US Economy: Does it really matter?

[Jinx]

I apologize for not understanding the facts, but that's why I ask here for the economic genius of the SDope to explain the facts to this recent news item:

Recently, there was a seemingly major US economic news item that got so little press, you wonder if our debt even matters! If I understood correctly, it had to do with the reality (or perception) that the US cannot even afford to pay the interest on our loans from China, mostly. Supposedly, we were going to be dropped from some international organization that decides world financial policy, yatta, yatta, yatta. Some deadline passed last week, as I recall, and yet the USA didn't collapse into some financial black hole.

I've also heard similar doomsday predictions about if the US dollar gets too weak, we'll be dropped from some snooty society where dollars are bought and sold.

Does any of this really matter? Can you give me the SDope why we are worrying our lives away over all this? 'Cause honey we're still standing better than we ever did... (Sorry, just a wee bit cynical about how the suits run our lives.)

[md2000]

I'm not an expert, but...

The USA spends about 50% more than it takes in. Admittedly, the last 3 years have been extraordinary - spend like a drunken sailor or watch the economy grind to a halt... But even before that, the regular cost of doing government was well above the take from taxes. This is somewhat normal; during the Clinton internet boom, the budget was balanced, but since then it's been one excuse after another to keep spending - war, economy, bank failures...

This is fine as long as someone will lend the money. The trouble is not overspending, it's continuous overspending. Currently, AFAIK, the interest on debt is about 5% of the annual budget, or about 7% of tax take. The USA is nowhere near default.

The problems are - how will they eventually bring down this spending (or how do they propose to increase taxes) to bring this in balance? And... if trends continue, things like paying old age pensions and covering the cost of senior health care will bankrupt Social Security and Medicare; mind you, this calculation puts the brick wall 25 to 50 years away, and much can change by then. Finally, when logic says taxes need to go up, people in congress are arguing with the president saying they should go down for the rich and spending should be cut instead. Unfortunately, spending cuts on the scale of 1/3 of th budget mean serious pain; and foreigners don't think much of a government (think Greece) that can't stop squabbling long enough to solve real problems with real solutions.

Inflation happens when money supply increases too fast - i.e. printing money; in that case, there's so much, everyone wants a bigger piece of the pie and prices go up, wage demands go up, the buying power of a dollar is much less. If the government solves it's problems by printing money then people will not value it so much. The dollar was the international currency to value others, by default. There was some thought it would be replaced by the euro if the USA did not smarten up - but the euro has plenty of its own problems now. What else is there? The price of gold gives some hint.

[Dewey Finn]

This is the lead to a Wall Street Journal article dated June 14. It sounds like what the OP is referring to.

"Washington could surrender its leadership position at the World Bank and other multilateral development banks if Congress cuts funding to the institutions, coming with a 'terrible cost,' a senior U.S. Treasury official warned Tuesday."

[NOLA Cajun]

"Finally, when logic says taxes need to go up...."

Logic? Whose logic says that? My logic says taxes need to go down. Especially those "social" taxes. Thank you for the 2% Mr. President, but I'd rather not have to pay any of that and it would be nice if you would kindly refund to me the amount I have paid in for the past 35+ years since I will not be around to collect any of it. Oh wait, that was part of "the plan". Assholes like me get the pleasure of paying into a system we will never collect on so those that can collect can live out their last days with "security".

[Markxxx]

Originally Posted by NOLA Cajun

"Finally, when logic says taxes need to go up...."

...Assholes like me get the pleasure of paying into a system we will never collect on so those that can collect can live out their last days with "security".

How do you know that? You may think that you won't collect, but there is no way to really know if you'll collect.

[Philster]

The problem with the US economy is often a Catch 22.

Unemployment won't come down until companies grow and hire. Companies can't grow because they are running at rock bottom with staffing. They won't staff until the economy shows consistent signs of life.

If the economy is lackluster much longer, we'll eventually see 9-10% as the new baseline for unemployment. Everything will have already been adjusted around that new baseline. How long can we last at 9-10% unemployment? Well, I don't know, but that will eventually become the new standard. If it is, then growth is dead. That means another 10% jump in unemployment, but we just don't know how long that will take to happen. Think about how many jobs are based on growth. Without growth you have less positions to employ people.

What does all this mean in terms of the ranking and position of the US? It means we continue to lose control and can't influence things in a way that helps preserve the US way of life. It means what is vital to the US economy is left to others.

It's already happening. It will take some time for the full impact to show up.

.

[davidm]

I think what you're talking about is the debt ceiling.
http://en.wikipedia.org/wiki/Debt_ceiling#Debt_ceiling

The debt ceiling is raised regularly as a matter of course. Congress is currently debating whether or not to raise it again. If they don't raise it the government will be faced with the prospect of not being able to pay its bills.

The very fact that they are even debating whether or not it should be raised can have economic repercussions.

[Hari Seldon]

This seems to be getting into GD area.

In Canada we pay much more taxes and get a lot more services and most are happy with that. I am.

[md2000]

Originally Posted by NOLA Cajun

"Finally, when logic says taxes need to go up...."

Logic? Whose logic says that? My logic says taxes need to go down. Especially those "social" taxes. Thank you for the 2% Mr. President, but I'd rather not have to pay any of that and it would be nice if you would kindly refund to me the amount I have paid in for the past 35+ years since I will not be around to collect any of it. Oh wait, that was part of "the plan". Assholes like me get the pleasure of paying into a system we will never collect on so those that can collect can live out their last days with "security".

Whose logic? The real world's.
Look at this -
http://en.wikipedia.org/wiki/File:Fy...y_category.jpg

If you want a balanced budget, figure out where to cut 1/3 of the total. Lay off half the armed forces and cancel all military equipment development? Lay off the entire CIA? Close all the hospitals and end medicare? Let the poor freeze in the dark? Guess what they'll do for money- better not cut back on prisons or law enforecement...

[heathen earthling]

Originally Posted by md2000

Inflation happens when money supply increases too fast - i.e. printing money; in that case, there's so much, everyone wants a bigger piece of the pie and prices go up, wage demands go up, the buying power of a dollar is much less. If the government solves it's problems by printing money then people will not value it so much.

What if a government simply doesn't tell anyone they're printing more money, or lies about the amount? Would it be possible to do this without anyone noticing?

[msmith537]

Originally Posted by heathen earthling

What if a government simply doesn't tell anyone they're printing more money, or lies about the amount? Would it be possible to do this without anyone noticing?

What do you think money is? It is a medium for communicating economic information. Simply printing more of it tells everyone because everyone will suddenly find it easier to get money. And as the supply of money increases, it's purchasing power decreases.

[Crafter_Man]

Originally Posted by md2000

Close all the hospitals and end medicare? Let the poor freeze in the dark?

Keep in mind we’re talking about the federal budget here. The federal government can get out of the "individual healthcare" and "individual welfare" business and let each state take control of these areas. And the 10th Amendment seems to suggest that this is the way it should be...

[Northern Piper]

Originally Posted by Hari Seldon

This seems to be getting into GD area.

In Canada we pay much more taxes and get a lot more services and most are happy with that. I am.

It's difficult to get a handle on that, but according to this wiki graph, there's not a large gap between Canada and the US. It suggests that the personal mean income tax rate for the US is just under 30%, while the Canadian rate is just over 30%. A difference, certainly, but not a large one.

Is there anyone who can find more authoritative figures?

[heathen earthling]

Originally Posted by msmith537

What do you think money is? It is a medium for communicating economic information. Simply printing more of it tells everyone because everyone will suddenly find it easier to get money. And as the supply of money increases, it's purchasing power decreases.

But if the US government secretly prints an extra few trillion dollars and secretly gives it directly to China, how is that going to make it suddenly easier for the average American to get money?

[Candyman74]

Originally Posted by heathen earthling

What if a government simply doesn't tell anyone they're printing more money, or lies about the amount? Would it be possible to do this without anyone noticing?

Well, where is this secret money? Presumably people have it in their wallets (or it has no purpose). So people have more money. The more of something there is, the less valuable it is.

To take a ridiculous extreme example, if you printed enough money to give every $1,000,000, everyone would be a millionaire - and a loaf of bread would go up to $1000 just because of the laws of supply and demand. People don't need to know the government did it - just the very fact that they have more money will be enough to cause that effect.

You can't hide the money, because someone has to have it and be using it. otherwise it may as well not exist.

[md2000]

Originally Posted by heathen earthling

What if a government simply doesn't tell anyone they're printing more money, or lies about the amount? Would it be possible to do this without anyone noticing?

The money shows up in the economy. A few hundred thousnad civil servants suddenly paying off their mortgages, or all thouse outlandish medical bills get paid and your taxes go down anyway - sooner or later people clue in that money is flowing like water and they will want their share. If sales of loaded Hummers go through the roof, do you think the Auto Workers will settle for small wage cuts?

Originally Posted by Crafter_Man

Keep in mind we’re talking about the federal budget here. The federal government can get out of the "individual healthcare" and "individual welfare" business and let each state take control of these areas. And the 10th Amendment seems to suggest that this is the way it should be...

Yes, the same states that are almost broke now precisely because they cannot print money - they have to collect or borrow every dollar they spend, every year. If the feds gave the rsponsibility to the states, the feds would have to give the states the percentage of tax they currently collect for that purpose. The price doesn't go down because 50 different entities are paying the bills instead of 1 entity with a heck of clout. Plus, Canada has "equalization payments" - Ottawa collects much of the taxes and doles out more to some provinces because they are poorer. Should the US do that to, or do you want the Arkansas vs. New York gap to be worse than it is now? Of course, then all the sick people move to NY to get treated...

Originally Posted by Northern Piper

It's difficult to get a handle on that, but according to this wiki graph, there's not a large gap between Canada and the US. It suggests that the personal mean income tax rate for the US is just under 30%, while the Canadian rate is just over 30%. A difference, certainly, but not a large one.

Is there anyone who can find more authoritative figures?

I recall discussing this with people in the New York office of the company I worked for. Adding in the NYC income tax, and the rates were pretty comparable to Canada. First, the USA does not have a very efficient medicare system (what little they have) so costs are through the roof. Second, what civilized countries spend on universal health care, the USA spends on military. There are many times when we've all been appreciative of that military capability (and other times, not so). However, also, many economic benefits have come from military research and funding. The 747 for example, was designed as a transport but lost to the C5-A; as far as Boeing and the Seattle area is concerned, that couple of hundred million the government gave them was money well spent.

Originally Posted by heathen earthling

But if the US government secretly prints an extra few trillion dollars and secretly gives it directly to China, how is that going to make it suddenly easier for the average American to get money?

And when the Chinese start ordering tons of goods from the US? China imports wheat. Suddenly they can afford to pay top dollar for wheat. Price of a lot of food jumps 50%, everyone demands higher pay, etc. Money is there for the spending. When everyone startss spending, people notice.

Plus, there are laws about reporting. Do you want to be the guy who didn't tell congress what Finance did because your boss told you to break the law? Does lying to congress have consequences? Ask Barry Bonds.