Aftershock’ Economy – Jan 2012 perspectives on confronting US debt
In https://economics501.wordpress.com/2011/11/25/aftershock-economy-book-review/ I summarized Robert Wiedemer analyses of the pending government debt and US dollar bubble collapses, from his perspective. Per Wiedemer these bubbles will devastate the US economy, perhaps as severe as ever in our history. Wiedemer thiugh predicts that after several or many years of pain and adjustment the US will strongly prosper again.
Can we prevent this pending doom? Wiedemer believes the US does not have the political will to address our significant economic problems. One is right in front of us – approving another debt ceiling increase. Hence, let us revisit this scenario and determine a proposal to try to solve this problem, or at least limit pending economic damage given our debt and possibility of inflation.
Total debt has been growing almost 10% a year since 2008 while our GDP in 2011 Q4 just recovered to level prior to recession. Projections are our GDP will only grow 2% a year while spending and debt grow at almost 10% a year. Sooner or later our creditors will realize that financing our debt is not a great way to preserve capital. All hell will then break loose. So what can US do?
1 – across board 30% cut from our 3.8 trillion budget over 2 years or 15% per year. This will cut 1.2 trillion annually from 1.6 trillion projected annual debt increase. Bring spending back to 2007 levels adjusted for inflation.
2 – implement Fair Tax for at least 2 reasons — A- reward success, grow economy, improve GDP to debt ratio. B– save 430 billion per year with replacement of IRS. Use this to reduce debt. This added to 1.2 trillion above reaches target projected annual deficit increase of 1.6 Trillion.
3 — use Canada as an economic best practice. They safely drill for energy (oil, shale, gas, coal, frac, etc) and have a 6.5% unemployment rate. Our economic growth depends on energy. Greater domestic supply will decrease imports adding to our GDP.
** Let’s keep this debate going and search for most optimal solutions. Please add to this by listing your own proposals even if they are at odds with mine. Let’s try to address our serious economic issues with open minds. We can all learn from each other.