[quote=DomoArigato][quote=sreeb]
Yes, it is true that poor government policy destroyed the Zimbabwe economy (just as poor government policy is destroying ours) and damage to the economy preceded hyperinflation. [/quote]
Anyone who compares the U.S. to Zimbabwe, Portugal, Italy, Ireland, Greece, and/or Spain is an idiot.[/quote]
I agree that our situation is not now similar to Zimbabwe although I would argue that it could become similar if we engage in large scale monetization.
As for Portugal, Italy, Ireland, Greece, and Spain, it isn’t clear that we are much better off and in some areas we are worse.
As of today, 40 cents of every dollar the federal government spends is borrowed. I believe that is worse than all of those countries (although much better than Japan). Italy is even running a primary surplus.
Even doubling our tax rate wouldn’t completely eliminate the deficit if it actually doubled revenue (which it wouldn’t).
We would have immediate severe problems today if we had to pay the interest rates those countries are currently paying. Interest rates that are similar to those we have historically paid.
Historically, we have paid an average of about 6% on federal debt. At 6% * $15T = $900B in interest alone. The average maturity of federal debt is ~4 years. If interest rates went above 6% we would be completely screwed.
In my view, we have the choice between cutting spending now, which will hurt the economy now and be very painful to all, and risking the destruction of the dollar in the not too distant future which would be catastrophic.
We have dug a big hole. Because of demographics, it will get worse. There are no easy answers. If there were, we would act on them.
