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Originally Posted by Seaver
We dont borrow from outside countries to fund our government, that's not how it works. We owe it to ourselves, the interest is from those who buy government bonds. So the money isn't going anywhere but back to us when it's paid.
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That 6% number is the total current account deficit.
A net amount of money equal to 6% of your GDP is moving into the USA. A good chunk of this money is in US federal government debt being purchased by Asian central banks in order to maintain the current relative currency values in huge quantities. Another large source is the US trade deficit: the US imports far more than it exports.
It means that the USA is getting a good deal from the world. At the same time, it means the USA is building up massive obligations and debts to the rest of the world.
For every 1$ in economic growth the US gained last year, it borrowed 1.5$. The US is spending itself into a hole in an unsustainable way.
What I'm wondering is, when will it turn around? What will turn it around?
There is the possibility that a massive increase in US interest rates will crash US consumer spending, and reduce imports more than it reduces exports.
This, btw, increases the cost of supporting the US government debt.
There is the possibility that Asian central banks will stop supporting the US dollar, and allow it to fall. Fewer buyers of US government debt will drive up US government debt servicing charges. It will also make importing less attractive and exporting more so.
There is the possibility that US citizens will start saving and reduce spending. This will cause the demand-based US economy to stutter, as well as doing some economic damage to nations that export heavility to the USA, and reduce the standard of living in the USA in the short term.
There is the possiblity that the US economy will start growing like gangbusters, at rates that haven't been seen since the 30s, which would solve most problems.
There is the possibility that the US will start a larger war, introduce austerity measures & rationing, and thereby curb imports.
I don't know what will happen to change the current situation. I'm just wondering if people have a clue what is likely, or what plans the government has?