The Economic Superstorm
More than any other issue, the well being of America is based on economics. Not crazy muslims flying airplanes into buildings, not hurricanes wiping out homes and cities, not gay marriage or abortion, Money. Capital M, Money. Tom Clancy may be a bit of an odd bird in some of the things he writes books about, let's be real after all, Jack Ryan almost saves the pope? But he was dead on in his assessment that the best way to hurt America is by screwing up the economy. Not cripple or kill, because that's not what anyone wants, they want us hurt in a way that we can't respond, but that keeps our ability to make things intact while getting us out of the way.
The last twenty five years has seen our own government do more to make our ability to defend against that than anyone could have imagined. When I started writing this sentence, the National Debt Clock read $7,950,125,260, 319.04. That's a big number. Why does it matter? Let's start with one fact. The People's Republic of China (that's red china) holds the notes on roughly one trillion of that. That's $1,000,000,000,000.00. Now the way things work, those get sent out in the form of T-Bills, and the majority of those are now 10 year notes. Why? Because the rate of return on 10 year notes is better than it is on 30 year notes (which was the old standard) so people tend to avoid them meaning that more of the 10 year kind go out.
Here is the problem. The interest on the debt alone, at the lowest interest rates in decades, cost $320 Billion last year. With another month yet to go this year, the interest has cost over $335 Billion. And interest rates are rising. Which brings us back to China.
If you've been following the financial markets, there has been a big push on China to "disconnect" the value of the yuan (their dollar) from the value of our dollar. We have been screaming from the rooftops, that their price fixing is bad for economy. Well for the average Joe Sixpack, that's dead wrong. The argument is, by making the yuan "float" like everyone else's currency, it will appreciate vs the dollar (that's right) and that will bring jobs back to the US that are currently in China (that's wrong). The jobs currently in China are there because it's the cheapest place to get the work done. As the dollar loses ground against the yuan, that means the price of goods of goods from China goes up, meaning yes, it would be comparatively less expensive to make them here, but they'll still be much cheaper in Indonesia, or Portugal or Turkey, or any number of other places.
The yuan going up just means we pay more for the same thing. Its impact on jobs and income will be at very best, enough to be more than a statistic. Its impact on prices is something every person in the country that shops at Target or Wal-Mart will see. It will also have an effect that we really won't like. China will stop buying those T-bills. Why buy something that when it comes due, will be worth less than what you paid for it?
Except, someone has to but those T-bills. The guys in DC can't balance a budget any better than a coke fiend can balance a checkbook. So how does that happen? Raise the interest rates. A lot. Make them pay off so they keep getting bought. Result? Housing boom? Busts. Car sales? Dead. Home renovation and major appliances? Forget it. Hello recession? Try depression.
At that point, the government has no choice but to contract. The world turns and the global economy leaves us behind. The world's first hyper-power becomes a third world country, and it's all because we can't balance the checkbook.
By the way, the debt clock is up $58,992,878.94. What's in your wallet?
The last twenty five years has seen our own government do more to make our ability to defend against that than anyone could have imagined. When I started writing this sentence, the National Debt Clock read $7,950,125,260, 319.04. That's a big number. Why does it matter? Let's start with one fact. The People's Republic of China (that's red china) holds the notes on roughly one trillion of that. That's $1,000,000,000,000.00. Now the way things work, those get sent out in the form of T-Bills, and the majority of those are now 10 year notes. Why? Because the rate of return on 10 year notes is better than it is on 30 year notes (which was the old standard) so people tend to avoid them meaning that more of the 10 year kind go out.
Here is the problem. The interest on the debt alone, at the lowest interest rates in decades, cost $320 Billion last year. With another month yet to go this year, the interest has cost over $335 Billion. And interest rates are rising. Which brings us back to China.
If you've been following the financial markets, there has been a big push on China to "disconnect" the value of the yuan (their dollar) from the value of our dollar. We have been screaming from the rooftops, that their price fixing is bad for economy. Well for the average Joe Sixpack, that's dead wrong. The argument is, by making the yuan "float" like everyone else's currency, it will appreciate vs the dollar (that's right) and that will bring jobs back to the US that are currently in China (that's wrong). The jobs currently in China are there because it's the cheapest place to get the work done. As the dollar loses ground against the yuan, that means the price of goods of goods from China goes up, meaning yes, it would be comparatively less expensive to make them here, but they'll still be much cheaper in Indonesia, or Portugal or Turkey, or any number of other places.
The yuan going up just means we pay more for the same thing. Its impact on jobs and income will be at very best, enough to be more than a statistic. Its impact on prices is something every person in the country that shops at Target or Wal-Mart will see. It will also have an effect that we really won't like. China will stop buying those T-bills. Why buy something that when it comes due, will be worth less than what you paid for it?
Except, someone has to but those T-bills. The guys in DC can't balance a budget any better than a coke fiend can balance a checkbook. So how does that happen? Raise the interest rates. A lot. Make them pay off so they keep getting bought. Result? Housing boom? Busts. Car sales? Dead. Home renovation and major appliances? Forget it. Hello recession? Try depression.
At that point, the government has no choice but to contract. The world turns and the global economy leaves us behind. The world's first hyper-power becomes a third world country, and it's all because we can't balance the checkbook.
By the way, the debt clock is up $58,992,878.94. What's in your wallet?
posted by Mike N | 9:16 PM
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