Funny Money

Steve,

Quick. Can you guess which was the last year the United States exported more than it imported?

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Answer: 1975. By the way, that's 36 years ago for those who are keeping score.

In the 35 years from 1976 to 2010, the U.S. imported around 8 trillion dollars more in goods and services than it exported. The picture is gets even bleaker if you look at goods alone. During the same period we imported around 9.8 trillion dollars more in goods than we exported.

Now admittedly, I'm not an economist and most likely prone to over-simplifying things, but it does seem worthwhile to reduce this situation and these stunning numbers to terms which average dudes like myself can understand. Here:

I own a shoe store, which is my sole source of income. Each year I net about $30,000.00, but then go out and spend about $40,000.00 - and I've been doing this since 1975. Steve, where did the extra money come from?

Now the answer should be obvious. For 35 years I've been going deeper and deeper in debt to support a lifestyle which I honestly can't afford.

And the grim situation we in the United States face today looks just that simple. I decided to first compare the trade deficit figures (available here), to housing values (available here). One striking thing which literally jumps off these pages is the connection between the two. Note for instance that housing values and the trade deficit both hit all time highs in exactly the same year: 2006. Not only that, but the trade deficit begins to rise sharply in 1997 - exactly the same time housing values took off.

There isn't as strong a one to one correlation between the U.S. Federal debt and the trade deficit. Here, I think other factors probably influence the year to year trends. But even so, if you look at any U.S. Debt chart, its impossible not to notice a sharp rise which begins in 1975. Back to my shoe store...

Crudely stated, what I've been doing for the last 35 years is racking up debt personally, based on the collateral of the real estate I own, and jointly with my fellow citizens, based on nothing more than the "full faith and credit" of the United States.

But any way you look at it, its all funny money. History has shown that my house really wasn't worth what the banks said it was, and since the housing bubble went kablooie, I now have nothing in the way of personal property to sell and pay off my personal debt. Similarly, the 13 trillion dollar federal debt is based on the fiction that our government has the will and means to pay this money back to its creditors.

So what are the options?

.....sound of crickets chirping.....

-Chris