There are countless misconceptions about where the money comes from to finance the US Federal Debt. One reads constantly in the financial press something like "the U.S. must have a sound fiscal policy, or the Chinese [or Japanese, or Arabs, etc.] will not fund the deficit." This is actually just silly.
Foreign trade partners have money to invest in US Government debt because they run trade surpluses with the USA. Debt is bought with funds left over after they have bought whatever they might want (if anything) that the USA has to sell them. The amount of debt they buy is incidental to their trading activities. Internal US policy (interest rates, inflation rates) has little impact on the process.
For a while it was a great deal for citizens of the USA. They got to buy stuff from abroad, and when the money was recycled back to the Federal Government, they got to spend it again! Things are changing, though. Foreign trade surpluses with the US are crashing. This is because foreign trade is crashing (see a previous post).
The U.S. Federal Government (and indeed any national government that has been running chronic trade deficits) will be losing a critical source of funding in the years ahead as international trade declines. It is highly unlikely that interest rates will be raised to attract funds as this would exacerbate the economic contraction. Instead, the loss of recycled trade deficits will be made up for by just that much more 'printing'.
As we have been hinting darkly, the USA is coming to the point where its economy simply cannot service the debt load it has placed upon itself. Given the way policy has been going lately, the outcome will be the quasi-default of runaway inflation.
Sunday, January 25, 2009
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I cannot comment on all of Obama's plan but I can comment on the health care portion I read in the Washington Post today and from what I read, the health care proposal will most certainly NOT WORK.
First of all, it doesn't even try to address the issue of total spending. It just increases it as the Mass plan did. And the second portion, instituting a national electronic medical record, or EMR, should make you run with terror.
The reason we do not have widespread electronic medical record deployment in America has nothing to do with the fact that health professionals are idiots, etc... the reason we do not have EMRs is because they MASSIVELY REDUCE health care provider productivity. MANY studies have now shown a greater than 30-35% reduction in productivity after deployment (it is something like 50-60% reduction in productivity in the first few months and then settles out as it improves to a loss around 30% long term).
So if a doctor could have seen (say) 3 patients per hour, now they can only see 2. And as we are already having trouble seeing all the patient's we have, now we are going to need a whole lot more physicians and nurses just because we want to go to an electronic medical record?
Remember, 80% of health care costs are in labor and increasing the need for that labor just increases health care costs. I have almost 100 physicians and mid-level providers who work with me in my practice, I am our CFO, I run all our numbers. Trust that I know where the money goes.
So would you really want a pretty computerized record if your total bill went up by 35%? Or would you be willing to live with old fashion paper and pencil for a lot less money? Because that is literally the choice we are talking about.
To be fair there is definitely SOME reduction in costs as a computerized record helps reduce redundant testing. And it is also true that if you are a health care manager, your job is made MUCH easier by an EMR, but we will not make up for this large productivity loss with this small benefit.
This is why recent attempts to deploy an national electronic medical record or EMR failed big time in England. The user interface technology is just not there yet. I am getting old enough to have seen multiple EMR roll outs fail in multiple hospitals over the course of my career. I think we will eventually get one, as user interface technology improves, but I don't think we will get what the government wants for many years.
I am thinking gold is looking better and better. How does one buy physical gold outside the US?
And why would you not like the ETF GLD?
For buying gold outside the US, you could look into www.bullionvault.com (this is not a recommendation, BTW - we have no experience with them).
The ETFs are large and bank-sponsored, and thus easy targets for fraud. A more reputable exchange-traded vehicle is the Central Fund of Canada.
We suggest keeping precious metal in hand. You will find gold is incredibly compact and easy to squirrel away.
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