Continuation of: USA Manufacturing is Healthy
The real problem with the USA economy is that a country cannot live beyond its means forever. Those living in USA have consumed far more than they have produced for decades. That is not sustainable. The living beyond our means is mainly due to massively increased consumption, not shrinking output (in manufacturing or service). One, of many examples, of the increased consumption is average square footage of single-family homes in the USA: 1950 – 983; 1970 – 1,500; 1990 – 2,080; 2004 – 2,349.
In case it isn’t totally obvious to you. You don’t fix this problem by encouraging more spending and borrowing: either by the government or by consumers. The long term problem for the USA economy is that people have consuming more than they have been producing. Personally, as this continues you reach a point where getting another credit card does not work. The same holds true for the collective health of a country. A country cannot solve the problem of having bills come due from decades of living beyond its means by charging more so that they can continue to live beyond their means.
Where the USA is in the continuum, is hard for me to judge. For the sack of illustration, lets say a consumer can get to 10 cards before they finally fail. If the consumer reaches the limit on 2 credit cards they have the choice to continue to the party by getting another credit card. Or they have the choice of addressing the situation they have gotten themselves into. If they decide to become responsible they have a challenge but one they can endure with some hardships.
If they press on to 5 credit cards and then max them out they come to the same decision. Dig themselves deeper in debt to avoid the problem today or live up their past behavior and become responsible. The work they have ahead of themselves is much more challenging than if they had started working on the problem when they only had 2 cards.
If they press on to 9 cards and now have the decision again. The effort to find a solution may be almost impossible. Borrow more to pay for past mistakes while maintaining some expenditures may be possible (but they will have to live on less than they earn). By the time you are this far down the failed path you have so much going to pay for your past bills you can’t spend even close to what you currently earn on current expenses. Letting yourself get to this point is very bad. And most likely as a person you will go bankrupt.
But if that is bad (and it is) for a country to do this is horrendous. And if that country were to be the USA it would be a disaster. For those living in the USA, it would be horrible. But also for the entire globe it would also be horrible. So while I don’t know how much more of the credit card economic “management” the USA government and consumers can take the risks are getting increasingly dangerous. It sure seems like we are at least on 3 or 4 now; and maybe on 6, 7 or 8. Choosing to gamble that we are not on 8 seems like a huge risk to me. One I don’t think should be taken.
The most import economic goals for the USA should be: reducing consumer debt, reducing government debt, increasing jobs, increasing savings. The desire to focus on increasing standards of living has been blown by the behavior the last few decades. If we manage to increase standards of living while getting our economy back on solid ground – great. If we are just at the figurative 2nd or 3rd credit card that is probably possible (if we act wisely – though that is a huge if).
Now it might be, at the government level, borrowing more to try and avoid an extremely serious recession is a wise gamble. But if that is done and if that pushes up to credit card number 8 we are in serious trouble. The main problem is the reckless behavior that put us in the position of piling on debt while times were economically good. Just like some spoiled consumer making $90,000 a year and deciding they can’t limit themselves to just that lets pile on some debt to let me spend as much as I want. Not only did they fail to live within their means they failed to take prudent steps to build an emergency fund, save for retirement… Then when a job loss hits they act like their excessive spending was not the problem it is losing their job that pushed them into financial ruin. In exactly the same way the risk of borrowing more to save the economy today would not be a bi deal if the government had been responsible previously. They could draw on savings to spend today. And they could afford to take on some additional debt.
But if the huge amount of debt added in the last few years by the federal government causes the difficulties I could easily see (just like someone maxing out 4 credit cards for the last few years and then losing their job) we are in trouble. Our government will have to change their behavior of credit card economic planning or we will be thrown into a depression when the credit card limit is finally reached. It is a very dangerous game to play. But right now they seem to be acting like so many consumers on their 7th credit card that get the 8th card and say once again – let the good time roll.
Related: Charge It to My Kids – USA Government Passing Out Money it Doesn’t Have – USA Federal Debt Now $516,348 Per Household (January 2007) – State of the nation? Broke – The Fallacy of the Estate Tax Repeal – Lobbyists Keep Tax Off Billion Dollar Private Equities Deals and On For Our Grandchildren