There is much disagreement among analysts and commentators: will there be a recession... how bad will it be? But one thing that all agree on is that, "inherent U.S. vitality remains enormous," and that the U.S. economy will "bounce back."
Oh yeah?
When everyone thinks the same thing, no one is thinking at all. And everyone now seems to think that whatever is ailing the United States, it will pass. We disagree.
The rules don't change. Instead, the rules determine how circumstances change. And circumstances can change for a very, very long time.
The Athenians have been waiting 2,300 years for their empire to "bounce back." The Egyptians have been waiting even longer. And the Seleucids? The Mongols? The Incas? The Romans? Rome is a nice city but the Rome of Berlusconi is hardly the Rome of Augustus. The city never bounced back. And the list of empires that never bounced back is as long as the list of empires. Once they are history, they are history.
When you spend more than you can afford, you get poorer. That's the rule. So, it should come as no surprise that Americans are getting poorer... though they are just beginning to realize it. Now, when they need money...they have to turn to foreigners... to their imperial competitors.
In the last couple of weeks, some of America's biggest financial firms have turned to Asians for multi-billion-dollar infusions. The Asians - who've been following the rules - working... saving - now have trillions to put to work. The Gulf States, too, have trillions in oil revenues. In the Gulf, they're building new cities. In Asia, they're building new industries.
And in America?
The foreigners are putting their money to work - buying up key industries.
"For much of the world, the US is now on sale at discount prices," says the International Herald Tribune . "Last year, foreign investors poured a record $414 billion into securing stakes in US companies, factories and other properties through private deals and purchases of publicly traded stock."
We hasten to add that we're not agin' it. Politicians will rant and rave about the "loss of US capital and industries." But it's a little late for complaining. The loss has been going on for a long, long time. As Americans spent more than they had, the foreigners built up credits. Now, they're cashing them in. What else can they do? And what would you expect? The falling dollar has reduced Americans' earnings...and it has cut prices on their assets, too. Now, people with money are taking advantage of the situation.
If you have a factory or a business... you might consider selling to the top bidder - probably a foreigner. If you have no business to sell, well, maybe you can shine the foreigners' shoes.
There's no denying what it all means... America's edge in the world is slipping away. Americans are getting poorer - relative to others. This is an adjustment that probably won't stop anytime soon. The United States will probably never bounce back to the heights it enjoyed in the '80s and '90s.
Bill Bonner
The Daily Reckoning Australia
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About the Author
Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
Comment by kayle on 22 January 2008:
"As Americans spent more than they had, the foreigners built up credits. Now, they’re cashing them in. What else can they do? And what would you expect?"
Beautifully put...This, ladies & gents, is the real meaning of Globalisation.
For good or bad, the sun is setting on the American Empire.
The faster those of us in westernised economies get through the "denial" stage (and the "handwringing" stage), the faster we will learn to adapt to this brave new world.
Meanwhile, we shouldn't think the Asians will have an easy time of it either - this is a global downturn.
But applause to them for being better prepared to weather it. Perhaps our westernised cultures - now that Goldilocks is dead - can learn from their more realistic approach.
PS: Thought-stoppers are feel-good slogans that never rely on facts or fundamentals for support.
Thought-Stoppers:
"The market will bounce back in..."
"Goldilocks economy"
"It's different here because..."
"Real estate always goes up"
"...in the long run"
"Too big to fail"
"The government won't let that happen"
"Rich retirees/rich foreigners/rich boomers will buy it up"
etc.
Comment by Nasdaq7 on 22 January 2008:
I wouldn't state the sun is setting upon the American empire, I think rather that the sun is rising on other empires.
Comment by Bob on 23 January 2008:
"Meanwhile, we shouldn’t think the Asians will have an easy time of it either - this is a global downturn."
You are correct, they won't. The American debt that they own will be paid, if at all, in hyperinflated dollars. And those economies have geared up to run on oil. Oil, the vast majority of which, is denominated in US dollars, produced at will by Helicopter Ben.