La Fleur writes:
Speaking of the debt, what is the general consensus here on where the US dollar is headed? There are scary posts on financial sites claiming we’re headed for either hyperinflation or default, and soon. What do you guys think?
I have seen those financial sites she reads. They are all coming from the Populist Right (They are basically the Tea Partiers), and I think they are unnecessarily alarmist. One would do better to read the economists on Counterpunch or Paul Krugman.
The real risk? Not inflation and of course not default. But deflation.
There is no debt crisis. Bottom line. Our debt is the 3rd lowest in the industrialized world. It’s about 68% of GDP. When it gets to 100% of GDP, that’s when deficit hawks say to start getting worried. That will happen somewhere between 20-70 years from now. Doug Henwood of the Left Business Observer says we will reach 100% of GDP in 70 years at the current rate. The unnecessarily alarmist Obama Cat Food Commission to Cut Social Security says something like 20 years. You can split the difference.
Because our debt is so low, deficit hawks (all rightwingers by the way) have decided to add up all of the state, county, municipal and even consumer debt to conclude that our debt is by far the worst in the world.
Dishonest accounting? You betcha!
I say when debt gets to 100% of GDP, then we start talking about debt crisis.
Japan has the highest debt around at over 200%, but that’s not the cause of their economic problems. Japan went through a couple of horrible economic bubbles in the past 20 years. Sound familiar? Or should I say, capitalists never learn?
The result of the bubbles was an economic depression, and the dreaded deflation has had Japan in its grip for 20 years or so. The government has tried everything from 0% interest rates to deficit spending to mass stimulus, but nothing seems to work to get consumers spending again, and the deflation has not been licked. The Japanese debt was run up in the past 20 years trying to lick the deflation monster. The big problem with the Japan is deflation, not the debt, and the latter did not cause the former, in fact it was the other way around. Even at 200% of GDP, Japan has not defaulted on their debt, and it’s still very much a 1st World Country last time I checked.