Sunday 31 July 2011

The Sky is Falling, My Thoughts on the US Debt Debacle.

I couldn't help cringing whilst reading the news this morning. Apparently Congress has resolved to work out a deal to raise the US Debt ceiling by the end of the day (despite the fact that it's already been raised 78 times since 1960).

This comes to me as no surprise. Frequently laws get passed in congress solely because certain businesses with a certain agenda throw money at politicians until they do their bidding. And as we know there are many fingers immersed in that voluptuous pie that is the US Treasury bonds market. US banks and finance companies for one have a lot to lose if the US government were to default on their debts. If this sounds like a big conspiracy theory to you then I sincerely must ask you to grow up; this is just how the system works in the US. It's not the worst political system, I will give it that.

But what does it matter? The US government defaulting on its debt is bad for everyone right? It's bad for the banks and finance companies, hell it's even bad for me because my government (the Australian Government) will lose 12.3 billion dollars worth of US treasury bonds.

It will cause a catastrophic global financial crisis. But there are people who would benefit from an immediate default on the US Debt...

Can you guess who these mysterious people are?

Do you have kids? No?

Well then who cares about US debt, go spend all your money and get into debt and die a happy, penniless human being! Just make sure you time the bankruptcy for when you are going to kick the bucket.

If however, you are fortunate/unfortunate enough to have your own little toddler terrorists running around, you may want to consider the long term impact of the US continuing to run up more and more debt and how it will affect them. Because if the US government doesn't default on its debt now then it will either have to default on it later (with the result of a possibly bigger and nastier global recession than what we would have now if the US defaulted), or your kids are going to be burdened with whopping big taxes and dismal welfare as the US government attempts to pay its creditors.

Of course if you don't live in the US then this is not a problem, just pray that the US tries to pay off its debts in the future. Otherwise, your future kids may not have enough money to put you up in that luxury old folks home due to the global recession.

I personally hope that in 50 years time I will be spending my dying days in a retirement home with a good internet connection and non stop grandpa vs grandpa LAN parties.

Like this, but I will be using a G9x laser mouse, steel series keyboard and an lcd screen.

My point is though, that right now the US economy has some serious poison running through it's veins. It isn't going away anytime soon and while the economy, if left alone, will fix itself, there will be some serious pain in the healing process. You can either pay now, or let the next generation deal with the bill.