I want to talk about something easy and basic, something that every American should understand. When you borrow money, you eventually have to pay it back – plus interest. That’s all you need to know to understand the financial crisis and the terrible consequences we face if we don’t stop borrowing money from foreign creditors. Before the financial crisis of 2008/2009, America was caught up in a huge debt-financed spending boom. Our trade deficits were soaring out of control simply because we continued to consume more than we produced. The debt to finance this consumption piled up in the form of mortgages and the federal deficit. It enabled the housing boom, which in turn created the structured-finance debacle that wrecked AIG and wiped out Bear Stearns and Lehman Brothers. What fewer people realize about the boom and bust is that foreigners continued to pile up more and more U.S. assets. In a short period of time, foreigners received $2.5 trillion worth of net U.S. assets. The following chart, made with data from the St. Louis branch of the Federal Reserve, shows the current account balance from 1980 through 2006. As you can see, the balance of trade and finance between America and the rest of the world got completely out of whack beginning in the mid-1990s and accelerating into the 2000s. This occurred because Americans began to consume far more than they produced, financing the deficit using the cheap credit enabled by the dollar’s world reserve currency status. Read more at wnd/2013/10/why-youll-soon-be-paying-rent-to-the-chinese/#lbAUPjwcItGDPygB.99
Posted on: Fri, 04 Oct 2013 22:37:41 +0000
Recently Viewed Topics
© 2015