Excessive Spending: Spending... Too Much?
Another domestic issue I raised after the election was Excessive Spending.
I recently wrote the following to an economist at George Mason University:
It is obvious... or should be... that the U.S. has been the economic engine of the world. What is less obvious is the relationship of borrowing to economic health. At an individual level, borrowing can provide both opportunity and risk. It all depends on the ability of the individual to leverage the borrowed money to make even more money: that's growth. That's a win-win for the lender and the borrower. If not, it is a lose-lose.Technically speaking a trade deficit is not borrowing. Money is exchanged for goods. And in the past, there has been an inverse correlation of the trade deficit to unemployment... mainly because as unemployment rose, demand fell and imports fell. Perhaps my concerns are unfounded, but during this last recession, as unemployment rates increased... so did the trade deficit.
What begins to get clouded in my mind is the relationship of borrowing and economic health at a national or international level. The nature of borrowing is less defined to me. The national debt is pretty easy for most of us to understand... the government is spending more than it is receiving through taxes, so it borrows money (bonds, notes) to cover the shortfall. Our faith is that somehow the government will find a way to pay the interest on the bonds and still have enough left to handle the business of government. Some of us get concerned when
the debt level seems a bit excessive.... $7,429,582,471,118.88 http://www.publicdebt.treas.gov/opd/opdpenny.htm
That's about $25,000 for every person in the U.S. I guess that's manageable, but I hope it doesn't come due soon.
The other statistic that we all hear about, but have difficulty with the implications is the Trade Deficit
http://www.census.gov/foreign-trade/statistics/historical /goods.pdf
A net annual negative of $0.5 trillion and growing just does not seem to be healthy borrowing to me. I think that others share some of my concern.
It appears that we are presently borrowing heavily to sustain a consumer-based economy with artificially low prices. Many corporations and individuals are benefitting from this at present, but perhaps not as much as we might like to believe.
The questions is: who pays the piper... and when? How?
Now, quite honestly, I do not have the breakdown of how much of the deficit was related to oil and how much to other imports. What concerns me is that in exchange for U.S. cash, we are consuming increasing amounts of foreign products, employment is only slowly rising and the economy is not exactly steaming ahead.
But more than that is the issue of what is happening with that cash. A large amount goes into "safe haven" securities... foreigner are purchasing U.S. government bonds. Some of it is used by the producers of imported products to become even more competitive against domestic producers. Some of it is used to establish manufacturing or distribution footholds within the U.S. ... something that helps employment and the economy.
Perhaps it is unfair to lump the national debt and trade deficits together as "borrowing", but the trade deficit does one thing that leaves me just a little paranoid... especially at 1/2 trillion dollars per year... and that is the issue of control. Somewhere in the equation of getting goods for cash is the part that says Cash = Control. Cash becomes the power to influence, the power to compete, and the power to control.
So maybe it isn't totally unreasonable to think that great debt and exchanging goods for control might not be a great long-term strategy. It hasn't hurt so far... but we now have a total national debt of $25,000 per person and an annual trade deficit of about $1,700 per person... every man, woman and child.
Somewhere, it seems, there must be a piper.
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