Saturday, April 08, 2006

What about your $27,000 debt?

How concerned should we be that the average American's share of the national debt is $27,000? Make that $108,000 for a family of four and we are talking real money.

So what? Isn't the debt as a fraction of GDP OK? The GDP is a horrible measure of economic health. A forest fire burns 1000 homes and the GDP goes up. Hurricane Katrina destroys a city and the GDP goes up. Our government spends irresponsibly and this excess is paid for by selling off more of our country to foreign investors - this increases the GDP!

Everything adds to the GDP and nothing reduces it: "The nations brightest economists maintain our national accounting system with a calculator that has a plus key but no minus key" (Lincoln Anderson on US GDP in The Fortune Encyclopedia of Economics)

The real short term risk of this debt is that interest rates will have to climb to keep attracting foreign investment to keep our society functioning and we are likely to get hit with increased inflation at the same time. Ouch and ouch.

Speaking of inflation, how many people understand that Clinton and Bush II removed things like the cost of food and housing from the cost of living indices (and thus the bogus government released "inflation" statistics)? I bet you don't hear about that much in the news - a news industry that does not serve public interests, but rather the interests of the mega-corporations who have bought up what used to be independent news companies, and who have a short term financial interest in convincing people to buy, buy, buy on consumer credit.

Sure, no one can predict the future, but there is one thing that I strongly believe: people who are now financing their lifestyle on increasing consumer debt are condemning themselves to a lifetime of economic servitude (greetings, indentured servants) while people who are handling their finances wisely will weather the coming financial storm with a minimum of pain.

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