Tuesday, 28 June 2011

US Debt Crisis is our Crisis too

On one side of our political divide there is an urge to spend in order to boost recovery.

The danger of this is that your spending gets out of control. In the US, they now have $14 trillion of debt. It isn't just that they are fighting two wars, it's about the average spend versus average revenue. The equations are not balanced and no one area of spending is going to solve it. The matter is more about politics and mentality than actual economics as there can only be one answer if you can add up. If the US don't control this, and soon, then they risk going into a debt spiral.

As I blogged yesterday, there will be only one benficiary of that and it would be China as they are the only country financially strong enough to keep lending money to the US. The danger of being hock (big time) to potentially your biggest threat is obvious.

Why doesn't the US deal with the debt? Mention tax rises and American citizens scream 'Tea Party' and that's not a stereotypical joke because it's what is happening. But as the elections approach we have exactly the same scenario as Gordon Brown had, put off the bad news until after the election. Until then, keep spending and pretend it's a strategy to boost the economy. Let the next Government sort the mess out.

And the mess becomes a political hot potato. This Thursday, teachers in the UK will be the first to strike over the proposed amendments to Public Sector pensions. Sitting in the Private Sector we stand aghast at the audicity to do so - and noble, learned people like teachers too. But that is the problem. Raise taxes, cut spending and you risk outrage by decent people. Continue to spend and everyone stands back and points out that disaster looms.

No one is prepared to take the accountability for the past 12 years of idiotic financial spending. In fact, we have set up the banking system with exactly the same scenario to allow it to happen all over again. And next time around it will be harder to get out of the mess, potentially impossible. Take a long look at Greece to see how that affects you and how your amenable friends who lent you the money smile and desert you when the proverbial hits the fan.

I have blogged extensively in the past over the concept of denial. We are all guilty.

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