Friday, October 14, 2005

Mr. Greenspan, we have a problem

With all the good economic news coming down on us in droves, it's sometimes hard to pull out the stuff that really matters. That's where good journalism, and newspaper-layout come in.

For example, the Washington Post's web version today, has as it's top story, "Social Security, other benifits, to rise sharply" as a result of Katrina-induced (among other things) inflation increases.

It's only a 1.2 percent increase for the month, says the article. But if inflation went up that much every month for a year, we'd have inflation rates that make credit-card's interest look consumer-friendly.

The more pressing problem here (besides costs going up for every household in America) is that federal expenditures, already well above what the government can afford, are going to go up more. So, combine the impact of spending for Iraq, Afghanistan, Katrina, and Republican insistence that taxes are too high and must be lowered, and our debt goes through the roof.

Not so bad when China, Japan, and South Korea are willing to buy about 70% of it. But that's all slowing down. What happens if you want to sell something, but no one is buying? You sweeten the deal. With government debt, this means increase interest rates. When interest rates go up, available capital goes down. For things like building houses, starting/expanding businesses, or paying for kids' college educations.

For a long time, Alan Greenspan and the Federal Open Markets Committee, have been walking a tight-rope between stimulating the economy and catapulting inflation (therefore interest). Republican tax-cuts took away the safety-net built up by Clinton and Congress throughout the 90s. It remains to be seen whether cowboy-diplomacy and natural disasters will be enough of a breeze to knock our high-wire economic protectors into a free-fall.

I hope not, but one thing is clear:
Mr. Greenspan, we have a problem

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