A 1-30-06 MSNBC article has details, and a 1-13-2007 Japan Times article confirms that this is still so, a year later.
In farming we call this activity eating your seed corn; it is a short-term strategy with very bad long term consequences. The signs are there for all to see that the economic road ahead will not be smooth:
- An over-valued real estate market is now rapidly cooling, meaning much paper wealth is evaporating
- Many people have leveraged themselves to the hilt with debt, based on the assumption of that paper wealth -- doing things like 'interest only mortgages' (or worse), maxing out home equity loans, and spending down their savings on consumer goods.
- The federal budget deficit has ballooned again. Feeding continuing deficit spending will continue to soak of investment capital that would otherwise support productive economic activity. Paying for the existing debt will either drive up taxes or divert money away from other programs. The Baby Boomers impending retirement threatens to blow the lid clean off Federal entitlement programs.
- Due to the Global War on Terror and Bush's Iraq military misadventure, our military costs are spiraling. It's useful to know that President Clinton cashed in the 'peace dividend' from the end of the Cold War to bring the budget into balance in the '90s.
- The dollar is overvalued; the Euro is sharking around to unseat the dollar as the world's primary currency, and China, our biggest source of foreign goods, keeps (as a matter of government policy) their currency grossly undervalued in order to stimulate exports.
- The US has an absolutely staggering trade deficit.
None of this is sustainable. The bill will come due for all of our deficit spending and imbalanced trading. We will run out of things to mortgage to finance new government debt, and we will run out of things to sell to foreigners to finance our import-based consumption. Some economists have cautioned that an Argentina-style economic implosion is a distinct possibility for the US.
Oh, and to throw in one more bit of history here ... in amongst the decadence that was the late Roman Empire, it was massive escalation of military spending that historians credit for breaking the empire. Just thought you might want to know.
