Yes, it's taken me more than a week to digest the June 11th issue of the New York Times Magazine, whose theme was money, with a particular focus on the hairy red monster that is DEBT. This has just added to the "doom and gloom" atmosphere I posted about recently. The best article in the issue, I thought, was one called "Reasons to Worry," which began by comparing the US economy to a dinosaur, and wondering whether it can evolve rather than share the dinosaurs' fate.
The depressing case is built:
We have a huge national debt.
Consumer indebtedness is growing in relation to the GDP
The national savings rate is approaching zero.
People think they will retire later than they actually do, so they don't have enough money to retire on.
The US trade deficit is huge.
"The average American has an income of about $40,000 a year and ... a personal savings rate of zero. The average Chinese earns about $1,500 a year but has personal savings of 23 percent of his income-- and is lending a large chunk of these savings, via the People's Bank of China, to the average American."
The dollar has been declining in value-- this may be a good thing, as our debts are are denominated in dollars so their value is thereby lessened. Also, it would make our exported goods cheaper and help reduce the trade deficit. But, this would cause the dollar price of imported goods to increase, thereby stimulating inflation. Inflation might still be a good thing in a way: it means that "the real value of your debt ends up being reduced (in terms of the purchasing power of the amount that you owe)" but only if your debt is not adjustable rate or linked to an index, which our national debt is. The low interest rates of the last few years helped lower the cost of servicing the national debt. But since many bonds issued by the Treasury are short-term, they will now have to be refinanced at higher rates: "It turns out that George Bush has the biggest ARM in the world."
Does this all this cause and effect stuff start to sound a little complicated? And scary? Back to the dinosaur analogy: America's economy has a "small, wealthy head; [a] big, fat middle; and [a] long low-income tail" and "the global economic climate seems to be changing.... It's too soon to speak of extinction, of course. But one obvious inference to be drawn from the British experience of an indebted empire and a sliding currency, as well as from the history of the diplodocus, is that eternal life is not on offer."
Whew. Now on top of all this, I recently finished reading Jared Diamond's Collapse and saw An Inconvenient Truth, more fodder for negativity, if you choose to see them that way. Now before people start thinking I've gone off the deep end, let me just say that of course I don't really think the world is going to end tomorrow-- otherwise I TOTALLY would have gone for the interest-only 1-year ARM for my condo!
If you looked back at news stories over the past century, I'm sure the apocalyptic predictions would recur time and time again. Yes, we're still all here today, but that doesn't mean there's never any cause for worry. Will we someday dig ourselves into a hole we can't get out of?