Quote:
Originally Posted by Shek
It is not an issue now or in the near future, even if we continue to run budget deficits. The debt service simply is not that large of a burden, nor will it be. Most of the debt is structured around 30 year and 10 year bonds.
The issue that confronts the United States is its poor savings rate. If this doesn't turn around in the next 10-15 years, then potentially unstable imbalances could develop over time and foreign borrowing to continue the necessary pace of investment spending for growth would start to dry up. However, this is not an issue now.
|
IT IS AN ISSUE. You point out correctly that there is a savings problem in the US, but what you don't point out is the whole picture of the economics. Economic laws dectate that Exports are a result of savings minus investments. If there is a decline in savings it means the US will have to reduce investment or balance the equation by importing. The US has chosen the later option (and wisely so), but importing is putting pressure on the dollar (amongst many other reasons as well) resulting in loss of confidence in the US dollar as a base currency hence the reaction of the countries i outlined in my previous posts. THIS, is an issue, and the US needs to nip it in the bud. And Shek if foreign banks start reacting to this trend with most of them having reserves of more than 90% in US currency, believe me US will have its black Wednesday, this is why im saying this is an issue. The US needs to stabilise the dollar and very fast. They don't have the 10-30years of the bonds to fix this.
However, on the brighter side of things it is not all gloom. A solution is very possible by balancing the budget (asuming that the US is not complacent about this problem). Balancing the budget will allow the US to to use the surplus to control the principal of of the debt whilst using the debt to boost GDP. The US was on course to doing this before 9/11, which allowed the Bush admin to give tax consessions. Now a mixture of bad fortunes have meant that this will only be possible after 2010.