Wednesday, October 14, 2009

My Budget Deficit Quote of The Day

From Ms. Judy Shelton writing in the WSJ:

"By the end of 2019, according to the administration's budget numbers, our federal debt will reach $23.3 trillion—as compared to $11.9 trillion today. To put it in perspective: U.S. federal debt was equal to 61.4% of GDP in 1999; it grew to 70.2% of GDP in 2008 (under the Bush administration); it will climb to an estimated 90.4% this year and touch the 100% mark in 2011, after which the projected federal debt will continue to equal or exceed our nation's entire annual economic output through 2019."

Here's another one from the Seeking Alpha site

"It goes without saying that part of the gold price advances were also caused by further weakness of the U.S. dollar. Is the greenback now finally finding some support at current levels? We have our doubts and continue to be bearish on the U.S. dollar for several reasons. Although we think that the risk for strong inflationary pressures have fallen somewhat, it is clear that the U.S. does not have too much interest in a strong currency. With the amount of government debt now at record levels, the last thing the U.S. wants is a strong currency.
Also, the U.S. dollar’s role as the world’s sole leading currency is coming to an end, and, although it will remain an important currency, its share of world currency reserves is going to fall further from here.The recent rumors that the greenback will be replaced as the “oil currency” gives clear evidence that the relative importance of the U.S. dollar is falling.
Although the current amount of government debt is almost mind blowing, we don’t think that it is a hopeless situation. Compared to the size of the U.S. economy it is still manageable but in our view drastic measures to correct the unpleasant situation need to be taken."

I wonder if the auther would consider starting a new $800B over 10-year new healthcare entitlement a drastic measure to correct the unpleasant situation.

The bottom line of a weak dollar for you:
1. Commodity prices will increase. You will pay more for food and gas. This is because as the dollar loses value, these assets see their prices rise as investors flood money towards them instead of investing in assets with dollar denominations such as bonds, etc. Plus, exported goods from other countries will become relatively more expensive. The positive of this is that goods we produce for export will become cheaper so maybe we can sell more to the rest of the world. If you work in an industry that exports goods you may benefit.

2. Your debt may not be a big deal. If the value of the dollar plunges, your home values may rise as more people use money to invest in physical assets such as real estate. Your home value may go up as a result in the long run. Also, a weak dollar will likely lead to inflation.

Overall, 1 and 2 means it's good for what you own and in devaluing your debt. It's bad if you got to buy food and gas.

3. The worst thing about a devalued dollar is that it alters business investment decisions negatively and long term planning is confused for those who have to think about boring business stuff like where should we open a new store? should we expand a line of goods? open a new factory? Since jobs don't grow on trees and are a consequence of these types of things, it's really bad news for you. But cheer up. At least you'll have free healthcare!

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