Within the UK, most of the mainstream press has now woken up to the level of debt within the country. Some of the headlines within the newspapers in the last week have been quite aggressive and it appears we are in an interesting times.
At a personal level, an estate agent friend informed me that he has a mortgage which is 10 times his earnings. Sometimes you have to do what you need to do to get what you want.
Alternatively if things get bad and you cannot pay back your debts, you can always declare yourself bankrupt or take an IVA.
After all thrift, hard work and the willingness to wait are far inferior to the need to consume what you want and when.
Should not the philosophy of our times be “buy now, pay never”?
It is against this background that I was most grateful to take up Dottie DeHart’s offer to review Bill Bonner (with Addison Wiggin's help), Empire of Debt which is a tale of the decline of the United States with a particular focus on the way that Americans run their financial affairs.
According to Bonner and Wiggin, Americans “routinely spend more than they make – and they think they can continue doing so indefinitely. They go to deeper and deeper in debt, believing they will never have to settle up. They buy houses and then mortgage them out-room by room until they have nothing left. They invade foreign countries in the belief that they are spreading freedom and democracy, and depend on lending from Communist China to pay for it.”
From my perspective, I would be less harsh on the American military excursions which may have possessed more noble intentions than has been accredited, but I do share Bonner’s distaste for the economic irresponsibility which is present in the USA.
It is also present within my country.
The problem of economic irresponsibility is compounded by the approach of the banks and lending institutions. The authors state: “Savings and loan businesses might as well have dropped savings from their names. And calling lenders thrifts was practically a lie; the whole industry bent to a new task – to load the consumers with as much debt as possible…But in America, circa 2005, thrift came to be regarded no longer as a virtue but a mental disorder.”
With respect to the US Dollar, as Bonner writes:
“Among the noisy headlines of 2005 was the remarkable information that China- a Third World nation – lends the United States $300 billion per year. Without Chinese support, the dollar would have already collapsed, bond yields would have soared, and the US economy would be in a recession not a depression.”
If the subject of the US Dollar interests you, Warren Buffet’s article for Fortune Magazine about the dollar will at some point be the defining piece regarding the collapse of the dollar when it does happen.
Far from me to gloat about how my poor American cousins are doing.
According to Bonner there are implications for the world economy “The whole world economy advances-apparently-only so long as U.S house prices continue to rise at three to five times nominal inflation and an infinite multiple of household income, which went backward in 2004.”
Bonner does not say a lot about the United Kingdom but what he does say is enough to give cause for concern.
In America, the average house went up 44% in real terms between 1995 & 2005. The increase was even greater in Britain and Australia. Equity withdrawal(borrowing against the increased price of the house) rose to 6% of personal disposable income in the United States but 8% in Britain.
Are our countries living on borrowed time?
If you are looking for a book which has a deferential message about your presidents and your people, you will be disappointed.
Bonner uses humour to support his points and indeed, I found it funny but that may be that is because I am English and we are known for our remarkable(eccentric?) sense of humour.
Some nuggets include:
“When Ronald Wilson Reagan was finally carried off in June 2004, the nation said goodbye with a soft heart and a head that had turned to mush. His obsequies were as full of humbug as a national election. The man deserved better. He should have been carried off by six jolly cowboys and bid farewell by honest drunks.”
Before Republican readers worry and think that this book is a manifesto for a Democrat Presidential candidate, I should point out that Bonner delivers a critique of most of the US Presidents. It does not matter which party the US Presidents belong to. Generally all your presidents are bad. The so called greats, Lincoln, Wilson & Franklin Roosevelt are all pillored.
Nevertheless there is an ideal president and he must possess certain traits. A certain William Henry Harrison fits the bill.
“That is why a president who does nothing is a treasure. William Henry Harrison was a model national leader. Rare in a president, he did what he promised to do. He told voters that he would “under no circumstances” serve more than a single term. He made good on his promise in the most conclusive way. The poor man caught pneumonia giving his inaugural address. He was dead within 31 days of taking the oath of office.”
Even the poor American citizen does not escape Bonner’s wrath.
“They(the American people) would scrap the entire Bill of Rights in less than 24 hours if it meant guaranteed 10 percent annual real estate gains.” And where are we heading?
Is the decline of the United States inevitable?
Perhaps the key point lies not in what Bonner & Wiggin says but the statistical data which is presented in support.
With respect to capital investments around the world you can learn, the UK stands at 16%, USA 17.5% and China 44%.
Personal Savings Rates around the world – USA 1.2%, UK 5.6% and China 25.5%.
And with respect to military spending as a percent of GDP. Unsurprisingly, North Korea tops with 13.04%, United States 3.15% and China with 0.93%.
How will the US Senate react once China starts matching its military clout to its growing economic power?
This book which is a recommended read contains a message for Americans and other countries.
We(Americans and surely by implication, Britons and other indebted countries) must embrace the need for thrift, patience and humility. After all did not these traits help make the USA great in the first place?
It can be purchased at Amazon and other leading booksellers.