jjjjjjjjj wrote:
why would the economy collapse if u.s. gov't debt does not fall by trillions? we are nowhere near debt problems, and it would only exacerbate the debt issues by cutting government spending now, when the recovery is precarious. If we were near debt problems, then we would see a flight from the dollar and high interest/inflation. We see none of that.
Just a couple comments here:
1) To answer your question, it could collapse because for the government to keep up service on its ever-increasing debt it will be forced to either raise rates or substantially inflate the money supply. Neither of these things is good for the long-term viability of the economy. The only other option is to default on its debt, and that's really bad for reasons that we don't even need to discuss.
2) We're nowhere near debt problems? We're in so much debt trouble that it is mathematically impossible for us to get out of it. A Boston University economics professor recently calculated that the US government is now facing a $202 trillion fiscal gap when all unfunded liabilities and obligations are considered. That doesn't sound like trouble to you? In a country with a GDP of $13 trillion? Sounds like a problem to me.
3) We ARE seeing a flight from the dollar. Have you seen any of the dollar indices lately? The dollar has been falling for some time, and the recently announced QE2 caused it to drop substantially over the past week. There is little faith in the dollar anymore.
4) I don't know how many times I have to say this, but CPI is NOT, I repeat NOT a real measure of inflation. The CPI is possibly the most bogus, manipulated number that our government publishes (and they publish a lot of bogus, manipulated numbers). CPI does not take into account many of the things that we all use regularly. The methodology for calculating CPI has changed so many times over the years that it now bears almost no resemblance to the indicator that it once was. The latest CPI figure came in at 1.1%. However, if you were to use the methodology that the government used in 1980, you'd get a number closer to 8%. The government massages the CPI so that it tells whatever story they want it to tell. The following data should help make my point.
These are the year-over-year increases in price of some commonly used commodities:
Wheat 74%
Corn 14%
Oats 68%
Canola 36%
Heating Oil 29%
Gasoline 25%
Natural Gas 15%
Beef 18%
Pork 60%
Coffee 27%
Sugar 44%
Cotton 66%
Copper 37%
Now you tell me, if these commodities have increased so much in price, how does an inflation figure of 1.1% make any logical sense unless it's heavily manipulated?
Whether you want to believe it or not, there is trouble ahead. I think that this proposal is a step in the right direction. I have my own fears that many of the cuts will never happen because it would be political suicide for many Congressmen, but at least they're finally willing to look at making some cuts in areas that used to be off limits. I'm very interested in seeing how this plays out.