I confess that I’m more than a bit of a news and information junkie. Addiction could be close to it. CBC News is my homepage. And my favourite journalist over there has to be Neil Macdonald. Neil is the Washington correspondent and has a knack for explaining well what is happening with our neighbour to the south. His latest column explains what type of financial trouble America is in, and the creative way that they’re dealing with it.
The Problem:
The U.S. government borrows about 40 cents of every dollar it spends and it is on track this year to borrow about $1.3 trillion. That is the equivalent of borrowing Canada's entire economic output for 2009.
And that deficit will be piled onto the debt, which now stands at about $13.8 trillion and rising. Actually, if you add all the liabilities that Washington simply doesn't have the money to pay for (social security and Medicare are the biggies), the real debt is something like $40 trillion, which is a figure that defies comprehension.
Certainly, it defies repayment.
The Solution:
Basically, the Fed creates the money out of thin air, then lends it to the government by buying long-term U.S. Treasury bills. That means expanding the money supply, which of course makes every dollar already out there worth a little less. Which, in turn, impoverishes anyone who holds American debt.
Technically, it's a form of default. Expect more of it. It neatly solves the problem without any unpopular spending cuts or tax increases.
It also forces the rest of the world to share America's pain and the world is probably just going to have to put up with it because, like those Wall Street banks, the U.S. government is literally too big to fail.
Surprised you didn't add the photo from the CBC article to your blog. :)
Posted by: Kdshoemaker | 12/09/2010 at 09:06 PM