WARNING: WALL OF TEXT
Forgive me if there's a few errors in here, it was a lot to write at once and I only skimmed over it once.
that as a result we are becoming a debtor nation to other nations, especially China?
So what? Seriously. Terms like debtor and creditor nation are fairly unimportant economic distinctions. It also tends to be a distorting term, as it's often implied that creditor nations are somehow better off, or that debtor nations are profligate. Neither are necessarily true, and in fact
excessive lending demonstrates an economy that's out of whack just as much is too much borrowing. Too much savings means too little money is being spent locally, which is a problem because every dollar you spend has a multiplier effect as that dollar is used to pay someone's wage, that person in turn uses the money to buy goods, which supports another worker, etc. A truely balanced economy doesn't export too much, import too much, borrow or lend too much.
However, that kind of analysis is far beyond the level of general understanding here and in the public at large (no offense to anyone, if you're economically literate, you're an exception and I welcome your input). To boil it down to the real issue at hand, you have to understand that borrowing and lending can be mutually beneficial. Buying T-Bills gives the Chinese a safe investment to park money in. Yes, even though I stated they're losing money in real terms, it's still better than pouring money into an overheating local industry and losing money in non-adjusted terms (meaning you lost money before inflation was even taken into account).
The US, on the other hand, has been given free money in which to invest. Most corporations would kill for the kind of low interest rate the US has received in the last 3 years.
The problem, the real problem, is that this free money was pissed away on tax cuts, the DoD and entitlement spending.
I don't want to mince words here, the US was on the receiving end of the biggest windfall in modern history. Trillions of dollars flowed into the United States from every country in the world. Trillions. If this money had been spent on revitalizing the aging Interstate, universal broadband, education initiatives, R&D grants, it would have been the foundation for incredible growth for the next 20 years. The US would have used its position as the center of the financial world to cheaply finance a strong foundation for remaining the center of the financial world.
Think about it, what could you do with a loan with only 2.3% fixed rate interest? What kind of house could you afford with that kind of rate? What kind of business could you build with that low of a yield?
Debt, used wisely, is phenomenally great. You can build a Fortune 500 company with debt.
Hell,
the United States could have taken that Chinese money, turned it around and bought Chinese debt (they have about $US3 trillion of it themselves (compared to their $US4.5B economy) and received 2-3 times as much in interest as they were paying out.
But, and here's where you should get angry, we didn't invest the money. It was used to fund tax cuts on the wealthy and on homeowners. Neither of which has contributed much, if anything, to the national wellbeing. Tax rates at the height of the bubble were lower than they were at any other point in the previous 50 years. They're even lower now, and for every dollar of borrowed money used to finance the recession tax cuts (including the Bush cuts) the US might have got back 10 cents in tax revenue, meaning only a third contributed to domestic growth.
Where did the rest go? Well, if you were a billionaire, would you invest your money in A) The US, where you'll break even if you buy into the S&P 500. B) Buy shares in a Chinese company and earn 10-15% returns. That's right, money borrowed from China to fund tax breaks was sent right back overseas to help fund their growth. Again, the Chinese are kinda getting a raw deal, but this money isn't really helping the bulk of the US population either.
Some the windfall was blown in the bloated Defense department. I'm not anti-defense, I'm not even saying I'm anti-war, but if you're spending $700 billion a year, and our soldiers are still going into battle without needed armor, management of the DoD is seriously FUBAR. "It's war and things happen" is not an excuse. No corporate board would accept that. No taxpayer should either. The DoD's books are so screwed up, CBO can't even audit them, which is in direct violation of federal law.
Finally, the big monster is Medicare and Medicaid, behemoths that grew at twice the rate of the rest of the economy. The trillion dollar, non-offset Part D expansion/senior-bribe was the single biggest contributor, but there's a lot of fundamental problems that go beyond that. This is such a big mess, that it really deserves its own thread. However, here's the crux of the issue:
Successful healthcare reform is the same thing as budgetary reform, as you can't do one without the other
What about social security? Nothing. If the rest of the budget wasn't screwed up, it would be natural and acceptable for the SSA to have periods of deficits, to balance out the decades of surpluses. It really doesn't have a structural problem. It's also a very good stimulus since seniors don't sock away SS checks, they go out and spend it.
Yeah just as much as China owns us, we own them.
This statement shows a basic misunderstanding of basic finance, I'm afraid. That misunderstanding is the difference between owning a bond and owning a share of stock. The latter is ownership, a piece of the company. The former entitles you solely to an interest payment. It is NOT ownership.
