Thursday, February 23, 2006

I Am Conservative...I Am American...I Am Scared

My post from last night started out with this title and was meant to be this post. Then, a couple sentences in, I went off on the tangent that eventually became my previous post. And so, after 24 hours, I digress...


First, let me point out that the first part of this post's title is, "I Am Conservative." Not "I Am A Conservative." I am not a politics junkie. Half the time I forget which side is left and which is right. I find that between work, life, and trying to learn more about personal finance that I have more than enough to fill my day.


I am a scared American. I just realized this in the past week. Perhaps if I had taken finance or economics classes or if my financial awakening had happened sooner I would have been scared long before now. As it is I became scared last week as I started to read the new book by Bill Bonner and Addison Wiggin, Empire of Debt.


Now I am the last one to try and argue anyone on the subject of economics. As I stated above, I didn't take any economics classes in college and I've never read a book about even the most basic economic concepts. But that hasn't stopped me from understanding what Mr. Bonner and Mr. Addison are saying. We are living in a country that has accepted debt as the norm. The lifestyle that we have all become used to is based on it. Unfortunately the only way to support our current habits is to borrow more and more. From whom are we borrowing you ask? From the same people that we also pay to make most of our goods and provide many of our services, the majority of which comes from China.


Let me try to explain how I understand this whole issue in layman's terms, of course. The government doesn't have enough money to support all of the programs, pay for all of the people it employs, and basically run the government as it is today. So over time, to come up with the money, they borrow other peoples' money, mainly by issuing bonds. These bonds are sometimes purchased by you and me as Americans. Ever buy a Savings Bond? Exactly. But, the majority of bonds these days are purchased by foreign entities. These entities lend the US money and the US pays back interest on the bonds and eventually pays back the bonds themselves. The people buying the bonds are trusting that the US dollar is reasonably strong and will not collapse since that would make their bonds useless. However, this constant borrowing can't last forever. US debt is skyrocketing and all it would take is for a decent percentage of the bond holders to want to sell their bonds back to the US to cause chaos in America. The dollar would become worthless, prices would skyrocket, and who knows what else would happen.


You may ask, "Is that anything I really need to worry about? The dollar is fine, right?" Well, maybe, but if you look at some of the signs, maybe not. We already have a housing bubble on our hands that may cause us some problems in the upcoming years. There are also signs that people are already losing faith in the dollar. Gold, for instance, is at a 25 year high. People who used to sink their money into the US dollar are investing in gold pushing its price higher. Look at how the dollar is faring against the Canadian dollar and the Euro. I know when I was in high school and anyone went to Canada we used to joke that things were so much cheaper because 1 US dollar would get you 2 Canadian. Take a look at it today. 1 US dollar will get you about 1.15 Canadian.


The scariest parts of all are the 1)no one in Washington seems to want to cut back on spending and 2)I have no idea how we can trim things like the trade deficit when other countries can manufacture goods at such a lower price. We seem to have a problem saying no. We are constantly spending money all over the world. Now, please don't get me wrong. I'm not saying we should always abandon countries that are in need. But, we need to think about how much help we can really afford to give while not jeoparding our own country at the same time. We're always the first country to jump in and help because we see ourselves as the "richest country in the world." Yes, we might still be, but for how much longer? And, who among us really wants to see cutbacks in programs that we've come to depend on?


I'm very proud to be an American. Whenever I leave the country and travel it's always great to return home. But we have some serious problems that no one seems to want to address. And the thought of what could happen tomorrow...that is what scares me the most.

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