Is our economy in danger of crashing?

Question

OK. Here is the meat of the question.

With our economy in the current state it is, would two or three really hard years fuel a crash akin to the depression?

Here is why I ask. There is SO much private debt out there, as well as corporate debt, and depending on who you listen to, more debt than non-governmental assets, that if there were a bad recession (worse than the late 90's recession) for multiple years, could our economy crash due to inability to service the debts. I am not refering to the national debt, that is a whole different conversation, I am refering our economic workings - while I understand the national debt is related to overall economic health, I am not looking for a debate regarding the national debt. I am looking for prespectives on What If.

This is not a political question it is an economics question, please leave your bush-bashing or pelosi-punishing at the door.

bluerose -

WHAT? While we do plunder (as everyone has through out history), that is not relevant to the issue I am asking: As a country, can our amount of debt load contibute to a massive collapse or depression.

Kevinstud99 - Good answer. "There is not more debt than non-governmental assets. Since one person's debt is another person's asset, that happens to be a logical impossibility." insightful. I guess it was my lapse in logic, when I heard someone talking about debt. I should know that A = L +OE. Everytime, even on the macro scale. However if a lending institution (s) took a bad enough beating, they would have assets...that would be depreciating... if the economy was in depression, restricting their ability to lend, and service their own debts and deposits. Further, what does a bank do with repossessed assets in major recession? If you can't sell them, they are worthless.

But, I see where you are coming from...highly unlikely.

Answer 1

There is not more debt than non-governmental assets. Since one person's debt is another person's asset, that happens to be a logical impossibility. There are far, far, more assets than debt, any conceivable way you could count it.

Furthermore, this debt "problem" is not the problem people like to hype up. More than 50% of US households have zero credit card debt, and if you analyze major corporations (say look at the S&P 500), they actually are flush with cash with strong balance sheets.

But, sure, if you assume that first there is some almost unprecedented 3-year recession, then who knows how bad things get? But then it's unlikely there would be that long run of recessions -- why would there be? If there was a recession, we'd probably cycle of it in the usual 6 months, why would things be different?

Realistically, if you want to know how bad things could get in worst case scenario, look at Japan over the last 15 years. Basically 15 years of chronic recession slipping into occasional depressions. But they seem to be possibly coming out of it recently.

Answer 2

That is a good question. Right now our economy is fairly good, we just got over the 2002 post 9-11 market contraction and unemployment is running about 4.8% which is very low. However, you have a point with all the private debt situation which is kind of a bubble that keeps getting bigger as there was a bubble in 1928 just before the 1929 crash of the stock market. Howver, one could argue that private debt has no effect on the economy and one could also argue it does. Thats a much more complex issue to try to address on yahoo answers. Talk to an econ professor or see what Allen Greenspan's schedule looks like this week.

Answer 3

No way. In it's present state, our country will never see a depression again. The great depression happened because economists still subscribed to the principles of classical economics and had little understanding of the macro-economy. Basically, they figured that if they didn't do anything, the economy would level itself out in time. Keynes came along and showed everyone why that doesn't work. Since then, we have implemented all sorts of safety nets that keep our economy relatively stable. They do a pretty good job at it too. Like I said though, that only applies if our country stays in its current state... obviously some kind of major revolution or fundamental change in the way our government does business would throw out all previous assumptions.

In short... no... we are not in any danger.

Answer 4

Yes. Our economy could crash as a result of our debt load. The FED has overproduced trillions of dollars in order to keep our economy running. Unfortunately, over 4 trillion of these dollars is now controlled by foreigners. The foreigners hold huge amounts of dollars as reserves and invest substantial amounts of dollars to buy treasury bonds which essentially support the operation of the US government. Currently, close to 45 percent of government debt is currently owned by foreigners. This situation has created some unprecedented conditions in our economy including long term and short term interest rate inversions as well as the cheapest 30 year mortgage rates in some 50 years.

Disaster and economic collapse is as close as China, India, Japan or some of the Mideast countries making a financial decision to invest their dollars elsewhere.

Answer 5

as long as capitalist countries depend on the colonies and cheap labor of third world countries,and invade small countries and capture their natural resources and export its cheap quality goods to the underdeveloped countries and exploit its labor,there is no danger to their economies. but when the capitalist countries failed to plunder the wealth of third world countries, their own economy would be in danger.