Bubbling Economy Essay

Bubbling Economy Essay

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In Barry Wood's Article “Buffett's silly talk about the US debt” he poses this question indirectly, that when the debt is too much to handle will it affect the US in similar ways as it has in Greece and other countries that defaulted on their loans. The main reason for the writing of this article was a statement made by Warren Buffett where he states “The United States is not going to have a debt crisis as long as we keep issuing our debts in our own currency. The only thing we have to worry about is the printing press and inflation.” which by economists and historical debt followers standards seemed to sound naïve and shortsighted from the comments on the subject provided within the article by Niall Ferguson, Allan Meltzer, and Carmen Reinhart to just to name a few.

From what I gather having a debt that is close to matching the GDP seems uncertain and potentially dangerous. Inflation will ensue but at what rate is dependent on how the US debt is purchased and what advantages having debt can bring. Japan who owns a considerable amount of our debt just had a huge disaster which could get worse before it becomes better. This creates an indirect instability for the US. Although it's highly doubtful Japan will sell off our debt, it's not impossible. China could also kill our economy by selling treasuries it owns and make it worse by making the Yen too strong. The way the monetary policy is being run it seems very Keynesian with very little planning for the future.

Aggregate demand seems to be low which can cause less inflation but this is not the largest effect on inflation. Inflation historically increases dramatically usually due to a devaluation of a currency. So more buys less. Spending more privately can increase inflation ...


... middle of paper ...


...sucked the USA's monetary value away piece by piece. The repercussions could be a lower unsustainable standard of living or worst case scenario, all out anarchy.

Anarchy seems impossible and a debt crisis is possible but unwanted by large economies like China so it's highly doubtful it will take shape in the worst form. I could see China, Japan, and the UK bailing the US out if things got close to the a debt implosion. If it does happen it won't be for at least four years or more. From the article and data of the current/past economy I gather this is the point Barry Wood is trying to make. That it will get better but worse down the road, how bad depends on economic intentions and smart investing without politicking getting in the way. In other words doing what must be done would be best even if people hate you for it and political figures can't get re-elected.

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Bubbling Economy Essay

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