How much is the Federal Debt as a percentage of GDP? Do you understand why that's a critical problem? What does it mean that China is the worlds biggest exporter, and the U.S. is the worlds biggest importer? What do you think is the real cause for the current economic mess? Just how fiscally irresponsible was George W Bush and the other Republicans since 1980?
I.O.U.S.A. is a movie that goes over these questions and go. It's an excellent movie in many respects that I largely agree with. It is also a partisan movie which means I expect it's presenting a slanted point of view, especially considering the main person, David Walker, was President Bush's Comptroller General. The movie focuses on a nationwide Fiscal Wakeup Tour with David Walker and the Concord Coalition going around the country teaching what they said to be a message of fiscal discipline both for the national government and for individuals.
The movie begins with a voice saying "I would argue the biggest threat facing the United States is not someone hiding in a cave in Afghanistan, but our own fiscal irresponsibility". Of course at the moment I'm writing this is after the death of Osama bin Laden. We know he wasn't hiding in a cave in Afghanistan, but in a well off lifestyle in a fancy home in Pakistan.
Immediately after that quote, with "fiscal irresponsibility" still hanging in your ears, it launches into a series of statements by U.S. Presidents about the need to conquer the national debt. The first being Pres. Reagan, who was one of the most egregious of the national debt builders we've had.
In that series of quotes was Pres. Clinton who, upon signing the first balanced Federal Budget, declared the U.S. was on track for budget surpluses for the next 25 years. Later in the movie they talked with Robert Rubin, Clintons Treasury Secretary, who explained this further. He claimed that they had found a political consensus around fiscal discipline, and when he left office in 1999 he thought it (fiscal discipline) had become a permanent part of Washington. But the next President, GW Bush, threw that all out the window.
The theme of the movie is to discuss four deficits: Budget, Savings, Balance of Payments, Leadership
Budget Deficit: There's a history with federal budget deficits going back to the Revolutionary war, and every war has been funded by running a debt. In the past the government had enough fiscal discipline to pay down the debt after the war was finished. Starting in the 1960's the government stopped that policy. And more egregiously, President Reagan was the first U.S. President to run big deficits for a reason other than war. His theory was the idiotic trickle down give tax cuts to the rich and eventually it'll make us all rich idiocy.
The important measure is the Deficit as a percentage of GDP, or Gross Domestic Product. Essentially that ratio is what determines how sound the economic situation is, and the ability of the country to handle the debt load.
Again the history of Deficit/GDP is that the percentage rose during war-time, and after the war it would drop again. Beginning with Reagan the percentage began climbing, and climbing, with the only pause being the Clinton years. The GW Bush years were a precipitous rise in this percentage.
Low Savings Rate: Much of the movie centers around a low savings rate in the U.S. In the past we were encouraged to have a high savings rate but since WWII the mantra has been to spend, spend, and spend some more. Consumption is what drives the economy today. As a result many people are living paycheck-paycheck with very little savings. Silly people.
David Walker is quoted saying the high rate of foreign ownership of the national debt is because of the low savings rate. Uh... I thought this was because of the high imbalance of trade but I suppose a high savings rate would mean more of the national debt is owned by Americans.
This is a national security issue - the high rate of foreign ownership of the national debt.
Balance of Trade / Payments: This is the ratio of exports and imports. A factoid tossed out during the movie is to list the countries by their trade balance. China exports the most, hence imports the most money, and the U.S. imports the most, hence exports the most money.
A factoid said right after that is: Buying more than you're selling results in your trading partners owning you.
This was demonstrated by an article written by Warren Buffet - Squandersville versus Thriftville. In Squandersville the mantra is spend spend spend, whereas in Thriftville the mantra is Live beneath your means and a high savings rate.
Basically the U.S. is Squandersville and China is Thriftville. The pattern is that Squandersville is exporting money and will eventually run out of money and will have to start selling parts of its hard assets like land and buildings. Eventually Thriftville will end up owning every square inch of Squandersville.
For a practical example they went to a scrap yard showing machines grinding up cars to make scrap metal of the sort used in mills to make new metal. The owner of the scrap yard explained they used to send the metal to domestic (U.S.) mills but nowadays they're sending it to foreign mills in China and elsewhere. In other words, the U.S. has killed off its industrial base and the only export we have is scrap metal.
Another assertion made is the immorality of one generation to spend the next generation's money. That's what happens when the government runs up such a big debt. This generation, us, we who are enjoying the fruits of that debt, we cannot pay off that debt. Who will pay it off? Our children?
Leadership Deficit: The movie talks a lot about the lack of political will to do anything about this. The responsibility lies with everyone involved in government. Earlier I mentioned how it's Republican Presidents who've been the worst about this, and they have, but really it's the whole set of people in Washington. They've become addicted to wasting our money.
The movie was filmed before the crash of 2008.
Given that the main person in the movie, David Walker, was GW Bush's Comptroller General, and hence in charge of the General Accounting Office, it strikes me that this guy has quite a bit of responsibility for the crash of 2008. He spoke a great line of reasoning in the movie about fiscal responsibility, but the GW Bush Administration was anything but fiscally responsible. In fact the movie itself does point a finger at the Bush Administration and while it doesn't outright say they were fiscally irresponsible, it strongly implies this.
Somehow the movie does not lay any blame on David Walker, however. But that could be because the whole thing is an infomercial for the Pete Peterson Foundation and a project which David Walker was hired by the Peterson Foundation to lead. In other words, one slant in the movie is to present the Concord Coalition and the Peterson Foundation and David Walker as saviors of mankind with a mission to educate us on fiscal responsibility.
I personally support having more people educated on fiscal responsibility. I just have a hunch that this movie is slanted towards a partisan message of some sort. In particular I hear in the movie some echo's of some of the Tea Party nonsense.
A recommended movie - just take it with a grain of salt.
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