AS JAPAN GOES DOWN...
1/28/11 Japan's Credit Rating Downgraded On Debt Concerns -
Standard & Poor's on Thursday cut Japan's credit rating for the first time since 2002, accusing the government of lacking a "coherent strategy" to ease the highest debt of any industrialised nation.
The Japanese currency tumbled following the announcement (so imports cost more, inflationary)
Japan has the industrialised world's highest debt, at around 200 percent of GDP, after years of pump-priming measures by governments trying in vain to arrest the economy's long decline.
National debt divided by GDP: 197%
GDP: $5 trillion
They have a bit of an advantage over us, in that there debt is owned 95% within the country, its people, banks, and pension funds.
ANY OF THIS SOUND FAMILIAR?
As Japan has been doing, we are "priming the pump", have a high deficit to GDP ratio, and close to getting our treasury bonds downgraded. And, of course, we have politicians saying "no problem"... or giving voice to it as something they will deal with...later. Harry Reid speaks this way, unfortunately. The Tea Party is very concerned, though it tends to go overboard to the other side. And moderate Democrats are expressing concern. Obama speaks of it, but is doing virtually nothing about it.
WHERE DO WE STOP? AND WHEN?
We are caught between a rock and a hard place. We don't want to take spending out of the economy because we want to avoid the economy being too weak. We don't want to highly tax the people as incentives would decline and we'd all be worse off - plus families might be stuck with less to spend.
We can't continue to kick the can down the road for somebody else to handle what will by then be a much bigger problem. The representatives do not seem to realize the power of compounding. (Einstein called compounding the 8th Wonder - it can work for you, or against you. When you invest it works for you. When you borrow it works against you! He is also quoting as saying compounding is the most powerful force in the universe.)
HOW SHOULD WE SPREAD THE BURDEN?
Wise people are cautious about raising taxes to cover the deficit, as that would not solve the irresponsible spending level. There is a battle there. So it appears we have to meet halfway in the middle, with the fiscally prudent advocates allowing those who think we must spend most of what we spend and the spenders having to give up half of the excess spending.
SEGREGATING THE PROBLEM AREAS
Since the portion of the budget is increasingly going to entitlements, there is a smaller and smaller discretionary spending budget. But remember that there is an illusion here in mixing entitlements and domestic spending into one big lump. The entitlements need to be separated out into their own accounting, and the domestic spending left unobscures - and then reporting that to the American Public (See Government Report Card. We need to set up the separate accounting as proposed in Improper Accounting.)
WHY ARE WE NOT SEEING THE PROBLEM?
Lack of education and perspective.
We need to educate the public plus provide a means for them to keep a perspective both on the numbers (such as the Government Report Card) and the issues. Uninformed voters are a danger to themselves and are easily influenced by emotion and false rhetoric, rather than facts and logic.
HOW IS POLITICS AFFECTING THIS PROBLEM?
Any politician does not want to lose votes, so they often will not be honest or authentic enough in their conversations. They let politics override ethics. Understandable but not acceptable, in that we need to have the best job done for us nationally, statewide, and locally.
This is why we have to have an honesty, ethics rating for each representative, so that there will be appropriate measures and incentives to direct them toward operating in a way that will benefit us. (See Rating The Politicians.)
It seems that nobody wants to suffer the potential unpopularity for suggesting a sacrifice for anybody, even if it is a vital necessity for us to deal with it. Instead, the politicians want to say that everything is good and the future is hopeful and we'll be nice to the people, all the people. There does appear to be some support for the Republicans to deal with it, but there is some blaming of them, for being heartless or even just cynical.
We need to deal with reality, and perhaps work out a deal among the politicians to share the blame so that we can all work together and there is no political harm.
Also, to keep this problem "top of the mind" for Americans, it would be wise to use a "tax surcharge" indicating that the deficit is a temporary problem and that we will all sacrifice to cover it until it is solved. It obviously won't be an equal sharing of the sacrifice, taxwise, as the "rich" will have to pay alot more of the increase, more than 90%.