Another Look at the US' Financial Health and Future Prospects.

Yes its been a long hiatus, sorry for that! I kinda want to apologize for having such a doom and gloom outlook on this blog but we are in a big recession so what do you expect. There is an interesting piece in Der Speigel in regards to Obama's economic policies pretty much rehashing what I may have written in other posts. Over the issue of the expansion of the money supply there has not been an increase in economic output to prevent the expansion from not causing inflationary dangers. Another key point in the article is that it says that Obama's 2010-2020 budget plan doesn't concern itself with entitlement programs like medicare, social security (?). With most of the baby boomers expecting to retire within the next 10 years or so, that alone could cost trillions by itself. According to Medicare Trustees 2009 Report. Medicare is going to be insolvent by 2017. If payroll taxes is the main funding for medicare, then perhaps it could become insolvent sooner; if unemployment continues to rise there will be less people paying towards medicare (and social security).

Another important thing to note from the article is that roughly half of the US 2009 budget is financed by debt. Due to the fact that the dollar ($) is known to be the main reserve currency around the globe, credit flows cheaply to Washington. The US' fiscal policies in part of response to the Great Recession, has been to print more money and borrow more as well. An expansion in the money supply weakens the dollar in foreign exchange markets, so holder of US bonds want to sell them because they are no longer an appealing investment. They buy other bonds in Euros or other currencies. Countries like China are concerned about the weakness in the dollar and do not want to see their portfolio slide have been suggesting that the dollar should be replaced as the reserve currency- Bloomberg. They see a dollar in free fall because the US gov't is continuing to take measures that weakens the dollar. If the Chinese and other countries take moves to go this route its going to end the cheap credit the US has been getting to finance the budget. It would meanhigh taxes to pay off the debt and for future financing and higher interest rates. Stifling any chance for a robust recovery. With the rise of China and the changes in the global financial architecture, policy makers in Washington cannot remain idle and continue to borrow.