by Greg Martinez
You may remember the line in the movie Titanic where the actor who played the ship’s architect, Thomas Andrews, said the sinking of the Titanic was a “mathematical certainty.” Lately that phrase has come into vogue to describe what some consider the inevitable collapse of the U.S. economy, just Google the term yourself. For years now, since the election of Barack Obama, right wing prophets of doom have been predicting that the national debt would catch up to us. The irony is that the last Republican President inherited a balanced budget , along with a Republican congress, quickly took us back to deficit spending and we now have one of the largest deficits in history.
Nations don’t go bankrupt like people do. Unlike people, governments have the ability to print their own money. The problem is that the more they print, the less it is worth. That is the basic law of supply and demand, the more the supply the lower the value. Printing too much money can cause a nation to descend into hyperinflation, a situation not really related to inflation. Under inflation, prices rise due to strong demand. We are in deflationary times now where prices are falling and demand is weak. Hyperinflation is a case where people lose confidence in the currency and where prices can double in days or even hours. It typically leads to unrest in the streets. Such a situation in Germany in the 1920s created the environment for Adolph Hitler to rise to power.
What would it look like if the United States went bankrupt? There has never been a single world superpower quite like the U.S. before. Much of the world economy depends on us and much foreign trade, including the trade in oil, is done in dollars. One of the reasons that we can get away with printing dollars is that there is no real alternative world currency available. There has been some talk in other countries of using another currency to trade in oil, perhaps the Euro or the Japanese yen. If another currency was used to trade for oil, we could see the price of gasoline double overnight. Gas prices are now just under $10 per gallon in much of Europe. An increase in the price of gas would ripple throughout the economy causing an increase in food and everything else that needs to be physically transported.
Recently, for the first time in history, the credit rating of the United States was downgraded. The dollar has been falling in the past year against other foreign currencies. If the American economy was to falter, it would certainly trigger a global economic crisis. Unlike the sinking of the Titanic, the collapse of the U.S. economy is not a mathematical certainty. There are a lot of other factors at play like the sheer size of our economy and our military strength. Avoiding a default through economic growth or belt-tightening does not seem to be a realistic option. As we learned in 2008, you can’t be too big to fail.
Staff Writer, Greg Martinez.
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Disclaimer: The views and opinions expressed in this article are solely those of
the author and should not be understood to be shared by Being Latino, Inc.
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