TIME: America's No. 1 Export: Debt

[marmar]

America's No. 1 Export: Debt
By Justin Fox
Thursday, Sep. 25, 2008



Japan and Germany make cars. Saudi Arabia pumps oil. China supplies the world with socks and toys and flat-screen TVs. What does the United States produce? Lots of stuff, but in recent years this country's No. 1 export--by far--has been debt.

When you look at things this way, it becomes clearer what the frenzy in New York City and Washington is all about. There are major quality issues with our nation's flagship product. The authorities have acknowledged the problem--"This is a humbling, humbling time for the United States of America" is how Treasury Secretary Hank Paulson put it in one TV interview. So now Paulson & Co. are recalling defective financial products en masse, slapping GUARANTEED BY THE U.S. GOVERNMENT labels on some of them and replacing others outright with U.S. treasuries.

It's textbook crisis management, similar to Johnson & Johnson's famously forthright and successful reaction to the Tylenol tampering scare of 1982. So far, so good. But while Johnson & Johnson was soon able to restore Tylenol's lost market share, the U.S. faces a different challenge.

Our quandary is that we are apparently not capable of safely manufacturing $700 billion in debt securities to sell to foreigners every year, as we've been doing since 2005. (That this is the same total as Treasury's bailout plan is just a coincidence.) If we keep trying to borrow that much from overseas--as you've probably gathered, selling debt means borrowing money--today's quality problems may soon seem petty. For now, we can still reassure buyers around the world by slapping that GUARANTEED label on our debt. But as financial crisis and economic slowdown cause government debts to burgeon, and as commitments to Social Security and Medicare loom closer as baby boomers retire, that confidence could easily fade.

So while today's crisis management makes a certain amount of sense, returning to the borrow-and-spend status quo afterward seems like a disastrous idea. If the U.S. is to have a future as an economic power, its long love affair with borrowed money has to end. Right? "I hesitate to say yes, because people--including me--have been saying that it had to come to an end now for years, and it hasn't," says R. Taggart Murphy, an expert on global capital flows who teaches at the University of Tsukuba's business school in Tokyo. Then he adds, "It looks pretty clearly like we're in the endgame right now." .......(more)

The complete piece is at: http://www.time.com/time/magazine/article/0,9171,1844547,00.html

[ixion]

1. "It looks pretty clearly like we're in the endgame right now."

yes...yes, it does.

[Hydra]

2. Woo! I've been saying this all day!

"Returning to the borrow-and-spend status quo afterward seems like a disastrous idea."

Memo: Status quo ain't working. Quit trying to "fix" it so that status quo continues!

[marmar]

3. Exactly. It's time to let the system as it is now die.

nt

[Supersedeas]

4. Palin: we need to look as trade as an opportunity

[JBoy]

5. We're witnessing nothing less than the levelling of the global playing field.

It's raising many countries up a little bit, but is lowering the US big-time.

The debt band-aid was coming loose, so the bailout added some crazy glue to make it stick. The band-aid will have to come off eventually and it will hurt like a bugger.