Does the US have a bubble economy and doomed to fail?




14 Trillion in debt and counting. There is little chance that the United States can repay this debt from its revenue unless it pays the debt using an inflated currency. After World War 1, Germany was forced to pay war reparations totalling to 132 billion gold mark. Germany's economy is unable to pay this because it is still recovering from the war, and to prevent political unpopularity, the government avoided raising taxes and instead it borrowed money. This expanded monetary base started diluting the value of its currency the Reichmark, to further worsen the situation, the government defaulted on its reparations and kept spending the borrowed money without much production within its local economy which should produce savings. The disoriented market began to demand gold for their Reichmark, this means people are dumping their currency for commodities with intrinsic value. The result of spending without much production that generates savings sent the Reichmark falling. The hyperinflation was so severe that the government paid its loan with inflated currency and thus sending the Mark deeper into the well.

Most economists think that this would not happen to the United States, but the same ingredients are present in America's economy. Low tax rates for political support, huge government spending from borrowing, low savings rate as a result of lesser production. The factors that keeps the United States Dollar from crashing is the constant demand generated from the sale of government treasuries, foreign central banks buying the dollar in exchage for theirs to prevent their currencies from rising due to a higher interest rate as a result of savings. The reserve status of the US dollar is what allows the US government to raise its debt ceiling that other countries cannot afford to do. The arguments of Keynesian economics is that government spending equates to higher demand causing the economy to rise and expand. Their proof to back this up was during WWII, where the government got into deficit spending creating jobs to fuel a war economy. Yes, it did work but the only difference then from now is that during WWII, America was a producer of goods at the same time. The deficit spending done by the government helped spark the already existing production machine of the economy which generated even more savings at the same time.

On the other hand, the US economy of today is also going into a deficit, matter of fact, a very big pile of government debt to help stimulate the economy. However, as the government spends, it is basically printed money because it came from borrowing instead of savings, the result, a controlled inflation. This inflation is similar to the Weimar republic in 1923, money spent from borrowing instead of revenues equates to massive inflation. The money pumped by the government will be circulated in the economy, however, a majority of these are in the service sector. Ultimately once it gets into the hands of US corporations, their production is not happening in the United States but instead it goes to China or other producing country. Most of these producing countries have huge savings or surplus as a result of production. The US outsources its production turning itself into a consumer economy fueled by debt.
The debts incurred by the government can be repaid as long as they inflate the currency to payoff interests using inflated money as a result of more borrowing. As long as this system gets fresh supplies of new investors willing to buy their debt, this bogus economy will keep digging itself deeper into trouble. So yes, the United has a bubble economy and doomed to fail if it fails to address the root cause of the problem instead of just constantly masking it with a "stimulus".





It is natural for an economy to experience booms and busts because a free market would always try to correct itself into a good balance of supply and demand. Yes the government has 14 trillion in debt and also 14 trillion in GDP. Remember credit is one of the best tools in business it allows for more productivity and revenue, without access to credit, a business forgoes the opportunity to generate a higher revenue compared to a business that waits for its slowly accumulating savings to use for expansion. The second and third largest economies combined does not even match the total GDP of the United states. It is obvious that government spending allows for a highly liquid market and speed up its economic activity.

The total demand within an economy is unlimited, how do you match this unlimited demand? A government would not just allow it to stagnate and limit its growth potential. An ever expanding economy as a result of potentially limitless demand means its monetary base also has to expand in order to accomodate this scenario. Besides, that 14 trillion in debt is also adjust for inflation which means it rises because of the current level of the US dollar. It could also be that US debt has been consistently playing around at the same level as new debt comes in the old outstanding debts are paid off. It is a figure resulting in inflation. Note that inflation is a naturally occuring event because as incomes rise so as demand, inflation as a result of higher demand is apparent with the current high standard of living the United States is currently experiencing.

In terms of the US dollar, it is constantly in demand because it is a global reserve currency. Foreign companies buy US dollars as a hedge for their unstable currencies, also, foreign countries invests in US bonds because it is one of the safest investments they can get. Foreign central banks buy the US dollar as a reserve currency once their local currency experiences a surge in value which would restrict the attractiveness of their exports. On a psychological level, why would foreign countries use the dollar as a reserve currency, buy US debt, stocks and even trade its currency long most of the time, even the newly independent country of East Timor uses the dollar for economic stability. In the case of East Timor, they use the dollar because it is apparent that nothing can match the United States in terms of economic might, the currency is backed by everything they see around them from Coca Cola, Microsoft, Levi's jeans, Google, Yahoo, Facebook, Ford automobiles, Boeing airplanes, Ipods and even the movies they see and the songs they hear are all American enterprises. East Timor realises this basic display of economic might so as countries around the world. A currency backed by gold only complicates things, if a currency is represented by gold's value and gold represents the value of newly created and existing value within the economy, bypassing the middleman which is gold is just common sense. Besides gold is limited thats why its expensive, the economy is not, so why restrict it. Thats the beauty of fiat currency, it is backed by a country's economic might which is apparent within the United States. The US dollar would lose value but not to the point of a hyperinflated currency like the one in 1923 Germany. Germany has no production the United States does which is seen everywhere you go in this world.

The problem of government debt is not really a big concern, it is a cycle, once the economy gets back up in shape the government's revenue would rise as well because higher revenues for businesses equates to higher tax revenues without raising tax rates. Once this happens the US government could start repaying its debt slowly but surely until it needs to add deficits again to stimulate a slowing economy. Government spending is a great tool for economic growth, once governments spends on projects, businesses gets the contract resulting in a guaranteed revenue. As a result of this demand from the contract, the company would hire more workers, this means less unemployment and money would be circulated into other businesses translating into higher revenues for them because people are spending. This is apparent during WWII when the US government went into a deficit to finance its war effort, this spending spree created new jobs that ultimately got the US out from the great depression. The US economy is not a bubble, it is fundamentally strong and it is expanding even more. To make it simple it is growing still and would keep growing as long as it is not restricted. The US dollar may drop in value or weaken but it will always rally back up. Just compare the economy of the United States with the moderately expanding economy of Angola, why is it that Angola's currency is not as in demand as the United States'? The answer lies in their Google, Intel, Disney, Apple, Chevron or even its Hollywood produced films. America's economy is obviously strong fundamentally and the US dollar would remain the reserve currency of the world as long as somebody topples the might of US enterprise.