Sunday, December 06, 2009
OBAMA IS THE NEW LOUIS XVI
Obama is the new Louis XVI.
France became bankrupt partly because of its involvement in the war between Britain and the American colonists.
By 1788, France was spending 62% of government revenue on paying the interest on its debt. (Ferguson: How Economic Weakness Endangers the U.S. Newsweek ...)
This was a major cause of the French Revolution, and of Louis losing his head.
The Vietnam War cost the USA a fraction of the cost of George W Bush's wars.
Yet the Vietnam war hit the dollar and caused big economic problems.
Britain's stupid involvement in World War I led to large debts.
Between World War I and World War II, the British government was spending 44% of its budget on paying interest on the debt. (Ferguson: How Economic Weakness Endangers the U.S. Newsweek ...)
This made it difficult for the government to help the poor or maintain its armed forces.
The Ottoman Empire got heavily into debt, before its collapse.
On 28 November 2009, at Newsweek, Niall Ferguson, a professor of History at Harvard, wrote: How Economic Weakness Endangers the U.S.
Ferguson points out:
1. An increasing number of economic experts fear that the United States may succumb to a fiscal crisis.
2. The deficit for the fiscal year 2009 was bigger than any in the past 60 years.
In 2019, the total debt held by the public (excluding government agencies, but including foreigners) may rise to 68% of GDP.
Under a pessimistic scenario, the debt may rise to 215% of GDP by 2039.
3. America needs to sell Treasury bonds, to finance the debts.
But American households were net sellers of Treasuries in the second quarter of 2009, and on a huge scale.
Data for October showed commercial banks selling Treasuries.
4. U.S. unemployment is above 10%, labour unions are relatively weak, and there is much unused capacity in global manufacturing.
There are none of the pressures that led to inflation in the 1970s.
5. There could be a rise in the real interest rate.
And inflation could fall.
This happened in France in the 1930s and it seems to be happening now in Japan.
Foreign investors might ask for a high rate of interest on U.S. Treasuries to compensate them for the weakening dollar.
A high interest rate means that the debt burden could rise.
6. If the US government is having to pay out large sums of money in interest payments to people like the Chinese, then there is less to spend on defence.
On the Pentagon's present plan, defense spending is due to fall considerably by 2028.
How much money is spent on the US military?
The Federal Pie Chart