Debt, Deficits, and the Demise of the American Economy by Peter J. Tanous & Jeff Cox

Author:Peter J. Tanous & Jeff Cox
Language: eng
Format: epub
Publisher: Wiley
Published: 2011-04-06T00:00:00+00:00

Source: U.S. Bureau of Economic Analysis.

As you can see, the net government savings level has been a drag on the real amount of money we as Americans keep in reserves. Personal savings represents 55 percent of net savings for the past 30 years, but because national savings consist of personal, business and government activity, the government’s use of foreign financing of its deficits has completely offset the private sector’s efforts. In 2008, for the first time since the Great Depression, national savings turned negative, fueled not only by pressures on the consumer but also by the way in which the federal budget deficit is destroying the efforts of average people to right the country’s economic ship.

Economist Nouriel Roubini, who has shared the Dr. Doom sobriquet with Marc Faber and was one of the few who accurately diagnosed the collapse of the financial system, writes of dire currency consequences in his cogent and timely book, Crisis Economics: A Crash Course in the Future of Finance. He envisions a scenario in which foreign investors tire of the asinine U.S. deficits, debts, and dollar debasement and finally dump the greenback as the world’s reserve currency in favor of something else, such as the Chinese renminbi or yuan. Roubini and co-author Stephen Mihm wrote:

The United States stands at a crossroads. If it doesn’t get its fiscal house in order and increase its private savings, such a seismic event will only become more likely. It’s all too easy to imagine a scenario where this plays out, particularly if a political stalemate develops: Republicans veto tax increases, Democrats veto spending cuts, and monetizing the deficits—printing money—becomes the path of least resistance. The resulting inflation will erode the dollar value of the public and private debt held around the world. Faced with such an “inflation tax,” investors around the world dump their dollars, moving them into the currency of a country with a far better reputation for fiscal responsibility.5

It can be of little wonder, then, that the national mood has turned so sour toward a government that has shown a complete lack of willingness to follow basic societal conventions when it comes to money management. It makes the situation all the more difficult when the government seems unable or unwilling to admit the extent to which its policies will lead to inflation sooner rather than later. The above scenario, in which Congress becomes politically emasculated and the Federal Reserve is left as the only policy body that can act, is another devastating episode likely to appear in our national nightmare.

Americans know inflation is coming, even though they might not know its exact origin or trigger. They see it at the supermarket and they see it at the gas pump and are tired of the government using ginned-down calculations in the Consumer Price Index trying to tell them that inflation is trending low. The constant denials about the threat inflation poses ring more and more hollow as the torrent of money about to flood the economy combines with

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