For as much as people talk about US external debt, owed to foreign entities, it's a very small relative to our income. Governmental external debt is roughly 33% of one year's GDP while total US debts are equal to 384% of one year's GDP.
Of the huge debt in our economy, 75% is owed by consumers, business, and government to other Americans.
Since the debt is too large, relative to income, someone is bound to lose -- either the debtor, or those who lent the money. I'd guess a combination of the two.
I'd say the only choice Obama has is to pick the smartest people he can find.
A CEO of Chevron told my Dad that he envisioned making many important decisions if he were ever CEO. But he discovered that the decisions were already made by the time they got to his desk. Of course the CEO actually decides but, surrounded by a diverse group of very bright people, the well-researched decisions are already obvious.
If the CEO isn't surrounded by the best people who seek out divergent opinions, the CEO is actually forced into making his own "less than well-informed" shoot-from-the-hip decisions as the CEO obviously can't fully research each decision himself. So the only real job of a CEO is choosing those he relies upon, and communicating decisions.
A CEO could hope to set general policy and philosophy, but the ugly reality is these are mostly set by decisions made to circumstance, and an attempt to set them otherwise comes at the expense of wise decisions.
This deleveraging process is going to be unpleasant and messy. This is the price of an economic depression.
From an economic perspective, we:
- don't want to experience lost production due to idleness;
- but we don't want production which is wasting assets by creating less value than the production costs.
When demand is missing, the first is difficult to facilitate without government spending, but the faster the second comes to an end the better. A government creating the second has made an error, and sadly sometimes a cost-benefit analysis is going to dictate errors.
You also need to assure that the population is not starving to death. Government spending on employment programs can cost less than direct welfare payments or soup line by creating offsetting value. Incorrectly implemented these programs are more costly.
Cost-benefit analysis is going to generate a lot of decisions that no one will like. Since the government insures depositors through the FDIC, it is cheaper for the government to save some banks which should have failed. The same analysis will take place with a crap firm like GM. It may be less costly to the taxpayer to keep them alive, even though I believe they should file for bankruptcy. We'll also have the Pentagon pointing out the strategic value of potential production of some firms like GM.
States like California must raise their own taxes by repealing Prop 13, or other unpopular proposals. The Federal government can provide States a temporary loan during the economic depression, particularly covering that portion of State spending which is Federally mandated.
Through all this unpleasantness, it's nice to have a President who surrounds himself with the advice of bright, successful and independent people rather than those whose abilities are best described as their ability to quickly agree with him.
This is no situation for corruption and "You're doing a heck of a job Brownie."
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