Well, for one, I think the public promises need to be realized for what they are: false promises. If they were terminated immediately, many of the budget problems would also terminate. Perhaps the fire sale of American financial institutions would also stop.
What false promises?
However, that said, I have to say that for over a decade now I have been lamenting the fact that American realestate was way over priced. I believe it is the unrealistic pricing of American realestate that is the culprit of the fire sale, not the deficit or any of the other factors being listed.
A decade ago, it was a buyer’s market. In 2000, I bought my house in Southern California for $86 a square foot- a steal. Homes have always been expensive in New York, San Francisco, Monteray, Santa Barbra, etc.
In 1998, the Median Price for a San Diego home was $195,000. That’s doable on $50,000 a year (close to median income back then), with a 10% down payment. In 2003, the median price had jumped to $420,000. In 2004, it was $525,000. The bubble didn’t start until around 2001.
Another method of reducing the deficit would be to retail our energy reserves. The United States of America (and Canada) holds almost a third of the world’s coal reserves and almost 15% of the world’s oil reserves (Colorado alone has more oil than all of Saudi Arabia) and, adding Canada to the mix, that number is even higher.
If we were to cash in on the unrealistic prices of oil right now, I wager the United States could easily see a negative deficit in a matter of a few short years.
We should definitely become an oil exporting nation again. But it would mean putting a floor tax on gasoline ($3 or $4 a gallon) to create demand. Nobody wanted an electric, CNG, or fuel cell car when gas was $1.50.
As for the value of the American currency, it will remain strong. It may not be uber right now, but it is strong. That’s because the value of American holdings, resources and institutions back up the currency. People know that the US Dollar is worth one US Dollar and that it will be worth one US Dollar tomorrow and the day after and the day after that for as long as one can speculate life will exist barring any serious acts of god(s).
The dollar is worth whatever investors think its worth. If America starts to look like a bad investment, investors start cashing in their dollars for other currencies or hard commodities. It’s our luck that Britain, Germany, and Japan are having their own tough times, so the dollar looks relatively good stacked up against those currencies.
I must admit that the current financial buyout packages (both passed and proposed) worry me greatly. I, for one, would have been much happier had AIG, Fannie Mae and Freddie Mac gone out of business, liquidated their assets and let smarter men and women take control of those assets and fix the problems.
Fannie and Freddie hold over five TRILLION in mortgage securities. Letting them go under was unthinkable. They had reached TBTF status (too big to fail). But I would love to read an economist’s paper suggesting they should have gone under…
What has the solution been recently? Give them their golden parachutes and bail the company out with public money. What’s my idea of a solution? Put them in bankruptcy, sell all their assets to other companies, let their stocks dry up and cinch your belt for a while until you can recover. Why won’t it happen? Americans are cry babies. They gambled, they lost, now they want “Mommy and Daddy” to come bail them out.
That’s true to some extent, but another problem is a failure of the market itself to fix a price on all these bundles of mortgage securities. When the govt. approves the bailout (which they will), there’s a chance (probably small) that some of these mortgage securities are seriously UNDERvalued, and we could actually make a profit on them if housing goes up.