I have heard about the “debt” and “deficit” problem for 50 years. The closest we came to having an “issue” was not debt caused but was caused by overregulation and high energy costs of the early 1970s.
Not one of the “traditional” markers for debt-induced hyperinflation are present:
*high and rapidly rising prices of gold, silver, or other commodities.
*rapidly rising energy costs (quite the opposite, energy costs are flat or even falling) and portend to fall faster as the US continues to expand shale and other domestic production.
*high velocity of money
*ultra-high interest rates
As some of you know, for a long time I’ve had a theory of why this isn’t happening, and it involves the computer revolution and the total failure, so far, to properly value and price the new tech-heavy products by using pre-tech valuations. A smart phone, for what it does, should cost THOUSANDS, but doesn’t. That’s just one example.
But there is another factor of the “debt” that is distorted by American law. Apparently years ago Congress thought it wise to value ALL American assets at “purchase price”. So, say, Uncle Sam bought prime real estate in San Francisco to build “the Presidio,” in, say, 1910, that land and all the assets purchased at the time like buildings would be valued as what was paid in 1910, regardless of the fact that by 2000 (or whenever the Presidio was sold) the land and some of the buildings were astronomically higher. Same with gold prices. If gold was bought at $35 an ounce, that’s what it’s valued at today.
In the early 1980s, economist Robert Eisner calculated the value of American assets at MARKET value, and found that a national debt of hundreds of billions of dollars then was closer to one-tenth that in real valuations.
This always brings up the “What, Schweikart, you gonna sell the Washington Memorial?” No, but we might do what Donald Trump is already doing: move people out of DC, and sell off some of those office buildings for huge profits. We can unload massive amounts of federal land at reasonable prices that would bring massive profits; and so on.
I think these two factors-—utterly horrible current pricing/valuation and the legally required “old valuation” of US assets explain much of why the debt “doesn’t seem important.” Maybe cuz it isn’t.
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Excellent post and I pretty much agree with all you said.
Technological progress and economic growth in general are keys to keeping inflation and interest rates low.
Look at the hyperinflations in Zimbabwe and Venezuela. They followed economic collapse.
Not to say that the hyper-inflation argument is right, but the debt levels are not nothing.
The low interest rates mask the effect of the debt levels we have.
A return to “normal” interest rates will add roughly a Trillion per year to the debt servicing.
We had to get growth going first, but we do have to get at least some handle on spending. Not only for this, but also because a good deal of the loose spending is actually bad for us.
Thank you LS for your comment!
You are, IMHO, simply and clearly describing some of the deflationary pressure that has prevented the predicted hyper-inflation. There are others you could mention.
The biggest one is worldwide demand for the US dollar. Everyone needs to convert his currency to USD in order to buy oil creating the opportunity for the US to run unprecedented deficits and debt. Check out the “petrodollars system” on investopedia.com, if anyone would like to read more. And there is a lot of foolishness written about the subject, so keep your thinkin’ cap on, but it is worth looking into.
Don’t forget, LS, and I would appreciate your instruction on this, that there are two aspects to the crash, the systemic underlying weakness of the currency, the financial system which makes the crash inevitable, and the specific triggering event which might bring it down.
In other words, we are rocking the baby in the treetops, and when the bough breaks, the whole thing comes down cradle and all. If you are saying we are not all the way to the top of the tree, that is interesting. If you are saying the branch cannot break, that is also interesting.
American financial policy seems to include attacking any nation, Iraq etc., that tries to market oil using another currency, hence the Democrat, Rino, and Neocon pressure to start a war with Russia. China is also moving to do this and in other ways threaten the USD as the currency of global trade.
Also we have instituted stops, preventive measures, against all conceivable bough-breaking events, like that from 2008 with the crash caused by the derivatives market. So when the debt burden is too great for these stops or if some completely unforeseen bough-breaking event occurs, then the baby will come down at that time.
We have duct-taped all the boughs, so rock on, Baby!