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March 22, 2010 – Only a
few decades ago, the United States was the world’s largest creditor
nation. American capital spanned the globe financing all types of
investments in virtually every country. But that dominance began to
erode in the 1960s because growth in consumption in the United States was
starting to outpace new production. Wealth built up over generations
was being consumed.
To compensate for the resulting
decline in living standards, the nation turned to debt, rather than hard work
and savings. This trend continued through the next decade. A
focus on consumption and a seemingly unstoppable reliance on debt at all
levels of American society had become the dominant force in economic
activity.
By the 1980s, the inevitable
happened. As generations of accumulated wealth disappeared, a line was
crossed. America now owed more to the rest of the world than the
world owed to it. The United States had become a debtor nation, and it
has continued to run up the tab in the decades since.
The mindset of policymakers
today continues to be one of debt and consumption instead of savings,
investment and production. We see this way of thinking in their
pronouncements and actions. Worryingly, the tipping point appears to
have been reached. Not only is the United States living beyond its
means, it is now borrowing
beyond its means, as
graphically illustrated in the following chart prepared by Nathan Martin.
Here’s is how Mr. Martin
explains the crucial message from this chart.
“This
is a very simple chart. It takes the change in GDP and divides it by the change
in Debt. What it shows is how much productivity is gained by infusing $1 of
debt into our debt backed money system.
Back in the
early 1960s a dollar of new debt added almost a dollar to the nation’s
output of goods and services. As more debt enters the system the productivity
gained by new debt diminishes…[but now] total income can no longer
support total debt. In the third quarter of 2009 each dollar of debt
added produced NEGATIVE 15 cents of productivity, and at the end of 2009,
each dollar of new debt now SUBTRACTS 45 cents from GDP!”
The US is digging itself into a
hole, and if the message in the above chart was not clear enough, another
bell tolled last week. Moody’s warned that the triple-A credit rating of the United
States is at risk of being
downgraded if the nation fails to come to grips with its growing debt.
It warned:
“Preserving
debt affordability at levels consistent with Aaa ratings will invariably
require fiscal adjustments of a magnitude that, in some cases, will test social cohesion.” [Emphasis added]
It is an unusually stark
assessment with profound implications that require thoughtful
attention. Debt has always been and will always be a two-edged
sword. Iceland now knows that lesson well. So do Dubai and
Greece. Other nations – including the United States – are
about to learn that lesson too.
As I see it, a lot of the federal
government’s promises are about to be broken. The collapse
of the once almighty dollar is rapidly approaching.
James Turk
Free Gold Money
Report
Article originally published by the Free
Gold Money Report.
James Turk is the
founder of the Free Gold Money Report and of GoldMoney.com. He is also the co-author
of The Coming Collapse of the Dollar (www.dollarcollapse.com).. Copyright © by James
Turk. All rights reserved.
Copyright © 2008. All rights reserved.
Edited by James Turk
This material is prepared for general circulation and may not have regard
to the particular circumstances or needs of any specific person who reads it.
The information contained in this report has been compiled from sources
believed to be reliable, but no representations or warranty, express or
implied, is made as to its accuracy, completeness or correctness. All
opinions and estimates contained in this report reflect the writer's
judgement as of the date of this report, are subject to change without notice
and are provided in good faith but without legal responsibility.
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