Friday, July 15, 2011

Don’t blame the Republicans …

In the fall of 2007, Warren Buffett (the 2nd richest man in America) went to Washington to ask Congress not to cut his taxes. He reasoned that since the effective tax rate of his staff was nearly TWICE what his effective tax rate was, he should pay MORE in taxes, not less.

As of this morning, the State of Minnesota has been shut down for roughly two weeks, and there does not appear to be any solution in the foreseeable future. In many ways, the political situation in Minnesota (and in many other states) is similar to the problems at the Federal level.

To a very large degree, the Federal government is on the verge of defaulting on its debt because the Republican leaders refuse to impose more taxes on the people who are best able to afford them, preferring instead to penalize the poorest members of society by cutting their benefits.

That intractable position has already triggered recall elections in Wisconsin, and there are sure to be more to come in the future. Earlier this year, the school board of Providence, Rhode Island fired ALL of its teachers, and the city of Detroit may have to shut down HALF of its schools in the fall in order to balance its budget. Due to those actions, the NEXT Boston Tea Party could very well mean that the Tea Party activists are “going to get their feet wet.”

To be fair, though, we shouldn’t blame the Republicans, nor should we blame the Democrats. Instead, we should blame US.

Our current national debt is a VERY big number, $14.46 trillion.

As a percentage of GDP, however, it’s a lot better than a number of other industrialized nations. Although Japan had a booming economy in the 1980’s, the EXACT problems that our country is facing today have led to a nearly 20 year period of stagnant growth in that country. As a result, Japan’s public debt (in relation to GDP) is the highest in the world, at 225.8%.

The national public debt of the United States, in relation to its GDP, actually isn’t all that bad. At the end of 2010, our debt was 58.9% of our GDP. At the height of WWII, it was 120% of GDP.. However, the chart above doesn't tell the whole story, since it does not include other debt held by the government (the largest of which is the Social Security Trust Fund). If the "other debt" is included, the percentage changes (rather dramatically) to 98.6% of our GDP.

China has one of the fastest growing economies in the world. Not coincidentally, China also has one of the highest savings rates in the world. At the end of 2010, the average Chinese household saved 38% of its income, considerably higher than the American savings rate of 4%, (which is actually an INCREASE).

China’s debt, in relation to GDP, is an astonishing low 17.5%.

Is there hope for the future?


Since President Obama took office, the national savings rate has increased dramatically, and is now the highest that it has been since the 1950’s.

One way or another, the members of Congress will come to an agreement in the next few days so that America doesn’t default its debt, and that will be good news to the national credit agencies, like Standard and Poors

Love them or hate them, the members of the Grand Old Party will be with us for a long time in the future, but don’t blame them for our current mess.

Take a hard look at yourself in the mirror.

You’ll be surprised at what you see.

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