My Response to Motley Fool Article: A US Collapse? Don’t Make Me Laugh.
No one disputes that many US companies are doing well and will continue to do well for years to come. However, when speaking of a US collapse the word collapse is in reference to the staggering debt load, pending inflation, and continued government distortion of markets.
Staggering Debt Load – It is common knowledge the US national debt is simply beyond explanation and government deficits increase this burden every year. The government (any government for that matter) operates on the erroneous assumption that by propping up the market with government spending and cash injections via the FED can indeed lead to economic growth. This strategy does indeed result in growth but it is fleeting. While the political class keeps the boom cycle going they only make the bust that much worse and then we realise what a waste it all was i.e. housing bubble, dot-com bubble, savings and loan crisis, Y2K, etc.
Pending inflation – The FED has injected massive amounts of cash into the economy and will continue to do so through various means (see St. Louis FED posts of FED balance sheets). The amount of increase in the FED balance sheet as well as the enormous amount of reserves currently held by banks who refuse to lend out the paper from the FED is tsunami of inflation waiting to happen. Of course it is all an effort to rid of the bug bear of deflation but then again when was lower prices ever a bad thing? If a market is calling for deflation it probably needs it.
Government distortion – The government is throwing trillions of dollars to any state wishing to use it for various shovel ready projects are other developmental goals. By increasing demand in a sector of an economy you create malinvestment most recently exemplified by the housing bubble. The government has limited what banks can do in their daily operations in regards to credit cards and checking accounts resulting in higher costs to consumers and another disincentive to save dollars in a bank. By continually pumping money into the economy you merely hamper the natural liquidation process which should take place during a bust cycle. However, a government loses credibility during hard times so in order to preserve itself merely wishes to continue the unsustainable boom period. Housing went bust but it is certain that another bubble will be created elsewhere in which an industry or sector is favored by government. Holding down of interest rates is part and parcel of credit expansion causing once unprofitable projects to seem profitable. However, under a market interest rate not an artificially lowered one the project or investment is a waste of resources. Now, if you replicate that situation hundreds of thousands of times over you have a big problem on your hands when it goes BOOM!
For more information on the ideas expressed in this post please visit mises.org or grab a copy of Murray Rothbard’s Man, Economy, and State.
Notes From the Underground 