Perilous Economic Terrain

It President and the Congress seem to think that they can just continue to raise the debt limit of the United States indefinitely. Back on March 14th, Mark Trumbull asked"Is rising US public debt sustainable?" The Congress decided the answer was "yes," and raised the limit to $8.97 trillion. That means that we are paying more interest on the debt ($217 billion) than is in the education budget ($83 billion) (Bloomberg).

The increase does not include the additional budget requests for the war in Iraq. That is an additional $79 billion so far this year, and was approved by the President.

While it seems like no big deal, Asian creditors are getting nervous, and Masahiro Kawai of the Asian Development Bank stated: "Asia must prepare for dollar collapse." While he said that he did not think that the collapse of the dollar was imminent, he sees the possibility. It also sends the signal that the largest carriers of US debt will start "diversifying" their holdings. That means shifting away from the dollar, and limiting how much more US debt they will carry.

Congress can raise the debt limit as high as they want. However, that does not mean that the rest of the world will fund the spending spree. The U.S. could find itself in the position of essentially having junk bond status.

Meanwhile, all protestations to the contrary aside, the U.S. is not "healthy," and we are not anywhere close to a "boom." Homeowners are stretched to the max with mortgages and refinanced debt. One doesn't have top look far to see why that is happening. Between 2001 and 2004 income for workers 35 and under fell 8%, and dropped 9% for those 35-44 years old (Trumbull, CSM 2/27/06).

Given that oil prices are expected to continue to rise, and everything else with them, where exactly is debt repayment going to come from? Well cuts to educations, food stamps, social welfare, and cutting funding to urban Indian health clinics. Bush has proposed a $33 million cut for the clinics which is likely to result in the closure of at least 17 of the 34 clinics. But hey, let's make those tax cuts for the top 1% permanent. More money at the top means more money at the bottom ... doesn't it? Of course, that money doesn't seem to be going to pay workers, or to fund the social infrastructure.

NINE TRILLION DOLLARS and we get to pick up the tab