海角大神

鈥淎mericans think we are stupid,鈥� said a European diplomat at a dinner party in Washington. 鈥滲ut we鈥檙e not stupid. We鈥檙e just working out the problems involved in forming what you might call 鈥榓 more perfect union.鈥欌��

鈥淲ell, you can unify all you want鈥�it won鈥檛 make your debts go away,鈥� we replied. We always try to be a cheery presence at dinner parties鈥�especially in Washington.

鈥淣o鈥�but it will make it easier for us to manage them, just as you do here. And by the way, the US has about the same amount of debt as Europe. The latest figures show the average of all OECD countries is about 100% of government debt to GDP. The US is right in the center鈥�right at the average.鈥�

鈥淥h, don鈥檛 think I鈥檓 holding the US up as a superior example. Not at all. To the contrary, I鈥檓 just pointing out that if Europe follows the US model, it will go broke just like the US.鈥�

鈥淎ctually, there is some very intelligent and sophisticated thinking going on in Europe. I think you鈥檇 approve of it. We don鈥檛 talk about it publicly, of course. Most people wouldn鈥檛 understand. But we know that something very important has changed鈥�and we are not at all sure how to respond to it.

鈥淣o country has ever been able to work its way out of such high levels of debt without exceptionally strong rates of growth鈥�and an exceptionally good set of circumstances that make it possible 鈥� such as very agreeable creditors who essentially forgive debt, as the US did after WWI and WWII.

鈥淎nd I don鈥檛 see either of those things happening. The creditors can鈥檛 forgive the debt鈥�because they owe money too. They鈥檇 be broke too. And growth levels seem to have come down to negligible levels. If this continues, all our planning and all our efforts to 鈥榖uild a more perfect union鈥� will probably be for nothing.鈥�

鈥淚鈥檓 glad to see you thinking along those lines. But you鈥檙e aware that this is not a problem that just appeared in the credit crisis of 鈥�08?鈥�

鈥淵es鈥�we know it has been a long time coming. Ever since the end of the 鈥�30 glorious years鈥� following WWII, real growth has been hard to get.鈥�

鈥淓xactly. In the US, the average man of working age earns about 20% less, in real terms, than he did in 1972. If he only went to high school and not college, he earns nearly 50% less.鈥�

鈥淚n Europe, outside of Germany, the figures are similar鈥�though not as bad, I believe.鈥�

鈥淵es, it was possible for the US to reduce its WWII debt because it ran very high rates of real growth up until the 鈥�70s. Same thing in Europe. Since then, most of the improvement in living standards has been smoke and mirrors. In America, women went to work. More people working more hours. They were able to increase household income鈥�while the quality of life at home generally went to Hell. Then, when they couldn鈥檛 work any more hours, they began borrowing money. Then, their balance sheets went to Hell. That is the reason, and the only reason, for the boom of the Clinton鈥�and later, Bush鈥�years. It was a phony, unsustainable boom鈥�with phony, unsustainable growth.鈥�

鈥淚n Europe, it was a little different. People didn鈥檛 want to work more. They wanted to work less. So they emphasized high wages鈥�.but fewer people had jobs. We learned to live with high unemployment. And governments borrowed to boost living standards for everyone 鈥� including those who didn鈥檛 work.鈥�

鈥淏ut those days are over. Nobody 鈥� household or government 鈥� can continue to borrow to raise living standards. And without more real demand鈥�and real spending鈥�and real wealth鈥�it鈥檚 not possible to work your way out of so much debt.鈥�

鈥淵es, this time capitalism really does seem to have failed us,鈥� our diplomat friend concluded.

鈥淲ell, it looks that way. You have to ask鈥� How is it possible that the most dynamic, best capitalized, most high-tech economy in world history could not add a single dollar to the real wealth of the average working man over a 40 year period?鈥�

More to come鈥�

Regards,

Bill Bonner,
听蹿辞谤 The Daily Reckoning