Borrowed time: US debt based on an unsustainable future

“A superpower that has lost its grip on reality is very dangerous indeed”
Will Hutton, Observer 24 April 2011

25 April 2011
Norman Pagett writes:
Individuals and states have the same optimism when borrowing money: that the accrued debt will be repaid by future prosperity. Money accepted as a loan (and the interest on that loan) can only be repaid if the debtor acquires the additional wealth necessary to repay it. The laws of finance are inflexible: either you repay the loan or you go bankrupt and lose everything. Go forward or go bust.
You could, of course, persuade people to lend you still more money to repay the initial loan and interest, but that devalues your future ‘prosperity’ because you will have to repay two loans out of it. It’s a high-risk strategy, but that effectively is what the USA has been doing for nearly three decades, using the collateral of its own industrial output.
The value of the mighty dollar has long been considered unassailable, but in fact the USA has been supporting its way of life by borrowing money, always with new loans to pay off old loans and as a result federal debt has now reached a staggering 14 trillion dollars. The GDP of the USA economy is 15 trillion dollars, so when national debt exceeds income, as it is forecast to do within two years, the country will become technically insolvent and the dollar will be supported only by the optimism of external creditors.
The USA will then be in the same predicament as Ireland, Portugal and Greece, except on a significantly larger scale, which is why Standard & Poor’s is already warning of a downgrade in the nation’s credit rating. The country is now faced with three options: to cut services, print money or default. The fourth option, increasing GDP so that it races ahead of debt interest, (the holy grail of growth) is not available. The debt is growing faster than wealth can be created.
Why should the state of the US dollar be of any concern to us? Because as the world reserve currency it is critical to the global trading system.
As the US federal debt climbs beyond the national GDP, the production capacity of the entire nation will be consumed by the effort of servicing its debt and sustaining an illusion of prosperity.
As the USA defaults into collapse, as it must, its social structure will become unsupportable. Already nearly 40 million people there are on direct food aid.
Irrespective of the present positioning of Democrat and Republican politicians, the average American sees conspicuous consumption as a right. The reality of poverty will hit hard as the country drifts into insolvency. Three hundred million people cannot grasp that ‘the American way of life’ is about to turn into a nightmare, and when it does their reaction is likely to be violent.

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8 Responses to Borrowed time: US debt based on an unsustainable future

  1. John says:

    Agree wholeheartedly. I’m not American but what I see of Americans disturbs me a great deal and I feel it’s no wonder that country is in deep trouble. I live in Australia near an American base (I can’t say where). I’m surrounded by American neighbours. Generally nice people. However we regard them as being quite strange for a number of reasons. Here are some observations (that are a bit of a joke around these parts). Affinity for huge ridiculous unreliable ugly gas guzzling cars and yet complain about the price of fuel. These same people though will use a manual push lawnmower! On a 40 degree day clothes dry on a washing line in about 15 minutes. All the Americans use dryers! The electricity costs must be enormous. Water dripper irrigation systems that run day and night rain or shine. Still use incandescent light bulbs although compact fluros bulbs generate the same light and consume 80-90% less electricity. Thats a handful of people here. I dread to think what its like in the states. It’s like they feel they have this God given right to consume everything like a plague of locusts and do nothing to try and change the way they live or reduce their consumption. Very odd.

    • richard says:

      I am American living in the Philippines, and can verify your impressions about my countrymen. But as the article mentions, when it all hits the fan, it’s not going to be pretty. The US has already abandoned conventional economy for a continuous “wartime footing” as it used to be called. Our economy is now warfare, and related fields like drug interdiction and the War on Terror. At present the wars are mostly confined to the procurement of fossil fuel resources. But as things deteriorate, expect the purpose of those wars to expand to whatever we need. One possible change in that course is that we are having a harder and harder time maintaining that war economy. That could either alter the course or accelerate the eventual outcome.

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  3. With all the doggone snow we have gotten recently I am stuck indoors, fortunately there is the internet, thanks for giving me something to do. :)

  4. For 30 years I have been telling people that in a human body, unrestrained growth is called cancer. We labour under the impression that the economy must keep increasing, which is an impossibility. The economy can only grow if the population grows, yet we have aborted fifty million in the last forty years.

    It is time for us to look at the way we live. Giant houses, cars etc. are not sustainable. I myself use the clothese line and we save as much energy as possible. I also don’t owe on my house or car, and only have some credit card debts (less than 5k) that would have been paid off if I had not lost my job.

    It is time for each of us, and not just the US, we are just worse than anyone else, to consider what we really need to live. Get out of debt, force the government to do the same.

    And the government needs to help too. Quit hiring contractors who hire illegals to repair roads. Either fix them yourselves using people who receive food stamps and unemployment insurance, or require all contractors to prove that their labourers are here legally.

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  6. Rey Vagle says:

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  7. because someone is telling us it is!

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