Becker Blog

The world according to Brian Becker

Posts Tagged ‘debt’

How much does the National Debt really matter?

Posted by Brian Becker on February 14, 2009

I was watching a recent speech by Nobel prize winning economist Paul Krugman on Fora.tv earier (awesome site btw). During the Q&A portion, he was asked how the United States can remain sovereign with how much we are beholden to other nations (specifically China) to finance our government debt. This is something I’ve thought about a lot but since I’m not an economist I never really knew the answer to. He quoted the old adage “If you owe the bank a thousand dollars, you have a problem, but if you owe the bank a million dollars, the bank has a problem,” and it made me think of our relationship with out debt financiers a bit differently than I had before. Its not entirely clear who has the upper hand in this relationship.

If you think about it, China has as much to lose as we do financially if the American economy tanks for a few reasons. If our dollar devalues, they are losing money are their investment because they are holding so many of our dollars, and if American’s consumption drops off a cliff as it has begun to do as the recession deepens, China’s own economy will suffer as people will be laid off due to lower revenue streams for their manufacturers. The USA needs China to make our crap, and China needs the USA to buy their crap. Its an interesting trade relationship.

I always kind of knew this part, but as Krugman explains, most countries have a debt as large as ours with regard to the size of their own economies. Not in real numbers of course, but our economy is much larger than say, France, so you can’t realistically compare them that way. Similarly, our ability to pay off that debt is so much greater because we have a much larger tax base than most countries of the world. I didn’t know that, and put into that perspective, it almost seems like the debt hardly matters at all.

One other thing that got me thinking about this was the news earlier in the week that said China has stated that they will keep buying US treasuries despite the fact that they know that the dollar is going to devalue. Here’s the exact quote from the article in the Financial Times:

“Except for US Treasuries, what can you hold?” he asked. “Gold? You don’t hold Japanese government bonds or UK bonds. US Treasuries are the safe haven. For everyone, including China, it is the only option.”

Mr Luo, whose English tends towards the colloquial, added: “We hate you guys. Once you start issuing $1 trillion-$2 trillion [$1,000bn-$2,000bn] . . .we know the dollar is going to depreciate, so we hate you guys but there is nothing much we can do.”

That was the director-general at the China Banking Regulatory Commission, which is the person that makes these kinds of decisions. Notice where he says “We hate you guys.”? China has no other choice but to finance our debt right now. Even if they wanted to stop, they couldn’t without devastating consequences in their own economy.

Sure its woefully irresponsible to be creating so much debt, but at this point we owe the bank a million dollars. The bank has a problem.

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Do people really believe this stuff?

Posted by Brian Becker on September 18, 2008

Call my cynical but I find it hard to believe that people actually believe some of the stuff we hear from the campaign trail and the news media lately.

Do people really believe John McCain thinks the fundamentals of the economy are the American worker? Are people really that naive?

Do people really believe that either candidate is not going to raise taxes on someone? We are fighting two wars, bailing out company after company, have failing infrastructure all across the country, have a giant debt already built up… the money has to come from somewhere. Maybe they market will recover by the time the Bush tax cuts expire, but I have my doubts. All the experts I’ve listened two say this is going to last a while.

Do people really believe that putting the word “executive” before the word “experience” instantly makes that experience 100% more relevant than any other type of experience no matter how little of that experience that person has? I mean, by that standard, Sarah Palin is more qualified to be President than John McCain. Bush had executive experience. Look how that turned out.

Do people really believe Fox News is “Fair and Balanced”? C’mon.

Do people really believe a John McCain administration is going to “shake up” Washington? Hes going to have all the same Republican operatives working for him that worked in the current administration, and lobbyists run his campaign. Eventually they are going to want something back for getting him elected, if he wins.

Do people really believe a government run health care system would be worse than what we have now? I mean, ever since I became too old to be covered on my father’s plan, I haven’t been covered. I’ve only been to the doctor once in the past four years, and it was only because I had a serious problem. I’ve needed a new glasses prescription and dental work for years but just can’t afford it. Don’t give me the “it costs too much” crap either. We already have medicare and medicaid which we wouldn’t need if we had a universal system, so their budgets could be rolled into it, and employers could save money by dropping their current plans. The American people just became one of the biggest insurance companies in the world. Thanks A.I.G.. Somehow health insurance is still unacceptable though. Go figure.

Do people really think McCain is suddenly pro-regulation and government oversight because of the Wall Street fallout? His entire career he has been anti-regulation and oversight. A Reagan republican. You think hes suddenly had an epiphany? I don’t.

Do people really believe the Iraq war is winnable? Its hard to even classify it as a war at this point. We already won the “war” in Iraq in 2003 when we toppled Saddam’s government. Ever since then it has been an occupation, and you can’t “win” an occupation. Its not the same as Japan or Germany where we have a few bases and nobody has been killed for decades. Iraq and the entire region will remain volatile as long as we are there and continue our saber rattling with other countries in the area.

Finally, do people really believe drilling for more oil is going to solve any of our energy problems? There just isn’t enough oil in the ground or offshore in the USA to sustain our needs for any significant amount of time, and its going to take at least five years before we see any of it. I’m not saying we shouldn’t drill where its safe, but when you hear people chanting “Drill baby, Drill!” you start to think people actually think that is the solution. We need some drilling but mostly we need renewable energy like solar, wind, and nuclear energy for electricity, and electric powered vehicles.

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