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Originally Posted by Reef_Geek
the US debt is definitely scary. Increasing the debt ceiling is just deferring the problem to the next generation.
It seems that hyperinflation was a popular topic for a while, leading to that last commodity bubble with resource-based investments being over valued. And as soon as the public forgot about it, got some hints that the economy was coming out of the trough, people threw their money into equities again (I did too, lots of under-valued stuff... it was like money was on sale at the bank). But the enormous US debt never went away...
I really don't know how this is going to play out... but there's quite a few potential game changers that can be optimistic.
With Bakken oil and more effective hydraulic fracturing techniques, the US now has a new-found resource that is suggested to make them self sufficient on oil in a few decades. So barring any more spending on new wars and curbing its own spending, there's a chance of managing that debt. If the US reach a point where oil exports exceed imports, that will change the outlook.
With taxes. I've worked in the US and in Canada. Working in the US was great... very little income tax compared to Canada. So, government & money is just like a person with money. If you want less debt, make more money and spend less. If the government want less debt, make more money (increase taxes), and spend less. Yes, increasing taxes is political suicide, but it is still an option (and a necessary one at that). Printing more money just causes inflation and defers the problem... all economists know that and so do the guys in charge. They are just choosing the popular route versus the necessary painful route.
If the US goes into hyperinflation, Canada is equally screwed. Our number one trading partner will then not be able to afford our exports with devaluation of the USD against CAD. Something that cost a US business 1 USD to buy (where CAD is at par) may double or triple with a USD devaluation. Canadian economy will hurt, we're an export & resource-based country.
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Agree... The US does have some room to increase taxes. But it is all about timing and doing it now may not help things, and just prolong the agony. Cutting spending on the other hand will hurt short term, but it could lead to substantial future growth which then could help pay for some of those future debt obligations and entitlements (and they have just added a 3rd one) spending.
And yes, Canada needs to continue to increase their trade away from the US, especially with Asia. That's where the future seems to be.