There is an increasing number of American economists warning of impending danger of collapse to the American economy if it doesn't reform. Metrication will have to be a vital part of that reform if the US is going to be able to balance its books by exporting more then it imports. It isn't so much as the need to use metric itself that will be important but to adopt internationals metric based standards. The US never has seen a need to export because it was able to finance itself by selling debt to survive.

But what happens when that selling of debt ends abruptly and the US has to take desperate measures to survive? How long will it take before they are forced to come to the grim reality that without metric they will be the first country to go from a first world economy to a third?



AP
Experts Warn Debt May Threaten Economy
Sunday 2005-08-28 09:53 ET
By Robert Tanner, AP National Writer
Experts Warn That Heavy Debt Threatens American Economy; Could Cost $145,000 Per Person


You owe $145,000. And the bill is rising every day. That's how much it would cost every American man, woman and child to pay the tab for the long-term promises the U.S. government has made to creditors, retirees, veterans and the poor.
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And it's not even taking into account credit card bills, mortgages -- all the debt we've racked up personally. Savings? The average American puts away barely $1 of every $100 earned.

Our profligate ways at home are mirrored in Washington and in the global marketplace, where as a society America spends $1.9 billion more a day on imported clothes and cars and gadgets than the entire rest of the world spends on its goods and services.

A new Associated Press/Ipsos poll finds that barely a third of Americans would cut spending to reduce the federal deficit and even fewer would raise taxes.

If those figures seem out of whack to you, if they seem to cut against the way you learned to handle money, if they seem like a recipe for a national economic nightmare -- well, then, at least you're not alone.

A chorus of economists, government officials and elected leaders both conservative and liberal is warning that America's nonstop borrowing has put the nation on the road to a major fiscal disaster -- one that could unleash plummeting home values, rocketing interest rates, lost jobs, stagnating wages and threats to government services ranging from health care to law enforcement.

David Walker, who audits the federal government's books as the U.S. comptroller general, put it starkly in an interview with the AP:

"I believe the country faces a critical crossroad and that the decisions that are made -- or not made -- within the next 10 years or so will have a profound effect on the future of our country, our children and our grandchildren. The problem gets bigger every day, and the tidal wave gets closer every day."

Federal Reserve Chairman Alan Greenspan echoed those worries just last week, warning that the federal budget deficit hampered the nation's ability to absorb possible shocks from the soaring trade deficit and the housing boom. He criticized the nation's "hesitancy to face up to the difficult choices that will be required to resolve our looming fiscal problems."

Certainly, there are those who feel such comments bring to mind the preachers who predict the end of the world at a specific time and place, and have always been wrong. And undeniably, borrowing isn't all bad -- easy access to money has been a critical tool in building America's businesses, from mom-and-pops to multinationals.

But something has changed. More than two centuries ago, Benjamin Franklin warned: "He that goes aborrowing, goes asorrowing." Now, a laugh-til-you-cry commercial portrays a man with a beautiful home and car declaring: "I'm in debt up to my eyeballs. I can barely pay my finance charges. Somebody help me."

The epidemic of American indebtedness runs from home to government to global marketplace. To examine it, let's start at home.

Americans used to save, but no longer. Back in the 1950s, a generation of Americans who had survived the Depression and Second World War saved roughly 8 percent of their income. The savings rate rose and fell slightly over the decades -- it went as high as 11 percent and as low as 7 percent during the "greed is good" 1980s -- but now those days are only a memory.

In the charge-everything start of the new millennium, savings have plummeted: to just 1.8 percent last year, below 1 percent since January and at zero in the latest estimate from the Bureau of Economic Analysis.

The lack of savings is mirrored by a rise in debt. In 2000, household debt broke 18 percent of disposable income for the first time in 20 years, meaning debt eats almost $1 in every $5 American families have to spend after they get past the bills that keep them fed and housed. (That figure hasn't dropped. Credit card debt alone averages $7,200 per household.)

Many people take comfort in the rising value of their homes, and its spurred record home-building and buying, with new construction making places like Las Vegas the fastest-growing in the nation. But a home translates into wealth only when you sell it -- and there's a vigorous debate over whether the housing boom is becoming a bubble that will burst.

"It seems like, with the younger generation, that they want to have now what it took us years to get," says Jo Canelon, a 46-year-old social worker in Statenville, Ga.

"I see people younger than me with comparable jobs that drive new vehicles and have a boat and mortgage and things," says Canelon, who responded to the AP/Ipsos poll. "And I just wonder about their debt."

Canelon sees echoes in the rise of obesity: a pervasive I-want-it-now attitude no matter what the consequences. To her, debt's a symptom of disease, and one that's spreading.

If she's right, the government is sick, too.

Leaders are elected by the people they serve, of course, and the American people seem to want the best of both worlds -- tax cuts and government services -- while they hope the dollars sort themselves out. They worry about the nation's problems, but not enough to agree on a course of action to fix them.

The AP/Ipsos poll of 1,000 adults taken July 5-7 found that a sweeping majority -- 70 percent -- worried about the size of the federal deficit either "some" or "a lot."

But only 35 percent were willing to cut government spending and experience a drop in services to balance the budget. Even fewer -- 18 percent -- were willing to raise taxes to keep current services. Just 1 percent wanted to both raise taxes and cut spending. The poll has a margin of error of 3 percentage points.

The nation's political leaders could hardly be said to have a mandate calling for fiscal responsibility.

A few years ago, government finances were the strongest they've been in a generation. Then came a turnaround -- and a stunningly quick one. The budget surplus of $236 billion in 2000 turned into a deficit of $412 billion last year. The government had to borrow that much to cover the hole between what it took in and what it had to spend; a difference that's called the federal deficit.

Blame the bust of the dot-com boom, the ensuing recession, President Bush's federal tax cuts, the Sept. 11 terrorist attacks and the subsequent wars in Afghanistan and Iraq.

Bush has gotten his share of brickbats, from both the right and the left, for the spending while he's in office. Still, the federal deficit isn't as big as it was in the worst of the years under President Reagan as a percentage of the overall economy.

Some note things are getting better: The latest reports project a deficit of $331 billion for 2005, nearly $100 billion less than expected. Outstanding debt -- the amount of securities and bonds that must be repaid -- is far below what it was in the early 1990s.

But bigger worries lie ahead.

The nation's three biggest entitlement programs -- Social Security, Medicare and Medicaid -- make promises for retirement and health care (for the elderly and the poor) which carry a huge price tag that balloons as the population grows and ages.

Add it up: current debt and deficit, promises for those big programs, pensions, veterans health care. The total comes to $43 trillion, says Walker, the nation's comptroller general, who runs the Government Accountability Office. That's where the $145,000 bill for every American, or $350,000 for every full-time worker, comes from.

Simply hoping for good times to return won't erase numbers like that, Walker says.

"There's no way we're going to grow our way out of our long-range fiscal imbalance," he says, adding that the country must re-examine tax policy, entitlement programs and the entire federal budget.

"I really do not believe the American people have a real idea as to where we are and where we're headed, and what the potential implications are for the country if we don't start making some tough decisions soon," he says.

The dangers are clear as day to Felicia Brown in Saginaw, Mich. To her, it's the leaders who ignore them, she says.

"We're stealing from our children's future and our grandchildren's future," says the cashier and mother of three, who also responded to the AP/Ipsos poll. "We're led off on this belief that we should buy, buy, buy. Everyone needs a big house, everyone needs a new car every two years. We're spending all this money on that, and we're not saving anything."

Some people, however -- including economists -- think the picture isn't so gloomy.

Ben Bernanke, who recently left the Federal Reserve Board to serve as President Bush's top economic adviser, has argued that the problem is not with the United States. The trouble lies overseas, where people want to save rather than spend their money. The key is to encourage other countries to spend and invest more, he says, though he also believes that the federal budget needs to be balanced.

By raising the issue of foreign investment, Bernanke touches on another area that scares economists -- America's inexhaustible desire for foreign goods.

The trade deficit -- the difference between what America imports and what it exports -- is the highest it's ever been, both in absolute numbers and in comparison to the size of the economy.

As a society, Americans are on track this year to spend $680 billion more on foreign goods such as Chinese-made clothes, Japanese-made cars and Scandinavian cell phones than overseas buyers do on American goods. The crush of arriving, Asian-made products recently spurred the Port of Los Angeles to switch to 24-hour operations.

Nearly two decades ago, the country fretted over a trade imbalance equal to 3.1 percent of the overall economy, or the gross domestic product. It's more than twice as big now, roughly 6.5 percent.

Here's how economists, from former Federal Reserve Chairman Paul Volcker to former Clinton Treasury Secretary Robert Rubin to analysts at the International Monetary Fund, explain the danger: Americans, who go into debt to keep living a life beyond their means, are spending more and more of that borrowed money to buy goods from overseas.

At the same time, the government provides more services to the public than it can afford to -- and goes into debt to cover the cost.

Other nations actually purchase that debt, in the form of U.S. Treasury bonds and notes. Those bonds have increasingly been snapped up not just by private investors but by foreign banks. Japanese investors hold the most U.S. debt, but China has been buying more than any other country in recent months.

The biggest trade deficit is with China, too, at $162 billion. Japan is next, at $75 billion.

In a very real sense, the U.S. economy is dependent on the central banks of Japan, China and other nations to invest in U.S. Treasuries and keep American interest rates down. The low rates here keep American consumers buying imported goods.

But the lack of fiscal discipline in the United States is undermining the value of the American dollar, thereby lowering the value of the U.S. Treasuries in foreign banks. As the dollar's value drops, other nations' willingness to keep investing cannot last, says Nouriel Roubini, an economics professor at New York University.

If those banks reduced their dollar holdings or were simply less willing to invest so much, it could spark a sharp fall in the value of the dollar. And that could create a host of economic problems.

Economists and business leaders are closely watching China's decision last month to uncouple the value of its currency, the yuan, from the dollar and tie it instead to a basket of different currencies. The move could make the dollar's position less exposed to a quick shift by international investors -- or it could spur those investors to look elsewhere and leave the United States' position more precarious.

In the end, Roubini, Walker and others say, disaster is still avoidable, but it's going to require the American people and the country's leaders to clean financial house -- to reduce the federal deficit and the trade deficit. Global economics may drive some changes: if Japanese cars cost more, for example, Americans may buy less-expensive GMs.

If not, the future poses some frightening what-ifs:

-- What if the dollar plummets? Do stocks follow? How about pensions?

-- What if interest rates soar? How would all the new homeowners, who stretched to buy with adjustable and interest-only loans, cover their mortgages?

-- How would consumers with record credit-card debt make their payments? Would they stop buying? Stop taking vacations? What will happen if they go bankrupt? New rules going into effect later this year make it harder on such debtors.

-- How would government, which depends on the taxes of a strong economy to operate, keep all its promises?

Roubini says time is critical because the worse debt becomes, the more vulnerable America is to shocks in the global economic systems -- another spike in oil prices, another major terrorist attack, another major military conflict.

OK, now back to you. No one's asking you to write a check to cover that $145,000, not yet. But the pressures are building around the world, in Washington, and in America's homes to straighten out our finances or get ready for a real mess.

"We're living beyond our means," Roubini says, "and we have to get our act together."

Remember that when you look at debt as a percentage of GDP, the US debt is about the same as many other industrialised countries. This makes more sense than looking at a raw figure.

America's problem that is a major concern to economists is it has both a budget deficit and a massive trade deficit. These twin deficits are funded by foreign central banks, making the US vulnerable. Other nations, like those in the EU have basically only a budget deficit and run trade surpluses. Even their budget deficits are running about 4 %, where as the US is over 6 %.

The US needs to sell more products to offset its trade imbalance, thus the need to make metric products the world is willing to buy. It really is just a matter of time before the US is forced to metricate, or at least convert their industries to produce only metric products that can be exported and thus reduce the trade deficits.

<< The US needs to sell more products to offset its trade imbalance, thus the need to make metric products the world is willing to buy. It really is just a matter of time before the US is forced to metricate, or at least convert their industries to produce only metric products that can be exported and thus reduce the trade deficits. >>

There seems to be an assumption here that exports are mainly manufactured goods. Do not exports include many other things such as food (insipid californian navel oranges)and services such as insurance, finance, education etc., that do not rely on which units are used?

Assuming that the US does metricate its manufacturing, it will still have to compete with low labour cost counties. I do not see that manufacturing will be the saviour of the US economy and I do not see an economic imperative to metricate to solve the imbalance of trade. The US like most developed nations is mainly a service economy.

Perhaps contols on US companies, to limit the exportation of jobs could be a start in the right direction.

Re: Experts Warn Debt May Threaten Economy August 29 2005, 11:48 AM

DJ
<< The US needs to sell more products to offset its trade imbalance, thus the need to make metric products the world is willing to buy. It really is just a matter of time before the US is forced to metricate, or at least convert their industries to produce only metric products that can be exported and thus reduce the trade deficits. >>


metre
While America maintains No 1 position in the arms trade an extra 40 odd billion dollar gained annually with metrication would help, but not enough to wipe out its trade deficit.
Sadly Japan, China and to a lesser degree other Western countries have to support Americans profligate lifestyle to maintain their economies. For this reason, I cannot see a drastic change in the near future.

Re: Experts Warn Debt May Threaten Economy August 29 2005, 11:48 AM

Egad
There seems to be an assumption here that exports are mainly manufactured goods. Do not exports include many other things such as food (insipid californian navel oranges)and services such as insurance, finance, education etc., that do not rely on which units are used?

metre
Most Western countries include these items in overall trade surplus, or deficit figures. I am not sure about America?

Egad
Assuming that the US does metricate its manufacturing, it will still have to compete with low labour cost counties. I do not see that manufacturing will be the saviour of the US economy and I do not see an economic imperative to metricate to solve the imbalance of trade. The US like most developed nations is mainly a service economy.

metre
Many Western Nations face that problem and still show a continuos trade surplus.

Egad
Perhaps contols on US companies, to limit the exportation of jobs could be a start in the right direction.

metre
I wish you good luck, considering that corporations foot a large part of US politicians election expenses.

Can anyone provide a link to a quote from an econonimist who is advocating the full metrication of US manufacturing? It would be a plus if he/she also argued that metrication would have a major impact on the US balance of trade.

Btw: I find it ironic that the US is one of the main advocates of "Globalization", and then complains about cheap imports from emerging economies. Some of the cheap imports are from US companies who have scaled back operations in the US and invested millions in overseas projects.

Collapse of the US economy, eh?

Gosh.

Maybe we should open a new off-topic section and call it "Posting zone for those who haven't a clue about economics"?

Still - I could always post something here about metrication and then get it deleted.