Living on Borrowed Paper

Deficit Spending has become a worthy war cry of the right these days!! "We cannot afford to spend like this", they say. "We are spending our childrens and grandchildrens futures away into mountains of debt".
Statistics have become bits of paper with "trillion" written all over them.

They are now seen strewn all over the tarmac these days with much disdain. Republican Mike Pence from Indiana threw a statistic up in the air when he stated that the total amount of debt over the next 10 years would amount up to 10 Trillion dollars, this works out to  $44,000/- per American. Democrats of course will argue the fact that the number is overstated, and the benefits of the healthcare bill once it starts to kick in will result in more savings to the government in the long run.

That however is just one piece of the jigsaw. Deficit spending in the US, or spending from the money that is borrowed from China (who is still the largest party buying up US Tresuries, so that they can somehow resuscitate their largest trading partner from their downward spiral and get them back to their old good habits of buying their dirt cheap toys quoted with lead) is pretty much here to stay mainly because the other options on the table are barely options.

The Healthcare Bill is something which somehow seems to have rubbed everyone the wrong way. Obamacare was meant to ensure that the uninsured could at least be insured to the minimum and that corporate greed which at times used to deny coverage to Americans on account of an existing precondition could be kept in its place. However the public saw this as the beginnings of an unjustified government take-over of everything  (specifically due to the partisan way the bill was passed) and their trust in the incumbent party began to wane.

Benefits aside and an already huge looming deficit, who was going to finance these new uninsured millions knocking at the door? The cost of the plans was obviously going to rise, as something would have definately had to give. Deficit spending is needed to rebuild the US economy, especially if the private sector is unwilling to loosen its purse strings.

The notion that there is hoards of cash lying with American Businesses who do not want to invest because they do not see a clear direction from Washington is probably hogwash. Here are some of the reasons.

Firstly, most of the money is finding its way into the stockmarkets of some of the Emerging markets and pushing them up to dizzying heights. The reason, well, thats where all the the growth is happening now!! 

Secondly, most American companies that have been doing well on the Nasdaq and NYSE are ones that, you may think have the capacity to spend and hire. Citibank, for one, recently announced that it was hiring thousands of workers : guess where - in China.

So the fact of the matter is, even if there was clear policy direction from Washington as to the policies and where they are headed. Money, as it always has and always will, will chase high!! oh wait: not high but astronomical returns. It stopped making sense hiring tech workers at home, unless they were in a niche skill area, just as it stopped making sense to make fast moving consumer goods, or electronic toys at home in America, when China did it for a fraction of the cost with no labour unions to nag.

Deficit Spending comes through when the private sector is completely clueless, or toothless as they are now. Their lust for corporate greed contributed towards the erection of a society in America that was living beyond its means, and ended up with huge trade surpluses with other major nations.

China is in no hurry to revaluate the renmimbi. India will use its lobby with big business/special interest groups in the US to ensure that its steady stream of business from the US continues despite the downturn. With all countries with their backs against the wall emptying their wallets, and American multinationals overlooking them to take their pound of notes, there is little the average American can look to for help except to the government.

This is when, and why, Government Spending or Deficit Spending makes sense.