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Friday, May 15, 2009

We can’t keep on just borrowing from China

The title of this blog entry is the quote of the day.

I am starting to wonder if Obama is basically a very smart person, a quick learner, but his problem is he has huge deficits of knowledge of some basic world mechanics, such as economics.

Assuming Obama is a quick learner, I am getting a little bit more optimistic here. What makes me think Obama is a quick learner. A quote from Obama today. (full article click here)

President Barack Obama, calling current deficit spending “unsustainable,” warned of skyrocketing interest rates for consumers if the U.S. continues to finance government by borrowing from other countries.

“We can’t keep on just borrowing from China,” Obama said at a town-hall meeting in Rio Rancho, New Mexico, outside Albuquerque. “We have to pay interest on that debt, and that means we are mortgaging our children’s future with more and more debt.”

Holders of U.S. debt will eventually “get tired” of buying it, causing interest rates on everything from auto loans to home mortgages to increase, Obama said. “It will have a dampening effect on our economy.”

The president pledged to work with Congress to shore up entitlement programs such as Social Security and Medicare and said he was confident that the House and Senate would pass health-care overhaul bills by August.

I am speechless. To me this was an obvious, easy spin on the reality of economics, that debt has consequences. And in general its not good to "require" additional debt daily to be successful. And if you never pay your debt, but increase it, the cost of borrowing more goes up.

I have blogged this many times before. It is widely discussed that with huge debt, if interest rates rise, the nation's debt will consume any infrastructure and services spending. And we have arrived today at the President of the USA, just talking now that debt is not a highway to prosperity.

In the last 8 months HUGE debt by the US government was taken on, and even more HUGE debt in the form of back-stopping obligations by private companies. This has shown a pattern that will lead to the Doom and Gloom post.

But here we have Obama seems to "get it" when it comes to debt. What is now needed is ACTION!!! Enforce laws. Enforce budget caps. Improve business environment, by allowing capitalism to take its course. In general, clean up our act.

Hopefully Obama "Gets all of it" and ACTS ON IT, does what needs to be done sooner rather than in four years. I don't want my doom scenarios to become reality, it's up to us to ensure it doesn't, and that starts with our leader.

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