Will Our Economy Go Bankrupt?

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

Comments

[therealredstateblues]

Nothing so far from the Obama admin in regards to the only real way to get ourselves out of this mess. rather than propping up finacial institutions we need to get our wealth generating and prosperity sharing engine of growth, manufacturing back on its feet. Economists of every political stripe are lining up to say we are not going to be able spend our way out of this one, we need to PRODUCE our way out

that means we need a coherent industrial policy, and we need to address the unsustainable trade imbalances, and we need policies that promote domestic innovation and production

[Rule Of Law]

Yes, making things--and the jobs that creates--is the only way to restore this country!

Too bad that's not the plan.

How long have we been reading that we can become a service nation, that we will retrain all the blue collar people into cleaner better jobs, and that not having industry will be a benefit, not a detriment? We can let all those 3rd world people get their hands dirty making steel and cars and electronics and, suddenly, its like OMG, they're making everything, and were out of cash. So how did that work for us?

Well, it worked for the 1% who are only interested in money and power. Folks without jobs, houses, savings are much more easily controlled. We need to wake up to that reality.

[therealredstateblues]

indeed - right as usual RoL!


I heard the Obama plans and coziness to the finacial industry - and yet more money and credit creating bubbles refered to as follows:

" Its as if the captain of the Titanic backed up after hitting the iceburg and ordered full steam ahead to hit it again"


Good old Ross Perot was right, that without mfg, we would become a nation that flips each others hamburgers

[Hdaryl01]

The real question we all need to be asking ourselves now is "ask not what you can do for yourself, ask what you can for the financial oligarchs". Today. What can you do TODAY to better serve the oligarchs? Hey, if you're a lifelong Chrysler dealer who just lost your life investment, do your part and make sure the lot and building are all cleaned out and presentable, get rid of all refuse, and do a little landscaping. Make it easy on the hard working banking oligarchs when they foreclose on you. If you lost your job at one of these dealerships make sure you get another job or 4 ASAP so the government doesn't need to pay you the ever so generous unemployment benefits any longer than absolutely necessary, this will allow the government to give these much needed funds to the banking oligarchs quicker, and more efficiently. If you experience foreclosure, be thankful that the oligarchs allowed you to live there for as long as they did with your wife and 5 kids under 10. An easy way to dutifully show your appreciation is to continue to mow the lawn and shovel the sidewalk until the over worked and very busy oligarchs have a chance to liquidate your former homestead.

If we all come together, and do a little soul searching, and extend a little more effort, we could collectively do much, much more for the financial oligarchs than we are now currently doing. Dig deep people........

[Henry]

Payam,

It was Walter Wriston (of Citibank) who has become infamous for stating that "countries could not go bankrupt!" If you recall, Prime was 20% in the early 80s and there was no demand for loans at that rate of interest. So they loaned to foreign countries. Brzl, Mexico, Argentina etc and they did not go bankrupt, but they did default. And then with the help of Nick Brady (the sec of treasury) we saw the big banks of this country nationalized. So relax, it will not be bankruptcy, but it could be default of obligation, followed by crash of dollar, followed by horrendous inflation. It's a good idea for anyone to have significant portion of investment portfolio in foreign assets.

[James Robinson 1]

I always wonder what you'll do when China call in their loans.

[Rule Of Law]

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

Me, too, Payam, especially when all that money goes right to the same guys who screwed the pooch in the first place.

[peterg76]

This is a distraction - bankruptcy of the *whole* economy is next to impossible. Worry more about the absurd inequality in wealth, the injustice of the poor paying for the irresponsibility of the rich, and the terrible needless human suffering that is happening.