Bubbling Economy Essay

1214 words - 5 pages

In Barry Wood's Article “Buffett's silly talk about the US debt” he poses the question when the debt too much to handle and will it affect the US in similar ways as it has in Greece and other countries that defaulted. The main reason for the writing of this article was a statement made by Warren Buffett where he states “The United States is not going to have a debt crisis as long as we keep issuing our debts in our own currency. The only thing we have to worry about is the printing press and inflation.” which by economists and historical debt followers seemed to sound naïve and shortsighted from the comments on the subject provided within the article by Niall Ferguson, Allan Meltzer, and Carmen Reinhart to just to name a few.

From what I gather having a debt program where the US is almost matching GDP with it's spending seems uncertain and potentially dangerous. Inflation will ensue but at what rate is dependent on how the US debt is purchased and what advantages having debt can bring. Japan who owns a considerable amount of our debt just had a huge disaster which could get worse before it becomes better. This creates an indirect instability for the US. Though it's doubtful Japan will sell off our debt, it's not impossible. The way the monetary policy is being run it seems very Keynesian with very little planning for the future.

Say we have debt that matches our GDP or exceeds it by 2016 which at the moment we are supporting a 94% debt to GDP ratio. The US could come back due to the sale of securities like bonds, reinvesting in infrastructure, and low risk investing of the dollar. The US could sell it's debt as bonds to the top wealthy American people at favorable rates of return which would keep our economy local. Having tax incentives for investing in the US economy would also help reduce our debt. Overall the current rate of spending can't go on like it has. A combination of things need to be accomplished for both short and long term. All public programs need to be addressed which at the moment it seems only the programs that have a hard time putting up a fight are getting hit with lowered funding such as school. Taking a few percent from each program where the lesser needed ones get hit progressively higher would be a great path to go down.

In going deeper into debt without the infrastructure to support it by reduction in schooling, less investing in small businesses, and reduction in fair macroeconomic practices(favoritism, tariffs) the US economy and therefore the world could tilt towards a meltdown. We saw this during the market failure in Asia where weak financial markets created a scare and everyone started pulling their assets from banks. Inflation is not a problem as yet and can help in places where debt is an issue but too much debt and the US risks losing investors like Japan and China by the US credit rating dropping which would hurt GDP, and create panic in financial markets. A sell-off of treasuries would result in a...

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