Re: 2011 U.S. Budget Cut in Perspective
a lot more than 6 minutes to watch it for accuracy and comment.
here's my specific notes.
Ok "armageddon is inflammatory or trying to scare the viewer.
#1 the claim that most americans borrow to spend more than they earn routinely is not accurate or possible (only governments get away with that nonsense). Most families cut back spending when they run out of money.
#2 the amount of debt is accurate $14T but in fact we are not running out of people who want to buy our debt (we are one of least ugly girls at the prom). After the S&P downgrade our debt sold better not worse, due to fear/safety trade. S&P scared people so they bought more not less US debt. It could happen if we were to keep doing what we are doing though. I have faith in the American public, to make congress behave more responsibly in the future.
#3 yes, while we have historically run budget deficits before, the last couple years of spending, and falling revenue due to soft employment is worst imbalance ever.
#4 good point about distribution of who pays taxes, even more telling would a spread of personal tax payments vs income levels, and perhaps large business vs small.
#5 simplistic but correct correlation between inflation and commodity prices. This also applies to all fixed assets like homes, which the government would love to inflate to bail out underwater buyers.
#6 I don't accept that a foreign government lending us money makes us appear wealthier and them poorer.. Their balance sheet is still the same. However High interests rates or higher return on investment attracts capital and deposits so it make a currency more valuable. So yes there is a relationship between interest rates "that attract capital" and currency value. Perhaps a semantic argument on my part. Capital is attracted to investment return pure and simple.
#7 their explanation for recession is wrong. Yes, globalization and free flow of capital causes capital to find more productive uses elsewhere. While the nationalistic viewpoint is that moving to third world manufacturing is simply a home market issue, any global manufacturer is trying to be competitive in all world markets. Once you tool up a product in China for the rest of the world, the math to build for home consumption there too becomes trivial and obvious. Of course more small business activity is less efficient and results in more local economic activity.
Recessions are historically caused by business cycles that are underdamped (economic growth overshoots and undershoots, above and below the sustainable levels. Pauses occur to let everything catch up and equalize). Central governments try to moderate the pain of these natural business cycles by tweaking interests rates up/down to heat up or cool marginal business activity… but it isn't nice to fool mother nature and there are limits to what can be accomplished. You can't drop interest below 0%, but they have engineered other ways to stimulate (quantitative easing etc).., Some purist (like me) argue that this manipulation of cycles and direct intervention prevents a natural turnover (creative destruction) of weaker businesses.
#8 The end of the video suggestion that worldwide economic collapse never happened before is ignoring the great depression of the 1930s. While not apparent that we learned all our lessons, from the derivatives meltdown that precipitated this economic contraction, our international bankers have the benefit of studying history. We may make new mistakes but hopefully not the same old ones. One mistake we made coming out of that great depression in the '30s was to tighten money supply (raise interest rates) too soon. The EU has recently reversed an apparently "too soon" interest rate increase (explained by their simple inflation single mandate).
This is not trivial, easy, or without pain, but we appear to be very very slowly coming out of this, however we can still screw this up pretty easily. i wouldn't buy gold and ammo just yet (maybe a little gold). In fact stocks and housing looks pretty cheap right now if you have a strong stomach.
=====
That video was mostly factual but IMO loses it's way from the cause of recession and most factoids presented after that. If I had to guess an agenda it looks intended to make people more fearful than inform them. Not sure why. If the simple stuff is correct, the conclusions must be correct... bzzt.
JR
