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The End of Easy Living

Published 04/28/08 Economy In Crisis - Print Article
E-mail - editor@economyincisis.org

America, our country- is an addicted nation. The sooner we all realize this, and the adverse effects it has on our policy and standing in the world, the better off we will be.

For decades the country has reveled in an overdependence on cheap imports and foreign purchase of national debt to sustain our way of life. Now, foreign nations are no longer investing in the U.S. as they once did. It was their investment, and our dependence on their investment- that acted as a prop to our economy, hiding the grim reality that America and Americans were living well-beyond their means.

The article below elaborates...

Source: San Francisco Chronicle

It's a global shift that some are calling the Great Reckoning.

For a generation, economists warned that Americans were living too large. With wallets crammed with credit cards and home-equity loans available to any homeowner who could sign his or her name, consumers went on a debt-fueled buying binge. Living rooms bulged with the latest in snazzy electronics and garages filled with shiny new cars and trucks. Restaurants were fully booked, and airlines whisked happy passengers to dream vacations around the world.

Now, that shop-till-you-drop, I-want-it-all-and-I-want-it-now era may be coming to an end. It couldn't last because it was built on a mountain of money borrowed from overseas.

Year after year, the United States bought more from the rest of the world than it sold as foreign nations cranked out shipload after shipload of goods destined for American consumers. By 2006, the U.S. international deficit in trade and related payments exceeded $800 billion, about 7 percent of the entire economy.

It was only thanks to the kindness of strangers that such a drain of dollars was able to continue. Every year, overseas investors poured hundreds of billions of dollars into U.S. stocks, bonds, real estate and other assets, largely offsetting our taste for imported goods.

But the housing crash, a severe credit crunch and a dizzying fall of the dollar are depriving the nation of the means to keep on borrowing and spending. Foreigners have become wary of underwriting the U.S. standard of living. The flow of outside investment is slowing.

In effect, the United States has maxed out on its national credit card. Like it or not, that's one of the most important things now forcing a new standard of frugality on free-spending Americans.

The only reason the United States could afford to buy all that foreign stuff was that overseas investors put hundreds of billions of dollars into the U.S. economy by buying our stocks, bonds and real estate. Now, spooked by the housing crisis, foreigners have cut by about half the money they invest in the United States. That's had a dramatic effect on consumers. First, it's pushed the dollar down. The lower dollar is one of the key reasons prices of food, gas and other products have shot up. For example, oil exporting countries are getting paid with less-valuable dollars, so they raise the price of crude to offset the greenback's fall. U.S. motorists in turn get walloped at the gas pump. The same holds for a wide range of other imported products. Second, the reluctance of foreigners to invest in the United States is one of the reasons credit is scarce and loans are harder to get in this country. If U.S. banks can't sell mortgages to investors in Europe and Asia, they are less willing to lend, intensifying the credit crunch.


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Front Page Photo by Will Gotshall-Maxson- Flickr © Some rights reserved

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Unless the above article is already copyrighted, this article is licensed under a Creative Commons Attribution-No Derivative Works 3.0 United States License, EIC grants permission to use this article in whole or in part provided attribution is given, preferably in the form of a link back to EconomyInCrisis.org.

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Article Comments From Readers

guest says "Treasury bills,anyone ?" on 02/28/09
in the 50's we were asset-rich,now we are debt-rich.

there are 2 options open to us in troubled times ahead-tighten our belts and painfully pay off all those trillions or tell the world 'Go jump in a lake!'

Ms.Clinton during her last visit to China reminded me of Blanche from 'Streetcar named Desire' by Tennessee Williams.

the only mistake she did while begging Chinese to buy some more Treasury bills was to say 'Please'-in a trembling,halting voice.

guest says "Living a good Life" on 02/14/09
Americans have a right to live a good life. Too bad, they elected Morons to create policies to maintain that good life. That did not happen....so we are in this mess.

If we could only have elected smart people like we did just before the second world war where people know what to do. Technology and merit was the name of the game. Now the qualification is Greed, and more Greed.

You get what you decide for...