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Musicmystery -> RE: Pay me $20 (6/30/2010 10:03:58 AM)
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quote:
What is the net effect of all this borrowing ?
The answer is that it has artificially propped up the effective value of our currency.
It it hadn't happened there could never be such a huge trade imbalance.
The only way is default.
The easy life of a caveman is coming back by force of nature. That is because the system has been mismanaged so badly. Soon the rest of the world is going to see our T bills like penny stocks.
silverbrain is prattling about the Fed and monetary policy. You are prattling about fiscal policy.
Nobody is touting borrowing, but from there you're off to fantasyland. It doesn't prop up our currency's value--the relative strength of our production does that. Default? We are nowhere close to that. T bill interest rates are up, precisely because investors judge us stronger than alternative investments. If you want to settle up and just "pay off" the trade imbalance, you misunderstand how floating currencies work, confusing it with the old Bretton Woods system. The market has already made that adjustment.
What IS hurting us is continued tight credit. Confidence has yet to recover as assets remain under suspicion. Consequently, even that company that has depleted inventories and wants to expand and hire finds credit costs prohibitive and waits until the need justifies even such higher costs--or until banks again decide they want to do business. Even at the consumer level--I would normally borrow short term for something like your transmission example, but even though nothing in my credit has changed, now they expect double digit interest rates and I'm not paying that, so I look to my savings to cover it. However, that also means I sit down and plan ahead for every purchase and contingency, budget accordingly, and spend far less.
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