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Payam Zamani Headshot

Will Our Economy Go Bankrupt?

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Look, I'm typically an optimistic guy. You could even say I'm optimistic to a fault. But unfortunately, I'm finding it very difficult to remain optimistic in the current economy.

Let me be very clear, I'm not an economist by any stretch of the imagination. I don't even have an MBA. However I think I get a few simple economic principles and this is one of my fundamental beliefs: strong economies cannot have a weak currency, a massive deficit and a national debt with so many zeros they won't fit on a billboard.

I don't buy the arguments made in favor of the current level of deficit spending. Adding $1.8 trillion in one year to our national debt for the sake of kick starting the economy makes no sense to me. What do we mean when we say "the stimulus is necessary so the economy will start growing again"? Are we doing that so we can get back to our bad habits of buying homes we cannot afford and cars we don't need? Why do we believe that our economy should start growing ASAP regardless of the cost? A country with a big economy but a massive deficit and huge debt is very much like a big company with a lot of revenues but no profits and carrying a large debt load... kind of like GM. And by now we know what happened to GM.

So, the question is: will our economy become bankrupt? Why not? Countries have gone bankrupt and it appears they will continue to do so. This country is not immune to the economic dynamics that have forced other, albeit smaller national economies into a state of bankruptcy.

We have a very large economy but by the same token our fundamental economic problems are very large too. My concern is that we are in a recession and rather than fixing the fundamental problems in our system we are flooding the economy with money. Of course this will create short-term growth. In fact, I expect 2010 to be a decent growth year. However, my belief is that this growth period will be short lived and our deficit spending combined with the size of our national debt will drag us down into yet another deep recession. If that happens we will be in serious trouble. There will be no bailout.

You can compare our current situation to an individual who is hungry and is given a candy bar full of sugar to eat vs. a reasonable portion of food with protein and vegtables. Clearly you will feel good for a short period of time but your hunger will quickly return. In a similar way, I'm afraid that within three years we will return to a very difficult economic environment, one which could turn into a long and sustained depression.

I think as a country we need to re-calibrate our approach to economic good health and re-examine our values when it comes to how, both as a government and as individuals, we choose to spend money. How should we measure our success as a country? Economic productivity and GNP per capita are just part of many important measures.

I for one am very concerned about the path we are on. It's scary!

Eternal optimist and entrepreneur,

Payam Zamani