Why is the economy going to hell?

From my understanding, the US gov. is borrowing most of its money fairly cheaply from China (China are running a budget surplus, meaning they have reserves of cash and gold. This has arisen from huge growth; conversely the US gov. is spending more money than it takes in through taxes on things such as social security, the military etc).

The funny thing is, the US gov. will eventually have to pay the money back... Many countries are hitting debt 'ceilings', which would be the point they planned to stop borrowing or agreed with their congress/parliament to borrow up to.

The problem many governments are facing is that they dare not to cut government spending as it is highly unpopular with the public and will lose them office. Others are trying to solve the problem by spending MORE money.

You will see Obama tried to stimulate the economy by pumping in money to create government jobs, and essentially give more people more money to spend (this is known as a kenysian policy). It has however been fairly unsucessful as people want to save their money as there is little market confidence.

Overall, a solution could be a budget overhall cutting spending; heck, even freezing spending for the next 3 years would dramatically reduce problems. I would also be an advocate of gradual tax reductions to increase consumer spending.

it is all do to the republicans. greedy s.o.b.'ds

They are borrowing it from goverment accounts that have the funds there like social security and medicare, they are more then likely not going to pay it back and we are going to be he ones to suffer. We always get blamed for our goverments wrong doings. Shitalways runs down hill, we are all hungry meanwhile the law makers are makin 250k a year and they are having a hard time knowing where to make cuts......

The short answer is lately largely from themselves! Traditionally, governments issue IOU's called bonds. The idea is that pension funds, other countries and investors will buy these bonds because they are 'risk free' and give them an acceptable level of return and their original investment back over say 10 years. The ability of the government to service these bonds comes mostly from taxes they collect. The investor's appetite for these bonds depends upon their perception of the credit worthiness of the lender, how daring they feel, inflation and the returns that they can get from other investments like shares or property. The problem is that governments have been borrowing more than they can afford for far too long. When this happens investors become worried that the governments may not repay their bonds. Investors then add a risk premium to the bonds to compensate for the increased risk to their capital. This puts more pressure on the government as they now have to pay more out on the bonds. Lately, the governments (or ECB/IMF) have been printing money to buy their own bonds. This is called 'monetizing the debt'/quantitative easing. The idea is that if they print enough money and buy enough bonds it will fool the market into requiring a lower return on their bonds and take pressure of the governments. The problem is that by printing money you create inflation which is why you are seeing prices going up. If you double the amount of money in circulation for 10 widgets. Then each widget will cost twice as much. Investors are cute to this and will want the return on their bonds to cbe higher to compensate so it is a no win situation until governments lower their debt levels.

ps - there is a twisted logic to what they are doing. By printing money to buy their own debt and creating inflation they are making the 'real' value of their debts fall! If I borrow $100 and inflation doubles then the real value of my debt is only $50! i.e. $100 in cash now can only purchase half of what it used to. This is not a real solution because, although I may feel good that I have inflated away half my debt, I still need to buy groceries and my $$$s will only buy half of what they used to. Also, investors who bought $100 bonds now realize that their bonds are only worth $50 and lose confidence in lending to the government.