Like a dinosaur, US economy heads to extinction because of excessive indebtedness

source: pravada.ru

Today the US economy is often compared with a dinosaur, because it is the next largest economy in the world and almost as large as that of the six other members of the Group of Seven combined.

Contrary to what we used to believe, leviathans like the diplodocus were not exactly sloths. It is now thought that they had the strength to stand on their hind legs in order to reach food at the top of trees. They may even have been able to run rather than merely plod. But it seems reasonable to assume that their reaction times were slow; it was a very long way from the diplodocus's tail to its brain. If a predator sank its fangs into that tail, it might have taken the diplodocus a few moments to feel the pain.

The big question about the dinosaurs is, of course, What caused their extinction? Why were so many species unable to evolve in response to environmental changes? The most common explanation is that a very sudden event, like a meteor's impact, gave the dinosaurs too little time to evolve and provided smaller and more dynamic life forms with an opportunity to take over.

An analogous question for economists is whether the United States is capable of evolving out of its present excessive indebtedness. Or could the global economic environment change so drastically as to threaten, if not extinction, then at least decline relative to smaller, more dynamic economies?

When the National Debt clock in Times Square was turned on in 1989, the federal debt amounted to around $2.7 trillion. Eleven years later, on Sept. 7, 2000, the clock read: "Our national debt: $5,676,989,904,887. Your family share: $73,733." That's when the clock was turned off, because, in those innocent days, it seemed as if the $5.6 trillion debt was set to decline, perhaps to disappear altogether. On that same date, CNN reported, "Vice President and Democratic presidential nominee Al Gore . . . outlined a plan that he says would eliminate the debt by 2012." The proposal was uncontroversial. Economic advisers to the Republican candidate, George W. Bush, were said to have "agreed with the principle of paying down the debt," but their candidate had "not committed to a specific date for eliminating it."

That should have set the alarm bells ringing. ( more... )