Politics, Philosophy and Economics Surplus, Essay

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Politics, Trade and Unregulated Markets

According to Frankline (April 15th, 2008), when a nation increases its public consumption, it reduces the amount of money that companies need to invest in production; therefore, in a way, that nation buys it way out of unemployment. Frankline claims that this is based on a formula devised by John Maynard Keynes nearly a century ago. The formula says that if you increase public consumption, you reduce the amount of money that companies need to invest in production. In a way, you buy your way out of unemployment.

The John Maynard Keynes formula seems to have worked pretty well for America's economy for the past 50 years. However, during the past 10 years we have not been able to keep ourselves out of unemployment by spending, but, instead, we started borrowing to keep up with the pace of our spending. As we borrowed money to buy the goods that allowed "entrepreneurs" (the quaint word used by Keynes) to give us a job, our real economic capacity shrank at the pace of our increased debt. This goes beyond the simple fact that we have less Disposable Personal Income to keep us employed (by means of increasing consume expenses) but the reality is that we are fast approaching the eleventh hour (Frankline, April 15th, 2008).

Therefore, in the U.S., the reality is that the most banks do not want, and can not hold any more real estate in their books. The solution they found is not to foreclose on the properties. They have the liability of the unpaid loan, and they are making the big write-offs we are learning about daily in the news, but if they took into their books all the houses whose loans defaulted, they would not be liquid enough to remain in business.

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This makes a lot of sense, because the savings rate of the American public is close to zero, or perhaps even negative and the goods they own are worth less than the money the owe for them (Frankline, April 15th, 2008).

In regulated markets such as China and Japan, Frankline (April 15th, 2008) claims that they have vested interests in keeping U.S. interest rates low so the U.S.A. can keep buying their goods and keep their economies running. However, as the U.S. borrow more, the Dollars it pays them for their goods lose value, and their prices increase. A quick look at the 2007 CIA fact book gives a clear idea of how America is indebted to China, and the oil exporting countries. The following chart shows the current account balance of all the countries in the world, where China has the biggest surplus and the U.S. The biggest deficit.

Current Account Balance of all the Countries in the World

1

China

$363,300,000,000 2007 est.

2

Japan

$195,900,000,000 2007 est.

4

Saudi Arabia

$88,890,000,000 2007 est.

5

Russia

$74,000,000,000 2007 est.

9

Kuwait

$51,490,000,000 2007 est.

10

Singapore

$41,390,000,000 2007 est.

11

United Arab Emirates

$36,110,000,000 2007 est.

12

Algeria

$31,500,000,000 2007 est.

14

Canada

$28,460,000,000 2007 est.

18

Iran

$19,000,000,000 2007 est.

19

Venezuela

$17,020,000,000 2007 est.

20

Nigeria

$14,610,000,000 2007 est.

21

Angola

$13,640,000,000 2007 est.

31

Iraq

$7,802,000,000 2007 est.

32

Qatar

$7,733,000,000 2007 est.

33

Azerbaijan

$7,535,000,000 2007 est.

United States

$ -747,100,000,000 2007 est.

Therefore, it is evident that America is broke; and the biggest debtor in the world, carrying more than 1/4 of the total world debt, a debt that it has no means to pay. Frankline (April 15th, 2008) declares that at this point, if.....

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