Whether it is huge mortgages, personal debt or the government’s growing federal deficit, Americans love to spend money that they do not have.
This massive, collective debt is becoming a huge problem. According to The Economist, “America already needs almost $2 billion a day from abroad to finance its spending habits, and the situation deteriorates by the week because America imports more than it exports, which worsens the current-account deficit.” Two billion dollars a day is a large sum of money, even for mighty America.
Other nations are financing our debt because it keeps their currencies low and therefore their exports are cheaper. In a world where people do not question, “What if the U.S. does not pay me back?” this situation of excessive borrowing is not a problem.
However, central banks and individuals invested in U.S. treasury notes are starting to question just that. Our debt has become so large that we could not possibly pay it back all at once.
Worst case scenario, but still feasible, is that people and central banks will race to be the first to start selling their U.S. dollars before it is too late. If this were to happen, in a short period of time it would result in a crash of the dollar and a sharp increase in the interest rate.
Hopefully, the transition will be slow and the U.S. will stop borrowing so much and convince its consumers that it is not good to spend an abundance amount of money you do not have. It is not a problem for a few people to be in debt, but nearly every American has a substantial amount of debt — including the government’s nearly $1 trillion deficit.
Alan Greenspan was very clear to the world in his report a couple weeks ago when he addressed America’s irresponsible spending habits. When Greenspan is clear about what the problem is, something must be done to solve that problem. He is a very intelligent man. If people begin to decide that they must start selling U.S. assets as Greenspan speculates, the strength of our economy will dwindle.
The international community is already starting to question whether the U.S. dollar should be the world’s currency that most others are valued against because its value fluctuates too much.
President George W. Bush, the rest of the government and the American public need to make a collective effort to ease our spending habits and lower our debt to stabilize the dollar. In January 2002, one euro bought 86 cents — last week, the euro strengthened to a new high and buys over $1.30, a 35 percent increase in less than three years.
If the dollar is seen as an unstable, constantly depreciating currency, countries will begin to look toward other currencies to weight theirs against. A situation like that would be one step closer to us losing even more of our economic power.
