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Port Elizabeth - Forest Gump said: "So I went to the White House to meet the president. Again."
Then he drank too much Dr Pepper and had to pee.
That is probably the worst quote ever to start off an analysis of the effect of the US politicians' solution to their debt crisis announced on Wednesday - but totally accurate and definetely applicable.
Another well-known saying applies: Too litle, too late. Once again, the symptons have been addressed, rather than the problem.
The truth is that the debt standstill and the new agreement only postpones the real problem, which is that the US government has too much debt.
To raise more debt to continue operating as a government is a big deal, but we have been there before. And will be there again.
The US government is in a tight spot without a solution in sight, despite the latest agreement between two large political parties.
In reality, the crisis still remains.
Any prediction of how the crisis will eventually be solved has been the subject of huge debate between acclaimed economists world-wide.
The truth is that there is no known solution for the problem.
In short, the US government has too much debt. For the past decade or two, they spent more than their income.
Government expenditure at home increased sharply, more than what the American public paid in taxes.
They spent money on first class government services - including a fancy health plan - and hi-tech wars around the globe amounting up to the tune of $1bn per day.
The difference between revenue from taxes received from companies and those from individuals were made up by issuing government bonds.
In other words, taking on more and more debt.
The credit crisis, which forced the US government to bail out the banking industry with billions of dollars, aggreviated the problem.
Especially as it was completely unplanned and not in the budget. And the amounts were much bigger than what the world has ever experienced.
Just about a year ago, the US government reached the legal limit of the amount of debt it can assume. It was scary, but within a few days, the debt ceiling was raised.
And now they have reached that ceiling again and, once again, politicians "solved" the problem.
But, it will only postpone the real problem for a year or so. Government can operate again, until it runs out of money again.
The solution is strong economic growth, which will increase tax receipts and slowly reduce the US government's debt, and lower government spending.
Unfortunately, these two aims are contracdictory.
The US government needs to continue to repurchase bonds to inject money into the economy and they need to increase government spending to stimulate the economy.
That calls for an ever-growing increase in government debt.
Effectively, the proposal on the table is to issue more bonds to raise cash with the left hand, while continuing to repurchase bonds with the right hand to stimulate the economy.
Or, to keep government spending high, which increases debt and aggreviates the problem.
Alternatively, authorities can increase taxes. That would reduce the budget deficit, but kill economic growth as consumer demand will drop.
That concludes a very simplistic, if accurate, analysis of the situation.
The solutions, results and effects of whatever happens in the next years are completely new territory.
But, the political deal reached on Wednesday does little to set the world right again.
- Fin24
*After chasing money on the JSE for 15 years, Adriaan Kruger is now living a relaxed lifestyle in Wilderness and lectures economics part-time at Nelson Mandela Metropolitan University. Views expressed are his own.
Then he drank too much Dr Pepper and had to pee.
That is probably the worst quote ever to start off an analysis of the effect of the US politicians' solution to their debt crisis announced on Wednesday - but totally accurate and definetely applicable.
Another well-known saying applies: Too litle, too late. Once again, the symptons have been addressed, rather than the problem.
The truth is that the debt standstill and the new agreement only postpones the real problem, which is that the US government has too much debt.
To raise more debt to continue operating as a government is a big deal, but we have been there before. And will be there again.
The US government is in a tight spot without a solution in sight, despite the latest agreement between two large political parties.
In reality, the crisis still remains.
Any prediction of how the crisis will eventually be solved has been the subject of huge debate between acclaimed economists world-wide.
The truth is that there is no known solution for the problem.
In short, the US government has too much debt. For the past decade or two, they spent more than their income.
Government expenditure at home increased sharply, more than what the American public paid in taxes.
They spent money on first class government services - including a fancy health plan - and hi-tech wars around the globe amounting up to the tune of $1bn per day.
The difference between revenue from taxes received from companies and those from individuals were made up by issuing government bonds.
In other words, taking on more and more debt.
The credit crisis, which forced the US government to bail out the banking industry with billions of dollars, aggreviated the problem.
Especially as it was completely unplanned and not in the budget. And the amounts were much bigger than what the world has ever experienced.
Just about a year ago, the US government reached the legal limit of the amount of debt it can assume. It was scary, but within a few days, the debt ceiling was raised.
And now they have reached that ceiling again and, once again, politicians "solved" the problem.
But, it will only postpone the real problem for a year or so. Government can operate again, until it runs out of money again.
The solution is strong economic growth, which will increase tax receipts and slowly reduce the US government's debt, and lower government spending.
Unfortunately, these two aims are contracdictory.
The US government needs to continue to repurchase bonds to inject money into the economy and they need to increase government spending to stimulate the economy.
That calls for an ever-growing increase in government debt.
Effectively, the proposal on the table is to issue more bonds to raise cash with the left hand, while continuing to repurchase bonds with the right hand to stimulate the economy.
Or, to keep government spending high, which increases debt and aggreviates the problem.
Alternatively, authorities can increase taxes. That would reduce the budget deficit, but kill economic growth as consumer demand will drop.
That concludes a very simplistic, if accurate, analysis of the situation.
The solutions, results and effects of whatever happens in the next years are completely new territory.
But, the political deal reached on Wednesday does little to set the world right again.
- Fin24
*After chasing money on the JSE for 15 years, Adriaan Kruger is now living a relaxed lifestyle in Wilderness and lectures economics part-time at Nelson Mandela Metropolitan University. Views expressed are his own.
