5 ms·

This is a great article. One point (only tangentially related, at most, to the article's thrust) that always bothers me when it comes up is this: "On one leve

This is a great article. One point (only tangentially related, at most, to the article's thrust) that always bothers me when it comes up is this: "On one level, the crisis has demonstrated what everyone has known for a long time: Americans have been living beyond their means, using illusory housing wealth and huge slugs of foreign capital to consume far more than we’ve produced." Can somebody explain this to me? I mean, the amount that Americans overconsume should be bounded above by the trade deficit, right? That's the net imbalance in flow of goods and services from other nations to us. We've demonstrated that we can actually produce everything else that we consume ourselves. So we're talking a maximum overconsumption of like seven hundred billion-ish dollars a year, which is about 5% of our GDP. Are people really worrying about removing the 5% overconsumption, or am I missing something?

jacquesm 18y ago
I think there are two points to that: the first one is the interest on that loan, which compounds and could end up to be several times the actual amount, the second is that the dollar has devalued significantly because of all this further increasing the deficit in case a part of the debt is in another currency. If you spend 5% on top of your GDP annually (if it is that much I can't verify) and you do that for two decades you're in hock for a full years worth of GDP. If you think about GDP as your whole salary before taxes and costs then you can see how long it would take you to pay back that loan. I hope that's all correct, I'm nowhere near an economist but that's how I read it.
kaens 18y ago
I'm no economist, but from a level-of-the-average-american perspective, this country has had an entire culture based around living ridiculously outside of your means for the last few decades - at least in the middle to upper-middle classes. That's the entire point of, for example, credit cards. Everyone knew it, and after a generation or two, people seemed to take it for granted.
- time_management 18y ago
  The worst thing about the culture of living outside one's means is that it encourages, and sometimes forces, others to do the same. Wages can go down, and prices can go up, financed by a credit time-bomb we all end up having to pay for, collectively, in the future. Take the housing bubble. If you bought a house in California between 1995 and now, you paid a massive premium because you were competing against financial morons with no sense of history, much less fiscal responsibility. It's like the admonition about never arguing with idiots, for fear of becoming one.

jacquesm 18y ago

I think there are two points to that: the first one is the interest on that loan, which compounds and could end up to be several times the actual amount, the second is that the dollar has devalued significantly because of all this further increasing the deficit in case a part of the debt is in another currency. If you spend 5% on top of your GDP annually (if it is that much I can't verify) and you do that for two decades you're in hock for a full years worth of GDP. If you think about GDP as your whole salary before taxes and costs then you can see how long it would take you to pay back that loan. I hope that's all correct, I'm nowhere near an economist but that's how I read it.

kaens 18y ago

I'm no economist, but from a level-of-the-average-american perspective, this country has had an entire culture based around living ridiculously outside of your means for the last few decades - at least in the middle to upper-middle classes. That's the entire point of, for example, credit cards. Everyone knew it, and after a generation or two, people seemed to take it for granted.

time_management 18y ago
The worst thing about the culture of living outside one's means is that it encourages, and sometimes forces, others to do the same. Wages can go down, and prices can go up, financed by a credit time-bomb we all end up having to pay for, collectively, in the future. Take the housing bubble. If you bought a house in California between 1995 and now, you paid a massive premium because you were competing against financial morons with no sense of history, much less fiscal responsibility. It's like the admonition about never arguing with idiots, for fear of becoming one.