I've been trying to make sense of our nations financial practices, namely, our ongoing inability to keep spending under controll. As long as I can remember, we have overspent by billions of dollars every year. We have to borrow that extra money, which is somewhere around $11 trillion right now. I've lost track of how much the interest payments are now.
I have to admit my understanding of financial matters is limited to "don't spend more than you make." I can not believe that our nation will last long if we continue to spend money we don't have. Don't corporations go bankrupt over that sort of thing?
Can someone explain what will happen to our government if it continues to add to our massive public debt with no plans to slow down, and no plans to pay it back?
The currency will devalue to such an extent that the purchasing power of your savings will be reduced by double digits on a annual basis without ever leaving the bank. They refer to it as hyperinflation. At that point, the government has to step in and devalue the currency to stop hyperinflation. Most governments typically wait until its way too late to take action here and things really start to fall apart.
So quite common to see foodstuffs rise to historically biblical apolyptic levels. Would not be uncommon for example for a single loaf of bread to cost a days earnings. The price of a car to rise to the price of house, etc.
After a major currency devaluation, the country usually has a issue with it's creditors because they are screwed now as they loaned out dollars that could purchase more then the dollars that are being paid back. So usually a meeting with the creditor nations where conditions of repayment and benchmarks/conditions established. How intrusive those conditions imposed are depends on the creditor / nation. They can dictate type of political system, what is spent in the National Budget, etc. Pretty much the country loses a large part of it's sovernty. Once those conditions are agreed upon and are imposed, you usually see unrest in the street shortly afterwards.
I'm not really sure how Wiemar Germany was let off the stick with it's Creditors. However France invaded and took possession of assets in the West and ended up machine gunning down some Germans sooooo, they didn't escape all the WWI debt via hyperinflation.
So thats what happens when a country exceeds it's means. Kind of similar to a Chapter 11 on the Corporate side but with a little more bloodshed and imprisonment when it happens to a government.
I was listening to talking heads this morning talking about banks. Citi and Bank of America still sucks. But most of the discussions were about this statement.
[[On Thursday, JPMorgan Chase became the latest big bank to announce stellar second-quarter earnings. Its $2.7 billion profit, after record gains for Goldman Sachs, underscores how the government’s effort to halt a collapse has also set the stage for a narrowing concentration of financial power.]]
A lot of discusion was about bonus money for executives. If anyone gets a bonus, it should be based on a five year performance and it should be small. A bonus for 3 months work is BS.
China trimmed its holdings by $3.4 billion to $797.1 billion in August, but still remained the largest foreign holder of Treasury securities.
Japan, the second largest foreign holder, boosted its Treasury securities to $731 billion, from $724.5 billion in July.
The federal budget deficit for 2009, which will be officially released later Friday, is expected to more than triple last year's record imbalance. The Congressional Budget Office projects that under President Barack Obama's spending plans, the red ink will total $9.1 trillion over the next decade.
The 2009 deficit ballooned as the government spent massive amounts to stabilize the financial system and jump-start the economy. In addition, revenues plunged as millions of Americans lost their jobs and recession-battered companies paid less in corporate income taxes.
China's foreign holdings of Treasury securities are a direct result of the huge trade deficits the U.S. runs with China. The Chinese take the dollars Americans pay for Chinese products and invest them in Treasury securities and other dollar-denominated assets.
American manufacturers argue that the huge dollar reserves China is building up reflect a strategy by the Chinese government to keep its currency artificially low against the dollar to gain trade advantages. A weak Chinese currency makes Chinese goods cheaper to American consumers and U.S. products more expensive in China.
However, the administration on Thursday declined to cite China as a currency manipulator in its latest currency report to Congress.
China, alongside several other emerging countries, has been pushing for an alternative to the U.S. dollar as a reserve asset as the emerging Asian power diversifies its holdings. A falling dollar means its reserves are worth less.
Recent figures from the International Monetary Fund showed that the dollar's share of total reserves has fallen to its lowest level since 1995.
The dollar's reaction was muted Friday. The 16-nation euro dropped to $1.4880 from $1.4931 late Thursday, while the dollar rose to 91.03 Japanese yen from 90.65 yen. The British pound, meanwhile, gained to $1.6360 from $1.6268.
The Chinese currency is not freely traded.
In addition, the $787 Billion stimulus is largely social transfer payments which generate no real future wealth. Infrastructure investments in the stimulus package are few and far between. In reality, we do not have much a stimulus. Probably less then $100 billion of the over $787 Billion slotted to be spent is going to Infrastructure.
So the Economy is recovering on it's own largely and it will be a jobless recovery as a result of the transfer payments, we can also expect higher then normal inflation in the not too distant future.
I sit in a $1000.00 dollar chair (YES, I said One Thousand dollars) at my federal job. It's a reeaal nice chair. We need good chairs at my job, but we probably don't need thousand dollar chairs. They just ran around like chickens with their heads cut off trying to spend all the 2009 money so they don't lose it in 2010. Thats been the way for years.
