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20/06/2021
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The US economy ... approaching the abyss? 31 May 2021 15:56 #11620

  • Gerardo E. Martínez-Solanas
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The wasteful policy that is traditional when the Democratic Party heads the government has been exacerbated beyond any reasonable limit in the first months of the current Administration, regardless of the tragic consequences of the economic collapse that will be inevitable sometime this decade if the public debt growth is not stopped in time before it becomes unpayable and causes the country's bankruptcy.

Big-spending Joe Biden just announced last week a humongous $6 trillion (seis billones en español) budget that is $1.2 trillion above the already too high Donald Trump's final budget proposal. This budget proposal represents almost a $2 trillion 2022 budget deficit that will accelerate the very serious rate of US public indebtedness. Public debt will reach 107% of GDP (the highest in the nation's history) in 2023. At the peak of the II World War, it reached 100% and was much lower ever since until this year. According to the Manhattan Institute, the national debt will reach $41 trillion before 2030 and they predict that lawmakers have six years or less to avert a potential debt crisis.

As a result, economists predict a 6-7% unemployment rate as a result of capital flight and a marked decline in investments, and a disturbing slow-down in the creation of new businesses. Another serious consequence is the decline in the value of the dollar and of the resulting purchasing power, which will be reflected in high rates of inflation. 

Three key questions arise: 1) Who will buy the new debt? 2) Who will ultimately pay it off?. and 3) Does anyone in the party in power care?
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The US economy ... approaching the abyss? 16 May 2021 17:40 #11612

  • Gerardo E. Martínez-Solanas
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Under the pandemic economic closure, the unemployment statistics dropped very fast since the peak of nearly 16% in March 2020, down to 6.3% in January 2021. Even when it rose 0.1% last month (April), the number has been stable at around 6% this year.

However, the U.S. labor force (those willing and/or able to work) keeps shrinking rapidly. Back in 2007, 66% of Americans had a job or were actively seeking work. Today, that number is at 62.8% — the lowest level since 1978: in 2000 the workforce amounted to 159,500,505 and it is now at 151,070,643, a drop of more than 8 million, and 25,098,583 of them have part-time jobs only. The number of people officially unemployed at this moment amounts to 9,675,608; if we add those no longer receiving unemployment benefits and those no longer seeking a job, this number rises to 17,386,285 at the time of writing this note, and that is well above 10% of the labor force.

So what's going on? One theory is that the weak job market is causing people to simply give up looking for work — they're crumpling up their resumes and going home. A recent paper from the Boston Fed suggested that these "non-inevitable dropouts" might even account for the bulk of the decline. However, it is known that many thousands (or millions?) are taking advantage of government gifts to enjoy a long "paid vacation".

It is important to note that 42,715,457 persons are receiving food stamps and some 17 million more receive temporary welfare assistance. Total spending on Welfare programs (including Medicaid) was $827 billion in 2020. By comparison, this year's defense budget is 726 billion.

On February 11, 2020, I published a report (democraciaparticipativa.net/economia-soc...ultimos-19-anos.html) on America's huge and growing national debt, when it seemed that President Trump was slowing its growth, but not with enough speed. I then underlined how it had grown rapidly during the Bush and Obama administrations, and had not slowed down during the Trump administration at the declining pace he had promised in his election campaign. In fact, the debt amounted to $6.06 trillion when Bush took office, increased to $10.63 trillion when Obama took office and accelerated to $19.95 trillion when Trump took office. At the beginning of the pandemic, although growth had slowed significantly, it was already 23.27 trillion.

The outbreak of the pandemic and its spread led to a huge drop in the country's production and level of services, leading to considerable unemployment and a noticeable acceleration in the amount of debt. Therefore, when the national debt rose to 26.5 trillions on August 7, 2020, I sounded the alarm again in a revealing essay (democraciaparticipativa.net/economia-soc...eaps-and-bounds.html). But this dire wasteful trend continues to worsen and debt had risen in a few months to an overwhelming figure of around $28.2 trillion.

It is impossible to predict the precise moment when the irretrievable collapse of the country's economy will occur if this wasteful policy continues, because the mobiles of such an overwhelming cataclysm also depend on psychological factors such as the level of trust that the people continue to have in their government and on the value of their currency. However, we can predict with absolute certainty that future generations will angrily condemn us for this onerous legacy that we will leave to our children, grandchildren, and great-grandchildren as a disastrous and undesirable inheritance.
Moderadores: Miguel SaludesAbelardo Pérez GarcíaOílda del CastilloRicardo PuertaAntonio LlacaMarta MenorHéctor Caraballo
Gracias a Foro Kunena