Going to Have to Face It You're Addicted to Debt

|Peter Boettke|

New York Times reports this morning that the Chinese government has released an official statement that says the US government is addicted to debt.  In particular, the "gigantic military expenditures" and "bloated social welfare programs" were singled out.

It is not often that I agree with the Chinese government, but in this criticism of the situation in the US I do, and have been making a similar argument concerning the spending problem, the debt-inflation cycle, and the juggling tricks that government often resorts to.

The global economy doesn't need an international plan of supervision and stabilization, instead what is required is bold action by policy makers to slash spending and let society reclaim responsibility from the state.

 

Comments

[Martin]

Of course China would say that. China is still in the process of re-balancing towards inward consumption. The Chinese are afraid of US inflation as it would mean either loosening the Peg to the US-dollar or inflation at home, that, most likely would lead to riots.

In the case the peg is loosened and the remnibi is allowed to appreciate, growth will likely be lower as it is heavily invested in export and not in domestic consumption. This too, would likely lead to riots as lower growth will lead to higher unemployment there.

In the mean time they continue to buy massive amounts of US-debt, that now can be sold at very high prices. Deflation in the US and appreciation of the dollar would allow them to sell part of their holdings without having to face inflation at home.

[Bob Murphy]

This has got to be awkward for Rush Limbaugh et al. On the one hand, they want to blast the reckless spending of the Obama Administration. But on the other hand, they want to be suspicious of the Chi-Coms.

I know! They'll say it's a trap to get Obama to slash military spending.

(BTW Pete "Your" should be "You're" in the title.)

[Jerry O'Driscoll]

The real value of the yuan has been appreciating for some time. The real value is what matters.

In the July 30th issue, The Economist presents its annual Big Mac Index. The editors offer a more in depth analysis of variations in non-traded goods across economies. After making adjustments, they conclude the yuan is only 7% undervalued against the greenback. The real problem is that the dollar is undervalued against so many other currencies.

So who is the currency manipulator, China or the US?

[Allan Walstad]

With debt as with alcohol, for every addict there's an enabler -- to the eventual detriment of both.

[Jared]

Robert Palmer's great, but it seems to me that this video deserves a little love:

http://www.youtube.com/watch?v=EoS52fVtVQM

Great moments include the reference to Jim Traficant (the last member of the House to be voted out by his colleagues) and the line "I got a monetary plan and it involves a lot of toner."

[Liz]

I agree with the Chinese Government's statement regarding the U.S.'s addiction to spending in the two programs. Instead of focusing on monetary injections to solve our spending additction, the government needs to be checked in to 'spending re-hab.' The end result could be a government whose spending doesn't exceed its revenue and whose budgets balance. Imagine that!

[LRP]

Do you suppose addiction to debt moves from the top down or vice versa? I know people with eviction notices due on their doors any day now who just got back from a weekend run to Vegas. I also know college grads with crushing amounts of school and credit card loans who don't seem that worried about defaulting. I suppose if the whole country has a terrible credit score, one citizen can't be bothered to pay his or her bills?

[Barkley Rosser]

Clearly the Chinese would like to see us cut our defense spending. They may also want to see us cut our social safety net, as ours is much better than theirs, with increasing unhappiness in PRC about the weakness of theirs, particularly on medical care, although ours is much smaller than most in Europe.

Did they comment on how raising taxes might help mitigate the deficit/debt situation as it did in the 1990s?

[Jerry O'Driscoll]

Barkley,

Aessina and a co-author have studied fiscal reforms. First, most efforts fail. Second, among the minority that are successful, they rely overhwelmingly on spending cuts.