2/19/09

American Greed

A reason why we may not end up in a lengthy recession: I believe the whole financial crisis was produced by too much cheap money which I think is the by-product of overspending. I.e. given the deficit the US build up, and increased worries, there were a lot of dollars floating around outside of the US which had to go back somehow. Since the deficit of the US is already high, loaning it back was getting insecure so a lot of money was invested back in the US, making -seemingly- everybody in the US wealthy. But in the absence of a competing economy, it is being outsourced, it had to go other places to find revenue: insecure loans for poor people. That, of course, backfired.

The question as always is: Who pays the bill? I think the rest of the world just have payed the bill of US overspending by throwing money into possible collapsing banks, thereby filling the US gap by creating a foreign gap (or we acquitted part of the US deficit, which may be good - I am not sure here). It might be better than banks falling over, but, well, unless American spending is controlled, it seems we are forced to create our own deficit to fill the American deficit ad nauseum.

Anyway, it might be we just made it possible for the Americans to start spending again. Which might mean a short recession, but, god, what a lousy deal for us.