This is Whats going on.
Jesse Gonzalez
There have been many recessions throughout history. Some economic downturns stem from ancient times in Rome, into the industrial age with The Great Depression in the 1930’s, the Winter Of Discontent in Great Britain in the 1970’s. More recently of course is also the market crash of 2008, also known as “The Great Recession”. One would think that after all of these examples of how an economy can turn for the worst, there would be some set precedent as to how to deal with economic uncertainty. The truth of the matter is the looming debt crisis in the U.S. is about to come to a head. It will threaten the consuming way of life all of America has grown so accustomed to, “…the savings of millions will be wiped out. This disaster will change your business and your work. It will dramatically affect your savings accounts, investments, and retirement.” (Stansberry 65). In order to make a significant change for the future generations the American public must stay informed on how to prevent the and ultimately turn around Americas looming economic breakdown.
To find out how the fore-mentioned economic disasters in Rome, U.K., and America came to be one must ask where the common factor lies. The economic meltdown in Rome was partially due to the fact that when Rome needed extra money; they began minting their coins with less precious metal in order to make more coins with the same amount of precious metal. This caused an over circulation of money causing the money to lose much of its value. In 1970’s Britain the British decided to devalue the British Sterling, a whopping 14% overnight, thinking it would make loans and interest rates more affordable, all this did was effectively, “…make anyone holding British sterling 14% poorer, overnight, and it made everything in Britain, much, much more expensive in the coming years.”(Stansberry) This also lead to major social changes in quality of life. Work hours were cut by introducing the, “Three Day Week,” in 1974. Businesses at this time were also limited to using electricity for three specified consecutive days each week. Even on these days employees were unable to work longer hours to save money as well. The Television industry in the U.K. was also hit hard when they were required to cease broadcasting at 10:30 pm to save electricity. The crash of 2008 is special in terms that there was a perfect storm brewing. In order to counter the Stock Market Crash of 2000 and the coming economic slowdown, the Federal Reserve eased credit availability, and drove interest rates down further than they had been in many years. These low interest rates helped the growth of debt at all levels of the economy. This all leads the next point, their Greatest Common Factors is inflation.
The Merriam-Webster Dictionary defines inflation as, “a continuing rise in the general price level usually attributed to an increase in the volume of money and credit relative to available goods and services”. This fits all scenarios, from easy credit to an increase in currency. Now what does this mean for the American public today? Why is there any need for concern? These things happened in the past, and aren’t likely to happen again. What are the odds that this should all come to pass again? It is happening now. The effects of inflation can be felt all around, in rising costs of commercial goods. Not only will the price of gas, oil, and other commodities skyrocket in America, almost everything consumed will instantaneously and instantly get more expensive. This of course affects everything we consume and export from other countries around the world.
It is assumed that the U.S. is the richest most economically sound nation in the developed world. If this is so, everyone is in serious denial. How can the American people escape this “ignorance is bliss” attitude when the reality is: the more one knows of any disaster be it natural, economic, or personal, the less one wants to know. Everyone is under what is called in the psychological community as the “normalcy bias”. “The normalcy bias refers to a mental state people enter when facing a disaster. It causes people to underestimate both the possibility of a disaster occurring and its possible effects.The assumption that is made in the case of the normalcy bias is that since a disaster never has occurred that it never will occur. It also results in the inability of people to cope with a disaster once it occurs. People with a normalcy bias have difficulties reacting to something they have not experienced before. People also tend to interpret warnings in the most optimistic way possible, seizing on any ambiguities to infer a less serious situation(black 5). We are all guilty of it; after all it’s human nature. It’s unfortunate and disastrous, to assume everything will be fine when not informed of the underlying situations that are pertinent to the situation that one finds them-selves. Three examples of how the normalcy-bias helped dictate the amount of chaos that insued after disasters occurred are The Holocaust, Hurricane Katrina, and more recently, the Nuclear meltdown in Japan after the earthquake of 2011.
In the Holocaust, “By the end of 1935 100,000 Jews had left Germany but 450,000 still remained ” (Biggs). Those who stayed behind were under the impression that Hitler’s bark was worse than his bite. Those who stayed behind were also made to relocate, “They were led to believe that conditions in the East, where they were being sent would be better than those in ghettos. Following arrival in certain concentration camps, the inmates were forced to write home about the wonderful conditions in their new place of residence… In addition, the notion that human beings—let alone the civilized Germans—could build camps with special apparatus for mass murder seemed unbelievable in those days,” (jewishvirtuallibrary 25). Also among this platform of the “normalcy bias” were the New Orleans residents that located to spots of the state where threat of hurricanes were eminent. It was said that the levies would not hold the massive storm that was Hurricane Katrina. Thousands upon thousands suffered because they did not head warning of preparation before hand. More recently is the disaster in Japan, building a nuclear reactor near an ocean and tectonic plate prone to slippage and earthquakes. Lack of preparation and time inhibited the populations’ response time to the disaster, and held many casualties. Unfortunately these major populations were indeed short changed, but only by them-selves.
The same can be said about America’s debt as it stands today, in relationship the knowledge held by the general public. The problem America is facing is this, “This year, we are spending $1.6 trillion more than we take in, and that would have made anyone in either party blush if they saw numbers like that. And the issue today is not just this year’s deficit, it’s deficits as far as the eyes can see… . America has to rein in the excessive spending not just this year, but over the long period of time.”(Judis 45) As it stands the debt has increased from 8.7 trillion dollars, in 2007 to a whopping 15 trillion dollars as of Dec 10 of this year. There is major cause for concern, “The estimated population of the United States is 311,824,960 so each citizen’s share of this debt is $48,284.86.The National Debt has continued to increase an average of
$3.94 billion per day since September 28, 2007”. Yes this crisis is already effecting the U.S. population without knowing. The Number are staggering, according the Documentary I.O.U.S.A the numbers go as followed, “ 2008 Federal Budget, $610 billion on Social Security, $330 billion, Medicare $204 billion on Medicaid, $607 billion on U.S. military, Everything Else $936 billion, and finally the interest on Debt which was $244 billion. Adding up to the grand sum of 2.9 trillion dollars in spending.” It has gotten so bad notice that the money wasn’t going directly to the debt, but the interest, It has gotten as bad as to not afford the interest on the U.S.’s debt. What is worse is the 2008 Revenue stream which goes as follows, “ $220 billion on person income taxes., $910 billion on payroll taxes, $345 billion on other revenue and an added $410 billion added on the total deficit.”
Here comes the most disconcerting news regarding these numbers. The “Everything Else” category in the budget includes, Nasa, education, Veterans Benefits, and national parks. Those budget Items are already being hit, in fact Nasa has been shutdown in the last year due to budget cuts, even though. Of course also being hit hard are the schools in America with a shortage of teachers and an abundance of students, there are simply not enough means in the federal budgets eyes to keep all of these “Everything Else” budget Items afloat. “Social Security is a hot button topic because of, “, the nearly 80 million Baby Boomers phasing into retirement will set in motion a dynamic that—if not addressed by Congress—could result in the next generation getting fewer benefits…By 2017, Social Security is expected to start paying out more than it collects in payroll taxes, according to the 2009 Annual Report from the Social Security and Medicare Board of Trustees. There is currently a large surplus, but it will be drained by the year 2037. At that point, Social Security will only be able to pay out 75 percent of its benefits.”( Reuteman 4,11) By the year 2030 we might only have enough to for Medicaid, Medicare, some Social Security and of course the interest on the debt owed.
The United States owes more money to more people than anyone else in the world. The Largest holder of American Dollars beside the U.S. is China, one of Americas premiere trading partners. The problem in lies that the more America borrows from foreign countries, the more they own Americas mortgage. America now borrows 60cents to the dollar. Why is it the that U.S. owes China so money? The truth is China has a booming economy because of the amount it produces and exports. In America growth of businesses have been stunted by higher cooperate tax rates than anywhere else in the world. In any case one wouldn’t blame someone taking their business elsewhere to flourish if the opportunity is there. The impending danger lies in that China is trying to get rid of the damaged American dollars and will instead start looking to different currencies. Inflation in the U.S. economy are causing foreign investors in the Dollar currency to bail. Recently a big bank in Mexico the,”… HSBC no longer allows you to deposit U.S. dollars into their banks.”(Stansberry) and certain tourist destinations like the Taj Mahal in India, and the Anne Frank house are no longer taking U.S. dollars. The only reason this is so alarming is because this shows a shift of power from the dollars to other currencies. The U.S. dollar was the worlds reserve currency and that’s why for so long one could go anywhere in the world and the dollar was accepted. America is the only holder of debt, which has been allowed to print its’ own money. So far the bottom has not fallen out, but it is only a matter of when, as stated before when an economy starts releasing currency and pseudo credit at the more it starts to lose it’s value.
What happens if this all comes to pass, if the dollar plummets in value? What will happen this once strong and powerful nation called America. The United States is turning into a 3rd world country in front of everyone’s’ very eyes. In the future will the U.S. be able to sustain its way of life? Will future generations have free public education? Pension and retirement funds will run dry, and all the hard earned money taken out of the citizens check will be used solely to pay off the debt the country is in. It is morally wrong to flip the bill of this generation on to the next, paying a bill with money they haven’t even seen yet. In order to rise and thrive once again, the country has to look at it’s distribution of wealth and manage it among the people, as apposed to letting wealth manage what the people do.
