt when no-one else will accept it's currency, when t runs out of things to sell to other countries for their currency and it doesn't have or can't make the things it needs domestically.

    However badly managed the US economy might be, it is unlikely to run out of the natural resources or manufacturing ability to be self sufficent - even if no-one else will accept dollars printed on newspapers.
     
  5. Jan 16, 2008 #4
    Ah, glenn beck interviewed david walker. I posted a similar link in the obama thread about our runaway spending. didn't get many replies. Anyway, I already moved a lot of my assets to safer investments. but it's still pretty sad though what is happening now.
     
  6. Jan 16, 2008 #5
    The US isn't going bunkrupt. They are bunkrupt. They have an enormous debt which groes constantly, and there is no forseeable way to pay it.

    And the way things seem to be goin in America, nobody will pay attention until the us is a 3rd world country.
     
  7. Jan 16, 2008 #6

    Ivan Seeking

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    For the record I think Beck is an idiot, but it's hard to argue with the GAO.

    We won't go bankrupt but we could see hyperinflation like Russia did. Either way our standard of living is doomed.

    Now let's hear more of that Republican talk about how debt and trade deficits are good! Note that Ron Paul is the only candidate who got a positive mention here. At least he recognizes the problem.

    If we're not creating wealth through trade, the problem can only get worse.
     
    Last edited: Jan 16, 2008
  8. Jan 16, 2008 #7
    The American Standard of living was never going to be sustainable for ever. The US isnt going bankrupt, if it did we are (Globally) in a pile of pooh pooh. Many countries have had huge debts compared to GDP before, look at Europe after ww2, and didnt actually go bankrupt. But the next generation of Americans will probably look back at last century with a hint of jealousy IMHO
     
  9. Jan 16, 2008 #8
    I think Beck is an idiot too.

    The fact is that China is selling us the rope to hang ourselves with. We are slowly being set up for economic disaster. Wallmart isn't helping. Buying cheap crap from other countries only helps the corporations selling them and many of them base headquarters offshore to exploit tax loopholes. This drains our economy and takes away jobs. What happens when between buying cheap foreign crap and replacing peoples' jobs with computers and machines becomes an advanced science.
     
  10. Jan 16, 2008 #9

    mgb_phys

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    Look at it from China's point of view - they slave (literally ;-) to produce $20 dvd players and Barbie dolls and America pays them in worthless pieces of green paper.
     
  11. Jan 16, 2008 #10
    Look at it from the US's point of view, we sacrificed our finest in order to prevent the world from being controlled by a group of mad monkies. $20 dvd players?
     
  12. Jan 16, 2008 #11
    It isn't the workers who are responsible. It is the middleman who probably isn't even chinese. Your right though, it isn't the sellers in china trying to hang us. Still the Chinese government loves every bit of it as our economy is drained and theirs gained.
     
  13. Jan 17, 2008 #12
    All nations have a trade defecit, for the same reason why individuals have a trade deficit with their grocery store. If the Chineese government wants to buy the Dollar let them, it only helps the US in the long run.
    And just because you can print money doesn't mean you cant go bankrupt. Look at the Inflation in Zimbwabe (bread basket of Africa).
     
  14. Jan 17, 2008 #13
    Slave???
    These people chose to work, companys cant force people to work. And besides how do you know they don't have any better options, because I am pretty sure if they did they would take it, that's what I would do.
     
  15. Jan 17, 2008 #14

    ShawnD

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    Jesus, panic much? Let me tell you exactly what will happen. Rather than actually paying for stuff they said they would pay for, the government will simply scrap social security and medicare, piss off millions of people, get away with it, business as usual. The current debt of 8 or 9 trillion is sustainable, but the projected 58 trillion is not. Once it gets to maybe 15 trillion, funding will completely stop and we'll have another scandal. Baby boomers may have voting power, but they're still only 1/4 of the country. It's still possible to rally against them and screw them over big time.
     
  16. Jan 17, 2008 #15
    My main point is that the more foreign imports and less exports, the less money we are worth as a nation because people who make stuff here will sell less, less tax money, less employment, less currency recirculation etc. It is always better for an economy to buy local whether it be on the county scale or the state or the National scale.
    In contrast corporations gain profits buying non local and they siphon off our economic means of stability.
     
  17. Jan 17, 2008 #16

    ShawnD

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    Trade deficit is a bit different since it is not government funded. The money Americans have right now didn't just magically appear from nothing, you're not paying Chinese slaves with worthless paper, and having a trade deficit doesn't automatically mean you owe somebody money. You and I have 10 apples, I give you 6 applies, you give me 4 applies. I now have 8 applies instead of 10 (10 - 6 + 4 = 8) and you now have 12 applies (10 + 6 - 4 = 12). Do I owe you any apples? No. Do you owe me applies? No. Do I have fewer apples than I had before? Yes.

    The trade deficit simply means that money, in general, is leaving the country. The mistake is thinking that you get nothing in return. The reality is that the country, as citizens (not government), is giving its money to china in return for products. This is no different than going to best buy and giving an American money in return for products. The only thing that changes is who you are giving money to. Eventually the US, on average, will run out of money to trade with China and will need to get that money from exporting goods to someplace, like France or wherever. It's not a big deal really. I don't think of myself as some kind of failure if I spend my money on stuff I actually want (give dollars to China in exchange for Chinese goods). Remember that American citizens are not going into debt with China in order to buy Chinese goods. Your credit cards are owned by American companies, your mortgage is with an American company, your car debt is with an American company. You are borrowing US dollars from other Americans to buy stuff, so in the end you owe money to your fellow Americans. It would be a different story all together if you were borrowing money from a Chinese bank to buy Chines goods. I remember Warren Buffet wrote an article specifically warning against doing that (he didn't call them USA and China, but it was kind of assumed).
     
    Last edited: Jan 17, 2008
  18. Jan 17, 2008 #17
    Well I know that personally I can benefit from buying cheaper in China, but the economy is hurt because my money is not circulated back into our economy right?
     
  19. Jan 17, 2008 #18

    ShawnD

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    Not quite. I get my money from a pharmaceutical company but I spend it at Best Buy. You can give money to China if they made what you want, but make sure you get some money from somewhere else. Overall spending (imports) in the US is higher than earnings (exports), but that's still not really a problem until you start talking about debt. If I earn $30,000 per year and I have $100,000 in the bank, is it ok if my total spending for the year is $40,000? Sure that's ok... for a maximum of 10 years. Once the reserves run out, I can no longer import more than I export, and I'll have to either get another job (export more) or stop buying so much (reduce imports), or maybe both at the same time.

    It should be noted that the economy would also shift to reflect where the money is. China has no money, so their entire economy is in production. USA has lots of money, so the majority of the economy is in services. China probably has more factories while USA has more hair stylists, artists, actors, etc.
     
    Last edited: Jan 17, 2008
  20. Jan 17, 2008 #19

    mgb_phys

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    Not necessarily. You buy something in a US store that is made in China, most of the price tag goes to paying US store workers, rent, utilities, advertising - the amount sent to the manufacturer is quite small. You could regard it as the company merely subcontracting the unimportant part of the process to the cheapest bidder.
    Insisting on buying locally produced can actually have a negative effect on the economy, manufacturers don't have to improve the product, don't have to make efficency gains, don't have to invest in R+D (look at US cars in the 60s or British cars in the 70s ).

    What is bad for the economy is to spend dollars to buy something from abroad and then burn it without gaining any productivity. Your F350 (cue patriotic music track about "Our Country") harms the US economy a lot more than buying a Japanese 50mpg hatchback.

    Having said that a lot of the deficit isn't real. All countries have huge trade deficits, which is of course impossible. The reason is that imports are carefully tracked, because you pay tax on them, while exports are estimated by tonnage - so a ton of microchips is averaged with a ton of wheat, invisible exports like finance and consulting services are almost always ignored.
     
  21. Jan 17, 2008 #20

    EnumaElish

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    Some have surpluses, which pay for others' deficits.

    When U.S. consumers buy Chinese goods worth of $20, the Chinese might buy $10 worth of U.S. technology, while invest the remaining $10 in U.S. bonds or stocks. In fact, they might invest more than that. How can that happen?

    U.S. having a trade deficit (technically, a current deficit which includes other types of cashflows on top of flows from trade) always implies U.S. having a capital surplus. Think of it this way: if the Chinese insisted to be paid in Yuan (rather than dollars) for their exports to the U.S., where would we find so much Yuan? Remember, we are trying to finance a trade deficit, so the answer isn't "by selling them tube socks (for Yuan)" because then, we don't have a trade deficit. Instead we could tell them, "if there is one country with a sound, secure future, and an unlimited long-term growth opportunity with a relatively low uncertainty, it is the U.S.A.! Our economy can provide many a safe investment opportunity for your hard-earned Yuans! Have you considered buying U.S. stocks lately? You'd be impressed by our historical return rate of 7%! That means you can double your money in less than 10 years! Looking for an even more secure investment with a low default probability? You can do no better than investing in U.S. government bonds!" So the Chinese invest in U.S. paper, and the U.S. ends up having a capital surplus (= the Yuans to pay for the trade deficit). This is not a literal scenario, but it demonstrates why a current account deficit implies a capital surplus.

    The other way around, it is even more eye-popping. Suppose the Chinese suddenly start feeling shaky about their economy and the rest of the world, except the U.S.A., which, they believe, will keep humming along for the rest of the foreseeable future. This boosts up their demand for U.S. "paper instruments" (investment opportunities) and creates a tsunami of Yuan (and Yen and Riyal ...) into the U.S. financial markets. Now, our problem is how and where to spend so much foreign money! We try the corner convenience store, but (incredibly!) they will not accept anything but dollars! (Peh, so much for globalization!) Our only option seems to be buying Chinese (and Japanese and Saudi) exports, which means now we have to run a trade deficit! So, a capital surplus implies we have to run a trade deficit, and there is no way around it.
     
    Last edited: Jan 17, 2008
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