Thursday, August 13, 2009


HBF, I just watched a documentary called I.O.U.S.A. and it outlines very clearly one of the biggest problems facing our country: DEBT. It doesn't discuss individual level debt very much, but rather addresses 4 key deficits contributing to our national debt. Those deficits are: 1. budget, 2. trade, 3. savings, and 4. leadership. It goes through in terms that non-economists can understand and tells people quantitatively and qualitatively what each of these deficits are, why they are important, and what can be done about them in the short term as well as the long term.

I RECOMMEND THAT YOU WATCH THIS DOCUMENTARY. It didn't infuriate me as much as Who Killed the Electric Car, partially because there's not just one concentrated beam of blame. I guess if I had to pin down one person to blame for our current situation it would be GHWB. Actually, when I say current situation I mean the deficit as of mid-2008. The current bailout has put us further in the hole. There's some crazy amount we owe, averaging out to around $184,000 PER AMERICAN!!! There's no way that could be paid back in a generation.

I know that we can inflate away much of our real debt. However, there are problems with inflation too. There are a lot of costs involved in adapting to new price levels. Also inflation punishes the people who have been saving. That seems like a bad way to start building a new culture of fiscal responsibility at the micro level.

Personally, I've thought that running trade deficits was a good thing. We give pieces of paper to other countries and they give us goods and services. I guess that I was right in the short term. It's pretty awesome to get real goods in exchange for nominal money. What I didn't think too much about in the past is how sustainable such behavior is. Since America is a pretty rich country, we can afford to just keep sending out pieces of paper overseas for quite a while before we run out of paper to send. However, once we get to the point where we don't have any more paper, we don't have any more real goods to sell to get more paper, we're SOL. Warren Buffet wrote an article titled Squanderville versus Thriftville. Admittedly, I watched the animated version but it's a nice and simple way to explain why we can't keep doing what we're doing.

Just like watching Kilowatt Ours moved me to start buying renewable energy credits (I get about 450KWh/month from Sterling Planet), this documentary has moved me to contact my elected officials and demand that they take positions to attenuate this pending crisis. I know that my generation is set up to pay into the social security system and not receive nearly that same level of benefits back. In a few decades, we'll be forced to be way more productive or the government will think that it wants to raise the tax rate to pay for even just the service on our debt (although maybe they should take a look at where we are on the Laffer curve first). If you think that our situation is bad, imagine what life will be like for my children and grandchildren. We can't keep spending this much without making enough to cover our standard of living and start paying down what we owe. This is true on a personal level and a national one too.
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