2.18.2006
Debt and Denial (NYTimes.com)
By PAUL KRUGMAN
Published: February 13, 2006
Last year America spent 57 percent more than it earned on world markets. That is, our imports were 57 percent larger than our exports.
How did we manage to live so far beyond our means? By running up debts to Japan, China and Middle Eastern oil producers. We're as addicted to imported money as we are to imported oil.
Sometimes large-scale foreign borrowing makes sense. In the 19th century the United States borrowed vast sums from Europe, using the funds to build railroads and other industrial infrastructure. That debt-financed wave of investment left America stronger, not weaker.
But this time our overseas borrowing isn't financing an investment boom: adjusted for the size of the economy, business investment is actually low by historical standards. Instead, we're using borrowed money to build houses, buy consumer goods and, of course, finance the federal budget deficit.
In 2005 spending on home construction as a percentage of G.D.P. reached its highest level in more than 50 years. People who already own houses are treating them like A.T.M.'s, converting home equity into spending money: last year the personal savings rate fell below zero for the first time since 1933. And it's a sign of our degraded fiscal state that the Bush administration actually boasted about a 2005 budget deficit of more than $300 billion, because it was a bit lower than the 2004 deficit.
It all sounds unsustainable. And it is.
(More ... Debt and Denial - New York Times) ¶ 09:45
Published: February 13, 2006
Last year America spent 57 percent more than it earned on world markets. That is, our imports were 57 percent larger than our exports.
How did we manage to live so far beyond our means? By running up debts to Japan, China and Middle Eastern oil producers. We're as addicted to imported money as we are to imported oil.
Sometimes large-scale foreign borrowing makes sense. In the 19th century the United States borrowed vast sums from Europe, using the funds to build railroads and other industrial infrastructure. That debt-financed wave of investment left America stronger, not weaker.
But this time our overseas borrowing isn't financing an investment boom: adjusted for the size of the economy, business investment is actually low by historical standards. Instead, we're using borrowed money to build houses, buy consumer goods and, of course, finance the federal budget deficit.
In 2005 spending on home construction as a percentage of G.D.P. reached its highest level in more than 50 years. People who already own houses are treating them like A.T.M.'s, converting home equity into spending money: last year the personal savings rate fell below zero for the first time since 1933. And it's a sign of our degraded fiscal state that the Bush administration actually boasted about a 2005 budget deficit of more than $300 billion, because it was a bit lower than the 2004 deficit.
It all sounds unsustainable. And it is.
(More ... Debt and Denial - New York Times) ¶ 09:45
