Monday, July 25, 2011

Is America Going To Run Out Of Money?

A rather high stakes game of bluff is going on right now in the USA. Over about twenty years the American government has run up quite a deficit. In fact with good reason some commentators now describe the USA as the largest debtor nation in the history of the world. The US Government debt is now approaching a little over 14 trillion dollars. A trillion dollars is a million, million dollars. Another way of describing a trillion is to say that if you spent a million dollars every day since the birth of Jesus, you are still a bit short of having spent a trillion dollars.
Yet the fact that the US has such a big debt is far from catastrophic, as many people in the world are still very keen to keep lending the US more money at very low interest rates, as they are convinced that the US is still one of the safest investments going.
The other problem in the USA now is politics. The House of Congress needs to raise the debt ceiling for the Government to increase the debt above the current ceiling of $14 trillion, but the Republican controlled legislature is playing hardball and wants spending slashed. The Democrats and the White House also want to reduce the deficit, but they also want to protect welfare, so their alternative is to increase tax, especially on the rich. If the Bill does not pass by 2nd August, then the US Government will run out of money, default on some loans and the financial effect globally could be catastrophic. Of course no one really thinks that this will happen. The game of bluff will no doubt run to the last day or days, or even hour or hours. Then one side or both will eventually blink. The stakes are too high – surely sanity will prevail. The politics is partisan, entrenched and quite desperate, but you assume compromise will come. Surely it must! Of course it will! Lets hope it does.
On the other hand, at the moment for every dollar the US Government spends it has to borrow another 36 cents, which suggests to some that even if a compromise is found by 2nd August, someone sometime in the future has to actually address the problem that the US Government revenue is way too low and its expenditure is way too high. Paying 36c of every dollar you earn on a mortgage to buy a house may be a necessary way to provide a roof for your family, but borrowing 36c for every $1 you spend on groceries and bills is a picture of a family out of control.
The Book of Proverbs provides a very simple approach to debt:
The rich rule over the poor, and the borrower is servant to the lender.   Proverbs 22: 7 
When the rich rule over the poor while at the same time borrowing from the poor, then one day the rich are going to serve the poor and who knows, maybe even trade places.

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