Thursday, November 29, 2012

The Grasshopper and the Ants - an Economic Lesson

Everything I needed to know about how an economy works came from watching this video as a kid:

"The world owes me a livin" chirps the grasshopper. He goes about consuming and leisure even as the ants produce and save. Then he discovers that he has been living deeper and deeper in debt and must find a marketable skill to make his own living.

What in the world does this video have to do with current affairs? It turns out, QUITE A BIT! The average American, and the US government itself, has been doing much more spending than saving (source). Now it's nearly the economic winter for the US dollar and Keynesian economists are convinced that the Fed's artificially low interest rates are here to stay.  But what happens when interest rates rise and productive countries no longer want to exchange their raw materials and manufactured goods for US fiat currency?

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