This column is becoming far reaching, with some questions coming from Queensland, Australia. When is the U.S. economy going to turn around and what are some possible signs? How can the U.S. service the increased debt given the government bailout?
The first question is a difficult one. This could be a long protracted U.S. recession even with the bailout. The financial assistance package will only repress the situation and possibly provide time to address problems that have been building over the years. There is a reasonable probability that the U.S. could be moving into an economic era similar to Japan, where the adjustment has lasted for more than a decade.
Entitlement programs including interest on the federal debt, social security and Medicare represent large fixed costs to our federal budget. If the government prints more money, it will risk inflation and the possibility of stagflation, a recessionary economy with inflation.
If the U.S. and world economy move to deflation, entitlement programs would become a bigger burden, since attempting to pay obligations in an economy where values have declined would be more of a challenge.
Until the housing and retail sectors rebound and the government controls spending, times will be tough in the U.S., which does not bode well for the globe.
Editor’s note: Dave Kohl, Corn & Soybean Digest trends editor, is an ag economist specializing in business management and ag finance. He recently retired from Virginia Tech, but continues to conduct applied research and travel extensively in the U.S. and Canada, teaching ag and banking seminars and speaking to producer and agribusiness groups. He can be reached at [email protected].