First of all, let me tell that although R. Samuelson is not seen as one of the major mainstream economists, his perspective of the long term US crisis is unbeatable and few (if any) American economist targets it. He could be a bit more accurate, but he is more than any other American economist. This long term crisis starts in the early 197x (not is the 196x), more precisely in May 1974 finishing the negociation process started in October 1973 (oil denominated exclusively in US dollar) as a consequence of Vietnam war and the Nixon shock. What Americans perceived as a great deal, and it might have been, finally became tragic. My main agreement is that this long term crisis must be seen through inflation lens. And here we are.
Rather, here is the US economy. It has not relation neither with Japan nor Europe. Their circumstances, social, economic, financial structucture is different, rates of savings are different, investments are different, etc. Unfortunately, as almost all Western economies, he falls in the financial hook. "Debt is the problem". What is very approximate but not exactly true. Debt is a consequence of unbalance between domestic demand and domestic production. Like fever is a consequence of sickness. If somebody has any doubt let me ask the same question for each of those economies: What if oil were suddenly $300 a barrel? in other words $30 a gallon? 1) Japanese people would suffer a headache 2) Europeans would need some months to adapt their business and their way of life to different transportation and energy production methods 3) USA? Americans better do not think on it. No way out. Therefore, I disagree with him in that point. USA is by far in much weaker position than Europe or Japan. Results perceived in 2007, 2008 and 2009 are proving it. This long term crisis might force US economy to restart from scratch. Not to Eurozone nor Japan. Peace and best wishes. Xi On 4 nov, 15:47, Rebel <[email protected]> wrote: > Well, the truth is, we do not know, unless of course things turn > really bad and the dollar becomes worthless, Then what happens..read > on. > > The idea that the government of a major advanced country would default > on its debt—that is, tell lenders that it won't repay them all they're > owed—was, until recently, a preposterous proposition. Argentina or > Russia might stiff their creditors, but surely not the likes of the > United States, Japan, or Great Britain. Well, it's still a very, very > long shot, but it's no longer entirely unimaginable. Governments of > rich countries are borrowing so much that it's conceivable that one > day the twin assumptions underlying their burgeoning debt (that > lenders will continue to lend and that governments will continue to > pay) might collapse. What happens then? > > The question is so unfamiliar that the past provides few clues to the > future. Psychology is decisive. To take a parallel example: the > dollar. The fear is that foreigners (and Americans, too) lose > confidence in its value and dump it for yen, euros, gold, or oil. If > too many investors do that, a self-fulfilling stampede could trigger > sell-offs in U.S. stocks and bonds. People have predicted such a > crisis for decades. It hasn't happened yet. The currency's decline has > been orderly, because the dollar retains a bedrock confidence based on > America's political stability, openness, huge wealth, and low > inflation. But something could shatter that confidence, tomorrow or 10 > years from tomorrow. > > The same logic applies to exploding government debt. We have moved > into uncharted territory and are prisoners of psychology. Consider > Japan. In 2009, its budget deficit—the gap between spending and taxes— > amounts to about 10 percent or more of gross domestic product (GDP). > Its total government debt—the borrowing to cover all past deficits—is > approaching 200 percent of GDP. That's twice the size of the economy. > The mountainous debt reflects years of slow economic growth, many > "stimulus" plans, an aging society, and the impact of the global > recession. By 2019, the debt-to-GDP ratio could hit 300 percent, says > a report from JPMorgan Chase. > > No one knows how to interpret these numbers. If someone had predicted > 20 years ago that Japan's government debt would rise so spectacularly, > the forecast would doubtlessly have inspired alarms: "The debt will be > unmanageable; Japan will pay crushing interest rates as fearful > lenders demand high returns to compensate for the risk that government > might default or inflate away its debt." Instead, just the opposite > has happened. Japanese investors—households, banks, insurers—have > absorbed 94 percent of the debt. Interest rates on 10-year Japanese > government bonds (JGBs) have dropped from 7.1 percent in 1990 to 1.4 > percent now. > > Superficially, it's possible to explain this. Japan has ample private > savings to buy bonds; slight deflation—falling prices—makes low > interest rates acceptable; and investors remain confident that new and > maturing debt will be financed. But the correct conclusion to draw is > not that major governments (such as Japan and the United States) can > easily borrow as much as they want. It is that they can easily borrow > as much as they want until confidence that they can do so evaporates— > and we don't know when, how, or whether that may happen. > > Wealthy societies everywhere face a similar dilemma. Debt is > ballooning from already-high levels. In the United States, the > Congressional Budget Office reckons the Obama administration's planned > budgets would increase the debt-to-GDP ratio from 41 percent in 2008 > to 82 percent in 2019. Annual interest payments on the debt would rise > from $170 billion in 2009 to $799 billion in 2019. But to contain > deficits and debt by cutting spending or increasing taxes would > involve wrenching and unpopular measures that might, perversely, > weaken the economy and worsen deficits. In Japan, the existing Value > Added Tax (national sales tax) of 5 percent would have to go to 12 > percent, says JP Morgan, along with deep spending cuts. Against > choices like that, some advanced country might decide that a partial > or complete default, though dire, would be less dire economically and > politically than the alternatives. > > Deprived of domestic or international credit, defaulting countries in > the past have suffered deep economic downturns, hyperinflation, or > both. The odds may be against a wealthy society tempting that fate, > but even the remote possibility underlines the precariousness and > novelty of our present situation. The arguments over whether we need > more stimulus (and debt) obscure the larger reality that past debt > increasingly constricts governments' room for economic maneuvering. > > Robert Samuelson is also the author of The Great Inflation and Its > Aftermath: The Past and Future of American Affluence and Untruth: Why > the Conventional Wisdom Is (Almost Always) Wrong . --~--~---------~--~----~------------~-------~--~----~ You received this message because you are subscribed to the Google Groups "World-thread" group. To post to this group, send email to [email protected] To unsubscribe from this group, send email to [email protected] For more options, visit this group at http://groups.google.com/group/world-thread?hl=en -~----------~----~----~----~------~----~------~--~---
