Yes...but!

August 4 2008

Home > Columns >Yes...But! Year 8-39

Americans are in a monstrous mess, mired in a money morass of their own making. So obsessed are they by money that money, and only money, gives meaning to their material reality. For them money is their soil and sun and water. Money is their life. Creation for them has only significance when seen in terms of money: trees, land, art, jobs, even religion, are all translated to monetary terms.

My maternal grandfather’s brother immigrated to the USA in early 1900. His daughter married Charles E. Wilson, president of General Motors, famous for his “What’s good for our country is good for General Motors and vice versa.” That was when GM had 50 percent of the US market: now the reverse is true as well: the outlook for both GM and the US is dim. One of my relatives, when showed around his estate, told me that his only comments on his paintings and other art works were reciting the price of each item. That is typical American. They consider things and actions only in terms of hard cash.

And there lies the crux of the current collapse. To the average America, to own an un-mortgaged house, car, machine – to accumulate equity, in other words – doesn’t make sense. That is dead money. Money is there to buy things with, to show off.

That applies to work as well: they must forever seek a job with the highest wages or salary. Thus their sense of possession or satisfaction is weak, much weaker than in Europe or Canada, because all possessions are posted in portable dollars. Debt, which is Europe and Canada is a threat to liberty, is liberty itself in the USA, because tomorrow’s growth will cover today’s obligations, so debt doesn’t matter. When circumstances do go wrong, and default or bankruptcy ensues, this leaves no social stigma.

Thus, for Americans the ideal financial position is the condition of zero net worth, where assets, priced in money, are exactly matched by liabilities. Saving money is seen as betrayal of the American Way of Life, because the future is bound to be better.

Also US citizens see money as a living entity, with a mind of its own. Money, they believe, possesses knowledge, captioned in such indexes as the Dow Jones Industrial Average, which, they think, gives an accurate picture of reality: “the Market” is always ‘all-knowing.’

All this is now put to the test, because tomorrow has come, not with promise, but with an expiry date. The American Way of Life has become the Way of Death. The foundation on which The United States of America is built, its Dollar, is threatened and with it its status in the world. Since the Dollar is such an internationally important money unit, actually, the economic base of global finances is at risk. For money to be of any use we need faith. The instant we doubt its value, it vanishes like a ghost. Lately trillions have evaporated in the value collapse of real estate and automotive stock.

Something like that happened at the turn of the 1930s. That Depression is still engraved upon the minds of Americans. The fear that history would repeat itself, when, almost 80 years ago, people stopped buying and hoarded the few dollars they possessed, and so aggravated the financial chaos, is also behind the obsession for Americans to shop incessantly: “shop till you drop”, has since been the American credo, now proved a heresy.

The utter irony is that this very act of constant buying with dollars borrowed on the equity in real estate – which in their optimistic minds would always be worth more – or charged to credit cards, has now set the stage for a severe economic downturn: a debt-induced-depression. At some time in the near future China and Japan will pull the plug, because the dollars they lent to the USA are becoming worth less and less.

At that moment, when these foreigners conclude that the “safety” they’re looking for in US Treasury bonds is a swindle, they’ll dump the greenback and the world’s financial structure will blow up.

They realize that the American consumers are on their last leg: a plastic one. Their credit cards are the final domino to fall. While they still suffer from the housing horror and the deepening loss in equity there, the last bubble about to burst involves their VISAS and MASTERCARDS.

Already fewer and fewer people pay their credit card bills on time. At stake is more than $850 billion in unsecured credit card balances, fast approaching $1 trillion, roughly the same amount as involved in the sub-prime mortgage melt-down.

Money-madness is making a momentous mess of once mighty America.