Saturday, October 12, 2013

The Coming Economic Crisis?


A week ago when I wrote the post about how the partial government shutdown would affect the average US citizen I never thought I would be writing this post this week. I must start out by saying I still do not think the things I am going to describe are going to happen, but they are now at least in the realm of possibility. Sometime around October 17th of this year the federal government will run out of money, again. Let me explain. Imagine that you have no money in your wallet, your bank balance is zero, your credit cards are all maxed out, and you cannot even find any loose change in your couch. This is the situation in which the government will find itself in a few days. When this has happened in the past, Congress  just voted to increase their "credit card" limit and thus postponed the problems.

This time it may not be so easy. The Republicans have chosen this time to make a stand against Obamacare. After trying to completely defund Obamacare and failing, the Republicans backed up and wanted to delay the individual mandate. Large corporations have been granted a delay so everyone should. Laws should apply to everyone equally.

The Democrats have said that they will accept no compromise on Obamacare. So we have the shutdown. The shutdown would have been fine except for the way it is being implemented. For example military golf courses are still in operation but military grocery stores called commissaries are closed (reported in Bloomberg). The closing of the WWII memorial and the arrest of veterans trying to pay their respects (this has since been reopened) while allowing the National Mall to be used for an immigration rally (reported repeatedly). The closing of Florida Bay 11,000 square miles of ocean (reported by The Miami Herald). This is our government acting like a spoiled brat thug.

Right now we have one side with a lot of support willing to compromise with the other, who also has a lot of support, but one side basically saying it is our way or the highway. This has created a very dangerous situation. So dangerous in fact that NPR has reported that China has told the U.S. to get its financial house in order. China is looking to protect its 1.3 trillion dollar investment in this country, yet again we have one side basically saying either we get everything we want or we will let the whole world go down. I am not exaggerating- the whole world.

Now I am not saying that if no compromise is reached we will wake up on October 17th and the apocalypse will have begun. In fact we will have a few days where it will look like yet another big nothing. But if an agreement has not been made and the debt ceiling is not increased the United States will begin defaulting on many of its loans. If that happens the price of getting a loan for everyone in this country will jump big time. The value of the dollar will plummet, everything will cost a lot more. The government will not be able to give all of the benefits that it has promised everyone. That is where the real problems could begin.

Now remember if no compromise is reached the government will have lost its ability to borrow money and has already run out of cash. The government still has income. We are all still paying our taxes. They will just not have enough money to do all the the things they are used to or even all the things they have promised. If this happens the government will have to decide which debt it will pay. The government will have to decide whether to pay the things promised to its citizens or the interest payments to other countries. I wouldn't want to have to count on the generosity of a government in trouble. Below is a graph from NPR showing everyone to whom the government owes money. http://www.npr.org/blogs/money/2013/10/10/230944425/everyone-the-u-s-government-owes-money-to-in-one-graph

Holders of U.S. debt

What would happen if this situation fully develops would just be a guess. I would just like to strongly encourage everyone to think and act in a way that prepares you a little more each day to take care of your family and yourself. I still think a compromise will be reached and this crisis will be delayed, but it is always better to be informed.

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By Gregg Carter