Money Thinking
I am no economist, but I am a nerd. I like to
sit down with spreadsheets and munge numbers. I like to min-max to figure out
the optimal strategy to make the economy
grow.
Back during the Reagan years, I
was concerned about the national debt. I sat down with a spreadsheet to see
when the inevitable (seeming) collapse was going to come from our government
running a deficit year after year after year. I was surprised to find that not
only was a deficit sustainable, you could have a larger deficit every year than
the year before, forever -- as long as the economy keeps growing. Of course,
when you've got a massive debt, there's not much slack if there's a hiccup in
growth, and catastrophic collapse is
possible.
During the Clinton years,
things actually looked pretty good. The economy was growing while government
was not (mostly because of our decrease in military spending). The deficit
mostly went away. We were getting back some of the safety net that Reagan had
frittered away.
But it's gone again. I
haven't sat down with a spreadsheet to crunch the numbers again, but I will
soon. I'm concerned.
Near as I can
tell, the government spends a lot more money than it takes in, and it borrows
the excess from foreigners, who have lots of spare dollars because we're
spending like crazy buying worthless consumer
crap.
This doesn't seem like a healthy
recipe.
But how do I, as an individual,
profit? What's going to happen to the
economy?
On the one hand, at some
point, the dollar might collapse. Those foreigners might start getting
suspicious of all the IOUs they're piling up, and start wanting a little more
interest before they take more. They might want more dollars, because they
suspect they're going down. This makes the price of foreign goods go up, and
creates inflation. The dollars aren't worth crap. Inflation. Folks with
dollars get screwed as they become
valueless.
On the other hand, if the
economy shrinks, and companies start cutting payrolls, unemployed folks are
going to run out of money pretty fast. They need to pay their mortgage, but
they haven't got a nickel. Dollars are awesome. People start getting houses
repossessed, and real estate prices plummet. Deflation. Folks with dollars
might be able to buy up tons of value at fire sale
prices.
Folks with dollars -- which,
frankly, is mostly China and Japan -- either get horked or end up owning
us.
I'm pretty sure Americans will
scream when foreigners start trying to buy up a bankrupt America. (Look at the
port deal.) We'll start passing rules keeping foreigners from using their
dollars. When they realize their dollars aren't worth crap, they won't want any
more, and we'll be isolated
financially.
Sounds bad, but I don't
think it's that big a deal. America is large, and robust, and diversified. If
we can't get cheap Chinese crap, I don't think our lives will get much worse.
The only thing of significance that we import is energy -- and we waste so much
energy that I think we can eliminate imports just be being slightly less
inefficient. We make plenty of food, and we have plenty of housing, and we can
keep everybody supplied with computers and software. A little belt-tightening
on other stuff would do us good.
Filed Wed - March 29, 2006, 12:00 PM in
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