Debtor Nation


"The collapse of the once almighty dollar is rapidly approaching."

Only a few decades ago, the U.S. was the world's largest creditor nation. American capital spanned the globe financing investments in virtually every country. But that dominance began to erode in the 1960s because growth in U.S. consumption was starting to outpace new production. Wealth built up over generations was being consumed.

To compensate for the resulting decline in living standards, the nation turned to debt, rather than hard work and savings. This trend continued through the next decade. By the 1980s, the inevitable happened. As generations of accumulated wealth disappeared, a line was crossed. America now owed more to the rest of the world than the world owed to it. The U.S. had become a debtor nation, and it has continued to run up the tab in the decades since.

The mindset of policymakers today continues to be one of debt and consumption instead of savings, investment and production. The tipping point appears to have been reached. Not only is the U.S. living beyond its means, it is now borrowing beyond its means, as graphically illustrated in the following chart prepared by Nathan Martin.

Here's is how Mr. Martin explains the crucial message from this chart.
"This is a very simple chart. It takes the change in GDP and divides it by the change in Debt. What it shows is how much productivity is gained by infusing $1 of debt into our debt backed money system.

Back in the early 1960s a dollar of new debt added almost a dollar to the nation's output of goods and services. As more debt enters the system the productivity gained by new debt diminishes. . .[but now] total income can no longer support total debt. In the third quarter of 2009 each dollar of debt added produced NEGATIVE 15 cents of productivity, and at the end of 2009, each dollar of new debt now SUBTRACTS 45 cents from GDP!"
As I see it, a lot of the federal government's promises are about to be broken. The collapse of the once almighty dollar is rapidly approaching.

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