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Thursday, October 7

US Debt Pyramid About to Collapse?

I know there's always these people who say that the entire global financial architecture is about ready to come crashing down on us. The Daily Reckoning always seems to have some great news related to the dismal science of economics. Their latest commentary on the US Payroll stats is pretty scary:

"Americans are increasing spending more than three times faster than their incomes rise. This does not sound like a way to get rich.

How do they do it? How are they able to spend more than they make? Credit, of course...and the whole mad system of international finance in the Great Dollar Era. While Americans borrow and spend, Asians make and save. Then the canny Asians lend back their profits in what has become the largest vendor-financing scheme in history. They buy U.S. Treasury bonds, thus keeping lending rates low and asset prices - particularly housing - high. The poor lumpenhouseholder sees his hovel rise in price and thinks he has won the lottery. Giddy with joy, he rushes out to buy more Chinese-made products at everyday low prices."

Being an America must be like owing money to the Mafia. If I owed the Mafia $10,000 , and couldn't pay, it's my problem. If I owed them $10,000,000 , then it's their problem. While the US appears beholden to Asia in terms of Debt, it really is their problem, as the US is able to use its position of a debtor nation to its advantage.

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