Thursday, December 28, 2006

Was It Real or Was It Debt?

After the dotcom crash and 9/11 brought the US economy down in 2000, the recovery has been fuelled by debt. Just debt. Nothing else. Zip. Nada. Zilch. Recovery? What recovery? It was just 300 million Americans going deeply into debt to buy imported goods and overpriced houses. Plus to fund the war, of course. And it is a lot worse than you could possibly imagine. Because...

At the end of 2000 GDP stood at $9.95 trillion and it is now $13.32 trillion. But total debt has gone from $26.2 trillion to $41.9 trillion. Go ahead, do the math: for every additional $1 of economic activity the good citizens of Never Never Land borrowed an extra $4.66. It is not just irresponsible, it is bad economics.

Where has all this money gone? We are talking about $15.7 trillion dollars of additional debt here, not some accounting footnote sum. This is simply enormous "money" that has been created and cannot be "hidden". And since it was not "consumed" as GDP in the US it had to go somewhere.


Take a look around you and you will have your answer. If you don't see more factories, schools, roads, hospitals, etc. where you live, it's because you live in the wrong neighborhood. Or, more accurately, in the wrong country. Now visit Shanghai, Dubai and Moscow...

Not to put too fine a point on it, while Americans have been buying more plasma screens and woolly socks plus running a war on credit, the "other" guys have been building their infrastructure with all those trillion that Americans borrowed and spent abroad. Not a good bargain.

It is all borrow, borrow - consume, consume. That way lies bankruptcy, not growth. There has been NO economic recovery, just economic entrapment.