Let my try to make this as simple as possible. Most people don’t really grasp economics, and economists do their best to keep it murky.
The US economy rests on one thin thread: consumption. If consumption slides, the whole thing starts freezing up. Money is worth nothing at all if it is not being used, passed around. If everyone kept their money, the value and usefulness of money would evaporate. This is not a basic principle, but it’s how our economy is structured.
More to the point, it’s a matter of rising consumption. The economy must expand constantly or the whole system will collapse. If people start buying less, the flow of money will freeze up in places.
Why is this a threat? Because the government depends on the economy. If money starts freezing up, the government cannot operate. Our government rests on mandates to spend money on certain things. If the money is not there, the whole system collapses, choking on utter necessities that cannot be answered. This stuff must be done, and it requires money.
This is a very massive government with a massive budget, the biggest in world history, so far as I know. Our government takes a massive slice of the economy, bigger than most communist governments. Where does that money come from?
Most of it is borrowed as needed. The government is borrowing money into our economy, borrowing it from everywhere. That includes borrowing it from other economies around the world. The only reason those other countries lend is to preserve the value of what they’ve produced but haven’t yet consumed or sold. So, they buy our US government debts and hold them because, up to now, our government has paid it back with interest.
(If these other governments are smart, they use their excess US dollars buy US assets like farmland, businesses, etc.)
But our government also borrows from its own people. The problem is that the government’s share of the economy is growing — in fact, we could say “exploding”. It keeps seizing bigger and bigger portions of all the money flowing. It’s eating up the economy, keeping more and more out of the hands of consumers. The government consumes more of what’s available.
When it does, the government is horribly inefficient. For every dollar you spend yourself, you tend to get back most of what it’s worth, because there’s not that much friction with middlemen. They’ve learned to be efficient. When the government buys it for you, suddenly there is massive friction with a very large portion disappearing into the pockets of people who have no motivation whatsoever to be efficient, and a lot of incentives for being wasteful.
Note: The US system of government openly discourages efficiency in operation. Somehow, we have this crazy notion that being business-like is “corruption”. The government of China does a much better job of looking out for her citizens’ economic interests. Bad as communism is, their economy will outlast ours.
Now, think about how hostile our government has been with all those other governments that have been buying our government’s debt. There is a big market for government debt from lots of governments doing some of the same thing ours does. Do you suppose the lenders are motivated to trade off US debt for debt from less hostile governments? This drives down the value of our government’s debt bonds, and makes it harder to borrow more.
The system is starting to freeze up. It matters not a whit whether our government spending is doing anything good for us. Government does such a crappy job of it that it ends up being bad. When money flow gets tight, guess who gets first claim on that limited supply? It’s not us. The government is able to put a gun to the heads of anyone using the system and insist they give government first dibs.
And if consumers like you and I have less money to use for the things we buy, the economy starts collapsing. The flow doesn’t just slow, but disappears. Whole sectors of the economy shut down, close up shop, putting people out of work. Banks close, and thus freezing the economy even more, all while government keeps taking bigger and bigger bites.
Finally, keep in mind that all the government debt has to be paid back. Government never limits spending to what it takes in taxes; it keeps borrowing and borrowing. More and more of the available money is locked up in government debt, and it takes bigger and bigger portions of government money just to pay the interest. With more going to interest, the government keeps borrowing more for it’s growing appetite on spending in a vicious cycle.
Keep in mind that government officials don’t give a damn if you have to live on the street and starve. They will take the money they want for their uses. Indeed, the hardest part for people to understand is that there are officials in our government who would prefer you to be poor and living on the street. That makes you dependent on them and more compliant to their demands. They don’t care about the economy; that’s someone else’s problem.
At the top, the neocons are watching all of this, and rubbing their hands with glee. They are hoping to provoke a civil war, but they’ll settle for massive unrest and food riots. It’s not just bad economics, as if the government was ignorant. There is malice in the people pulling the strings.
