Excellent Article below by David Paul. Is anyone in power listening?
David Paul: Deleveraging Society
Some highlights:
David Paul: Deleveraging Society
Some highlights:
Over the past quarter century--dating to the dawn of the Reagan Revolution in fact--America has become awash in debt, and sub-prime home mortgages are just the tip of the iceberg. Home mortgages. Credit cards. Auto loans. Business loans. Federal debt. As shown below, since 1980, our public debt has grown ten-fold, from $4.4 trillion to over $45 trillion.
As we are getting in deeper and deeper debt, and as our national savings rate has declined to near-zero, we rely almost exclusively on foreigners to provide us with capital to fund our excessive public, private and corporate spending habits.
In addition ... our growing debt is also increasingly owned by countries--China and Russia most notably--who are often our adversaries in international affairs. This fact was evident in the Fannie and Freddie bailout a few weeks ago, when Treasury Secretary Henry Paulson took pains to avoid any action that would diminish the value of the Fannie Mae bonds held by the Chinese, even as he wiped out the value of the preferred stock held by domestic banks.
If any of these holders of our bonds should decide to dump our paper or even move to diversify their central bank reserves out of US government securities, the dollar will fall further and our long-term interest rates will rise.
The problem that we face is our growing addiction to debt as the driver of national income growth.
We are no longer a nation that is paying our own way and in control of our financial destiny, but rather have become addicted to increasing uses of debt to financing our way of life. These are not the characteristics of a great nation or a great people.
Historically, the traditional fix to excessive debt is inflation. As inflation grows, the borrowed dollars are paid back in a devalued currency. And that strategy appears to be in play already.
The risk, of course, is how long our international creditors will play this game with us, and when they will look to protect their own financial interests and be a bit less lenient in funding ours.