The American government has a credit rating, kind of like how we have personal credit ratings. This rating tells others how likely we are to pay our debts. The higher your credit score, the easier it is to borrow. When a country's credit rating goes down, it means that people who loan money are starting to believe that we can't pay our debts. This indicates a financial shift away from the dollar. It also means we have GIGANTAUR-SIZED DEBT.
World Reserve Currency: USD
After WWII, much of the developed world was literally in ruins and bankrupt. American bankrolled the world and lent money to everyone, thus the dollar replaced the British Sterling as the world reserve currency. The world reserve currency is the money that governments must keep in order to conduct international trade. This is why oil is priced in USD per barrel and why gold is price in USD per ounce. When the credit rating of a country goes down, it scares investors and money flows out of the country into safe havens like gold, oil or other countries with good credit ratings. It also sparks talks of finding a more stable currency to use as the world reserve currency. When a country loses its world reserve currency status, things are very bad for a long time. Everyone will feel it, but the poor always get hit the worst. If you thought the recession was bad, wait for a world reserve currency switch.
This won't happen anytime soon, but it is common world financial knowledge that many countries have held recent currency talks without the US at the table.
So How Do We Get Our Credit Back Up?
The same way anyone does - you pay your debts. Unfortunately, American consumerism has such a tight grip on the public that, as a country, we do not seem to grasp the idea that one must pay for what they want. Here are some points to display the terrible disconnect in the American mind:
- Majority of the public does not want to cut military spending even though we spend more than the next 19 top spenders combined on an annual basis. The US spent $698 billion last year.
- Majority of the public does not want Medicare/Medicaid reform even though we spend a lot on healthcare and are incredibly unhealthy despite that.
- Majority of the public does not want to pay higher taxes, but they want more government services.
- At the current rate of spending, the US will not be able to afford the interest payment on its debts.
- Majority of the public wants the debt problem dealt with.
We are currently on the path to watching freedom consume itself.
Politicians will have to do the right thing, but that will most likely cost them their political career. Let's see what they do.
Politicians will have to do the right thing, but that will most likely cost them their political career. Let's see what they do.
"even though we spend more than the rest of the world combined on an annual basis"
ReplyDeletewhere are you getting this?? the US spends more on military than the next 20 or so countries, but certainly NOT the "rest of the world combined." Check the SIPRI military expenditure database and do the math yourself.
http://www.globalissues.org/article/75/world-military-spending
ReplyDeleteOfficial figures are at 46.5 percent of annual world military expenditures. I stand corrected in that regard, but only slightly. It's still embarrassing, even when compared with the next top 5 countries.
You can Google the information as well to do your own research, but we're a lot closer to 50.1 percent than you make it seem.
this is enu btw, i dont know why my name doesnt show up. it just says blog. your link is outdated and even for last year, globalissues.org has the numbers wrong.
ReplyDeletethey are looking at the same SIPRI database we're looking at here:
http://www.sipri.org/yearbook/2010/05/05
For 2009 Spending: US Exp $661b/Global Exp $1531b = 43.2%
for 2010: http://www.sipri.org/media/pressreleases/milex
US Exp $698b/Global Exp $1630b = 42.8%
so i disagree, its not closer to 50.1%.
yes, the absolute number is high, but how are you going to compare US Military spend with Singapore or Russia in absolute terms? When you look at military spend as a percent of GDP, US is not even in the top 10, and the aforementioned countries of Singapore and Russia spend similar RELATIVE amounts on their military as the US does compared to their GDP.
I'm not arguing one way or the other, whether we should cut the budget or leave it alone. I'm just saying websites like globalissues (which interestingly leaves out the actual dollar amounts of US spend) can use these seemingly alarming statistics to push whatever agenda they might want to push. 43.2% and 46.5% are pretty big differences - that's a difference of over $50 billion.
Hey Enu! Thanks for the helpful stats. I agree with you about alarmists (which I don't want to be).
ReplyDeleteJust for purposes of the budget, I guess the actual dollar amount would be the most helpful. $698 billion is a ton of money, even if it's a small percentage of our GDP. My only point was that it should be on the table considering we just had a political battle over $38 billion in cuts.
Thanks again, hope you're well.