I’m indebted to the Longwave Group for pointing out various fascinating statistics to me. In particular, two stand out: since 1980, US Federal debt has risen by 1662%. And since that same year, US household debt has risen by 820%.
However, here’s one of my own stats using a well-established online format: the US household inflation since that very same 1980 was 279.5%. So whereas in real terms, Washington has been overspending at a real-terms growth of 6 to 1, American homes only did it at the rate of 2.5 to one.
Neither figure says a lot about America’s grasp on reality, but I must also point out here that (1) citizen credit madness ran at only 40% of the Government’s and (2) during the period 1995-2008, ‘middle-class’ American real incomes fell by 30%. This second point is especially important because, whereas Washington has a licence to print money, Esper and Martha Doodle of Dinksville Kansas don’t. So the real difference in the insanity score is Washington Dingbats 6 Kansas Rednecks 1.6.
The inescapable conclusion is that Main Street America manages its money 3.7 times better than the folks supposedly running the country. I doubt very much if a single Yank (or Limey in thinking of Westminster) will be remotely surprised by the comparison, but when you think about that in a measured context, it truly is a massive disgrace. Here we have a political and governmental administrative élite whose sole purpose should be to spend taxpayers’ money wisely, whereas they seem on the whole to be chucking it at the four winds with all the due diligence of a rollover lottery winner.
But the bottom line remains the same: everyone’s been living on tick….on what my Great Aunt Lizzie used to call The Never-Never. And sooner rather than later, those who lend come round to visit the borrower with a view to repayment. In East London during the 1960s, that sort of visit would frequently result in broken limbs and rearranged facial features. For the average contemporary citizen, it means topping up credit lines and hoping for the best; when the banks start getting seriously stretched, it will mean foreclosure and homelessness. However, for Those in Charge it means (for the time being) nothing more onerous than printing more Toytown money. That produces inflation, and means that Esper and Martha need to keep on getting better and better at the inventive making-do thing. Before too long, in fact, Esp and Mart will be working hard trying in vain to repeat the loaves and fishes experiment.
But for those busy running paper money into the ground, eventually Chinese people will turn up to suggest a change of policy. As Beijing dare not ask for its money back (doing that means they wouldn’t export anything) I strongly suspect that the change of policy will involve the use of something – probably gold – from here on to back the bog-paper with something more than George Washington on a Greenback saying “I cannot tell a lie”.
But here’s the worst rub of all: Longwave’s data also points out that the US financial sector is more in debt than 1980 to the tune of 2,257%. Thus, a Washington in hock can only rescue the jerks more deeply in hock by printing more money to thus reduce the costs of exporting (hurrah!)….while reducing the buying power of the Dollar to create (a) retail consuming and (b) effective raw material importing (boooo!).
This circle is infinitely vicious.
All of this may be hard to believe, but it is frighteningly easy to deconstruct. If you put off the day of debt reckoning, you create a model of capitalism under which things can only continue as they are if people who can’t afford stuff keep on borrowing to buy it anyway. This artificially inflates the value of what they want to buy, until one day the price is there but the credit isn’t. When that happens, the only certainty is deflation…..as markets adjust to the New Paradigm under which Wily Coyote steps off the cliff and plummets to earth.
This is the ‘Indeflation’ The Slog’s been boffing on about for over two years now: the natural result of currency pimps suggesting that their charges go out on The Game while giving off an air of pure virginity. Take away the infinite credit, and negative demand must be the obvious result.
The West has been gorging on credit for so long now, it knows not how to stop. But fear not: the collapse of the credit suppliers will teach us how to do it bigtime…..and in real time.
The Slog 