Friday, October 30, 2009

Glenn Beck: Collapsing the System

I wonder what our resident economics expert will make of this video. Beck talks about the US economy, the US national debt which stands at $105 trillion (7 times the US GDP!) and the fate of the US dollar which is facing huge uncertainty at the moment. Is it time to buy US$ or sell?

9 Opinion(s):

Islandshark said...

Dobes, is it $105 or $10.5 trillion?

Doberman said...

Hi IS, yep, $105 TRILLION! Scary stuff.

WHITEADDER said...

Waiting for July / August 2010 when a big portion of the sub prime lenders - those that have not reneged yet - need to start paying full repayment rates.
Interesting times.....

Viking said...

Wow.
the national debt is 11 trillion, or 90% of GDP, but the total debt is 105. Is the difference the consumer debt? Is that what America owes its citizens or what the citizens owe each other?

Vanilla Ice said...

This video is a great lecture on how stuff works. The national debt is reportedly around 11 trillion, or about 90% of GDP (which is lower than during WWII, but high nonetheless). When Beck refers to $105 trillion. He suggests that it is crooked, and it may well be, given that the bank and mortgage bail outs are not reflected. Something akin to what Enron did, by having debt removed from the balance sheet.

To add to the lecture.

Money is usually injected into the economy through debt instruments. The government loans money from lenders, by offering favourable rates. The lenders are usually foreigners who are in surplus. The US is in a unique position because its currency is a reserve currency, the world's only real "safe haven" currency. So it has always been easy to attract foreign cash, and as a consequence it has been easy to finance its debt.

When other countries are in a similar position, they are usually unable to attract foreign cash, so they offer high interest rates (like South Africa).

But what happens when you can't raise enough cash? Your currency depreciates to a point where the foreign currency buys enough of your currency to meet your obligations. Usually other countries experience currency declines when in a similar situation. The US has avoided a catastrophic decline only because of the unique role the US Dollar plays.

The interesting times ahead, will be when foreign investors realise that there are no assets to back the debt, and then shift their money to an alternative currency. If the debt is around $105 trillion, that is scary. The total net US household assets (Assets - liabilities) is about $51 trillion, well below what is required, so what remains is what are the US government assets worth?

We are getting to a situation where perhaps even their total asset base is insufficient to cover their total debt. Basically bankrupt. The only way to get out of this hole would be to raise taxes, stop spending, raise interest rates, live within your means. The US superpower days are gone, they just haven't realised it yet and I don't know who has the balls to do what is required.

FishEagle said...

For someone that didn't even have economics at school these posts and comments are invaluable!

Exzanian said...

Great vid! Makes me realise that economics is more complicated than the weather...It does not worry me too much spending some money I don't actually have, but it pisses me off working hard for money that has no value!

Angulus Calx said...

Living in the USA make me always worry about the dollar, and the way money is printed in this country.....
Please read this transcript of a webinar, on money and markets.

It gave me the chills...
http://www.moneyandmarkets.com/webinar-transcript-the-war-on-the-dollar-4-36178

Doberman said...

Thanks for that VI.