Wednesday, June 01, 2005

I missed this editorial in the Post-Dispatch the other day, but it hits on two important topics: the potential real estate bubble and the growing national debt. Even better, they link the two together. Some have drawn attention to one or the other, but the two are linked.

Both Americans and the nation are in debt up to our eyeballs. A population willing to rack up debt to pay for its consumption is not likely to spend much time worrying when their government does the same. However, eventually bills come due.

We talk a good game when it comes to fiscal responsibility, but the truth is that we rarely follow our own advice. The economy runs on consumption which is financed by debt (home equity loans, credit cards, etc.), the government also runs on debt (treasury bonds continuously purchased by Asian central banks). The question is...what happens when we get behind or the creditors are no longer willing to extend their credit? For individuals it means bankruptcy and years spent trying to get out of the hole (before the current Congress changed it, individuals could write off certain amounts of debt, now it never goes away). For the nation it means a recession.

Previously we all strived to save money, both individually and nationally, now we have a miniscule savings rate and an administration that has tossed off the goal of achieving surpluses. We may be able to get by on this path, as long as the line of credit continues. If something were to destabilize things, however, we may find ourselves looking up out of a very deep hole.

- Murphy

1 comment:

Steven Fitzpatrick Smith said...

The South Korean gov has rolled back on investing in US T Bills big time. The dollar is tanking around the globe and the US is obviously losing its edge. Debt is a tool and can still be used to our advantage, but not if we are not being the dynamic country that we are by pushing the envelope in development of new economic territory. Phony real estate values and rising fuel costs crossed with out of control debt on a government and private level is one killer and then the stifling of business and the openess of our culture in encouraging growth in new territories is another. The US has proven in the past that it is dynamic enough to pull through purely economic turbulence, but now we have pull through in terms of the edge that created America into such a great nation. Or we risk turning into old Europe. Stagnant, reactionary, stifiling. We are the new world and need to remain that way. Sorry, no more rants by me.