Debt. What makes it so dangerous? For the most part, it is often not the sum figure itself. It is usually the cost of the payments that resolves what is and is not feasible. This is exactly how mortgage brokers sold subprime and option-ARM mortgages to homebuyers to provoke them to buy bigger homes than they could really afford. Don’t worry. In three years when the payment resets, the house will be worth more than what was paid, so it can be sold for profit.
This expansion of credit efficiently impedes the commencement of capitalism?s cyclic economic catastrophes only to make them worse when they at last transpire. In all economic booms, many industries overstretch their operations in the quest of additional earnings and discover that they have overproduced for their specific markets.
Is this the grand solution to our economic problems? China and Japan will buy our debt and keep our interest rate low! But in a few years, even if they stop, our economy will have recovered; so, it’s okay! Run colossal and expansive deficits to restart the economy!
Will they keep buying up our debt? According to a recent Bloomberg report, returns on the U.S. treasury are coming up negative. Investors are starting to worry that the debt of the U.S. is no longer a secure investment. Because of this, treasuries were being sold at a discount rate of .005 percent, the lowest since the Treasury Department started auctioning the securities in 1929. Now, does this mean countries overseas will dump their dollar holdings? Who knows? But it?s a little far-fetched, considering that dumping would undermine the value of their own vast holdings.
To be fair, this is an extremely oversimplified view of the current economic proposal. And to be honest, it can actually be legitimately argued that spending will in fact get us out of this current ever-mounting, debt-induced economic crisis. Looking back at Franklin D. Roosevelt’s New Deal shows us this. Following Keynesian economics (a theory that said government spending could end the depression), it was during this time that the U.S. economy grew at average annual growth rates of 9 to 10 percent, with the exclusion of the recession year of 1937-38. In fact, many data motivated analyses only criticize that money was not spent fast enough.
So what will happen? No one really knows. Logically, debt cannot keep increasing faster than money made forever. The more we borrow and the more money we print, the higher the interest payments will rise. History has confirmed that sustainable recuperation only begins when a significant portion of debt acquired during a boom has been liquidated. If we do not take care of our ever-increasing debt and its subsequent higher and higher interest, history may repeat itself.
Times are indeed grim. Recently, both FOX Business Network and Bloomberg, LP, filed a lawsuits against the U.S. Treasury Department over refusal to supply information on the bailout funds or answer to expedited requests filed under the Freedom of Information Act. Are Obama’s words on transparency mere rhetoric? I hope not.
Is the Fed lending on collateral that it publicly said it would not lend against? Are they playing favorites with institutions? Is the collateral actually worth far less than the amount loaned against it? Would certain banks be embarrassed to reveal to us what they own? Most certainly. Is there some ruin they are trying to cover up? There are no rules left to be broken. Is there a mammoth black hole growing somewhere? There could be, and if so, maybe they are trying to seal it with some of your money.
“We pay in interest four times more than we spend on education and four times what it will cost to cover 10 million children with health insurance for five years,” said House Speaker Nancy Pelosi, D-Calif. “That’s fiscal irresponsibility.”
What is she talking about? The yearly interest on our debt is more than $400 billion. Blood is on both sides of the isle.
Maybe it’s all a hoax. Or maybe the “debt” is a facilitator for making the rich richer. The federal government does own thousands of buildings, millions of acres of land, cars, trucks, equipment and gold bullion at Fort Knox and so on. If debt really were a significant issue, the government could liquidate it very quickly by selling off assets, right?
Why do we love money so much? Will we look into the eyes of our demons and be able to vanquish our greed? Our future depends on it.
Julio Cespedes is a junior majoring in biological engineering. He can be contacted at [email protected].