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Article by Joe
Caner 7-1-05
The recent rapid run-up
of the national debt will put downward pressure on the value of the
dollar, which is in fact
already losing value against every major currency. Interest rate will
rise in order to attract lenders to purchase our increasing amount of debt.
Higher interest rates will also be needed to counter the effects of our
currency devaluation which will further increase rates. Higher total debt
also effect our credit worthiness. It reduces our credit score because of
the increased risk of default. Higher risk investment require higher rates
of return which will in turn drive
up interest.
Higher interest rate will increase the costs of doing business. Loans are
needed in order to finance the investment in new plant and equipment, and to
build inventories. This will have a
chilling effect on hiring and economic growth.
A cheaper dollar will make our goods and services more attractive on the
world market, but it is unlikely that we will fully capitalize on this
opportunity because most managers
are by nature risk adverse. They will
be slow to invest due to the higher financing costs and uncertain returns.
The weaker dollar will mean that the cost of goods and services will be
higher to the American consumer. This is called inflation. Inflation also
adds upward pressure to interest rates. Presumably rates will stabilize at
some higher point, but it's anyone's guess where. There is one thing I can
tell you for certain. It's a very bad time to have an adjustable rate
mortgage. If you do not have a fixed rate, I'd recommend refinancing. Soon.
Oh yeah. Home prices will stagnate, and very likely begin to decline because
the increasing cost of money will depress prices.
The increased cost of money will decrease the affordability of large ticket
items such as housing. This will also depress the new housing market
which has been a the bright spot in
our otherwise jobless recovery.
At some point, one would assume that governmental spending would have to be
curtailed, and/or taxes will need to be raised in order slow the rate of
debt accumulation. Either option will further depress our economy by
reducing the amount being spent on goods and services.
This sounds like a lot of gloom and
doom, but it is not necessarily the only
outcome. Although we are currently heading along this vector, other
factors that are yet to occur or be identified can exacerbate or improve the
situation. For instance, our more attractively priced goods and services
could have a better than expected effect on our economic growth which in
turn would raise governmental income without unduly depressing the economy. Oil
prices could continue to rise which would depress the economy, and drive up
both interest and inflations rates. The economy is a chaotic system
with lots of variables. I know it sounds like I am equivocating, but it's
kind of hard to give a definitive projection. All you can do is ride the
trends, and keep your eyes open for important developments that could cause
a deflection in those trends. Currently, the trend does not look good. There
seems to be a lot more downside risk
than upside potential.
The massive increase in the national
debt is going is to make America
relatively poorer. We will have fewer options to
increase the size of the standing Army, purchase new weapon systems, or pay
for social programs such as universal health coverage. We wont
have the recourses. An increasing percentage of federal
expenditures will be required just
to service the national debt. Not to retire it. Just to pay off
the interest. If we continue along this vector, servicing the
national debt will become the largest single expenditure of the US
government
Have I cheered you up yet?
Comments and more information below.
Fractional Reserve Banking/Paper money is evil. In a paper money system
its mathematically certain that most of the people in the society will
have a huge debt. The reason for this is that borrowing is the only way
money can be created in a flat-money system and since there is always
interest attached there is always more debt created than money. Thus
it's certain that everyone will owe money to the banks and eventually
its mathematically certain that they'll go into default at some point -
even the entire US government.
I
dare you to read what some of these famous people say about paper money
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http://beta.search.msn.com/results.aspx?q=best+search+engine&FORM=QBRE
11-21-04
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