You Owe Me BIG!

August 15, 2006 by mugsy.

A couple of months ago, CBS News produced the following frightening report on our exploding National Debt:

YouTube video: The Incredible Exploding Deficit

We owe more in debt to the Communist Chinese than we have spent on the war in Iraq ($265B vs $260B), essentially making them the financiers of the war. We owe 2-1/2 times that to Japan ($673B).Which got me wondering:

Why would they loan us so much money?

After 9/11/01, the Federal Reserve cut Interest Rates to the bone… a mere 0.5%… trying to jump-start an economy that was already sinking into the toilet after George Bush took office. Low interest rates discourage savings and encourage buying, especially big-ticket items like cars and homes. Last week was the first time in nearly two years that the Fed did not raise interest rates this quarter, fixing them at 5.25%. Still a fairly low level for anyone looking to make money by putting it in the bank. But the housing market is drying up as interest rates climb, and rising oil prices have pushed up the price of everything. An interest rate hike now would have really hurt the economy. So why not CUT interest rates instead to get it moving again?

When you need to borrow money, you promise to pay them back with interest. That’s their incentive to loan you the money. But the lender wants to charge the highest rate of interest possible without you changing your mind. So to attract lenders, we offer to pay more in interest. The higher the interest rate, the more willing they’ll be to loan it to you (assuming they consider you a good risk that will pay them back). That’s why Loan Sharks charge such high interest rates. They are preying on your desperation. Which begs the question: With interest rates so low, what do THEY get out of it? Did China lend us $265 BILLION dollars because they looked forward to being paid back at a mere 0.5% interest rate? Will they ever make that money back WITH INTEREST within our lifetimes? Even at the current 5.25%, it would take over 19 YEARS just for China to get its initial $265B back (and worth much less 20 years from now) before it starts to see even a dime of profit in interest. So why then loan us the money?

Well, when YOU are deep in debt to someone, you can’t exactly bully, criticize, or otherwise intimidate the lender, ESPECIALLY if you plan on borrowing from them again. Don’t think our creditors don’t know this.

Okay”, say the detractors, “then what about Japan? We owe them even more. They are not human rights violators, what’s their motivation?” Answer: economics. Japan is America’s biggest trading partner, we import more goods from Japan than any other country on Earth (and that includes oil from the Middle East). Cars, electronics, home appliances. Our largest source of trade to the Japanese… selling them the raw materials they need to produce those finished goods for sale back to us. When you are as deep in debt as we are, you’re in no position to say, “Hey, slow down! Stop sending so much stuff over here! The trade imbalance is killing us!” No, if we want their money, those flood gates must remain open. Cheaper quality goods from Japan flow in, American manufacturing jobs go out. Get it?

Now here’s the fact that’s “really gonna back your noodle” (to quote The Matrix): The Bush Tax Cut for the top 2% of the wealthiest Americans comes to about $900 BILLION dollars in lost tax revenue. Remember, we borrowed just over $938 Billion from China and Japan alone, an amount we must pay back with interest. That is money that is NOT being spent to give our troops the necessary armor to prevent serious injury; money not being spent to rebuild New Orleans and Biloxi after Hurricane Katrina last year; money not going for Pell Grants so low-income students can go to college; money not being spent on providing healthcare; money not being spent to fund Homeland Security, check our luggage for explosives or inspect all shipping cargo coming into our ports for chemical, biological or nuclear weapons.

But if you’re a Republican with control of The White House and both Houses of Congress, it is more important that that 2% get their $900 Billion dollar tax cut because they’re going to use it to create jobs… and they are. The latest unemployment figure in the U.S. has risen to 4.8%, adding a mere 113,000 jobs in July for the entire United States. Whoo hoo!

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