Heal The Debt Ills

Source : TODAY, Monday, October 8, 2007

Letter from CHIA HERN KENG

I REFER to “A worldwide downturn looms, New York City mayor warns” (Oct 2).

When the financial markets were doing well, few experts criticised the credit policies responsible for the huge national debt incurred by the United States, which in turn have become responsible for the recent financial markets turmoil. However, after the sub-prime mortgage crisis, warnings on global depressions have never ceased.

The truth is that America’s debt issues are hardly news but have been around for a long time.

In the 1970s, the US government appreciated the price of gold astronomically, to fulfil its promise to other nations that had been accumulating billions of US dollars that the currency was worth its price in gold. And given the clout of the US, of course the new gold price set became the world standard.

It is well known that American society has all along been a heavily debt-ridden one due to the widespread use of credit cards. As a result, total debt is several times
bigger than the sub-prime mortgage.

To say now that US society should be conservative in its spending sounds rather odd when the belief in such a debt-based economy has been so completely institutionalised and embedded in the American culture —and is now also spreading to other nations.

Now that the world has got a taste of how dangerous a debt-based economic policy can be on the markets, what is needed is action to correct the effects of this disease and not more doomsday warnings. This is because the global markets have somewhat recovered from the shocks and the new global economic order, propelled by huge emerging countries like BRIC (Brazil, Russia, India, China), is showing increasing economic resilience and is decoupling from Wall Street.

This is good for America, too, because global prosperity will enrich the US, where much investment funds still originate.

More negative talk from the experts can only depress the markets unnecessarily.

The concrete problem lies in the spendthrift disposition of the US, and as long as this continues, there is little point in harping on the negative effects.