01/13/12 Johannesburg, South Africa – âAmericans think we are stupid,â said a European diplomat at a dinner party in Washington. âBut weâre not stupid. Weâre just working out the problems involved in forming what you might call âa more perfect union.ââ
âWell, you can unify all you want…it wonât make your debts go away,â we replied. We always try to be a cheery presence at dinner parties…especially in Washington.
âNo…but it will make it easier for us to manage them, just as you do here. And by the way, the US has about the same amount of debt as Europe. The latest figures show the average of all OECD countries is about 100% of government debt to GDP. The US is right in the center…right at the average.â
âOh, donât think Iâm holding the US up as a superior example. Not at all. To the contrary, Iâm just pointing out that if Europe follows the US model, it will go broke just like the US.â
âActually, there is some very intelligent and sophisticated thinking going on in Europe. I think youâd approve of it. We donât talk about it publicly, of course. Most people wouldnât understand. But we know that something very important has changed…and we are not at all sure how to respond to it.
âNo country has ever been able to work its way out of such high levels of debt without exceptionally strong rates of growth…and an exceptionally good set of circumstances that make it possible â such as very agreeable creditors who essentially forgive debt, as the US did after WWI and WWII.
âAnd I donât see either of those things happening. The creditors canât forgive the debt…because they owe money too. Theyâd be broke too. And growth levels seem to have come down to negligible levels. If this continues, all our planning and all our efforts to âbuild a more perfect unionâ will probably be for nothing.â
âIâm glad to see you thinking along those lines. But youâre aware that this is not a problem that just appeared in the credit crisis of â08?â
âYes…we know it has been a long time coming. Ever since the end of the â30 glorious yearsâ following WWII, real growth has been hard to get.â
âExactly. In the US, the average man of working age earns about 20% less, in real terms, than he did in 1972. If he only went to high school and not college, he earns nearly 50% less.â
âIn Europe, outside of Germany, the figures are similar…though not as bad, I believe.â
âYes, it was possible for the US to reduce its WWII debt because it ran very high rates of real growth up until the â70s. Same thing in Europe. Since then, most of the improvement in living standards has been smoke and mirrors. In America, women went to work. More people working more hours. They were able to increase household income…while the quality of life at home generally went to Hell. Then, when they couldnât work any more hours, they began borrowing money. Then, their balance sheets went to Hell. That is the reason, and the only reason, for the boom of the Clinton…and later, Bush…years. It was a phony, unsustainable boom…with phony, unsustainable growth.â
âIn Europe, it was a little different. People didnât want to work more. They wanted to work less. So they emphasized high wages….but fewer people had jobs. We learned to live with high unemployment. And governments borrowed to boost living standards for everyone â including those who didnât work.â
âBut those days are over. Nobody â household or government â can continue to borrow to raise living standards. And without more real demand…and real spending…and real wealth…itâs not possible to work your way out of so much debt.â
âYes, this time capitalism really does seem to have failed us,â our diplomat friend concluded.
âWell, it looks that way. You have to ask… How is it possible that the most dynamic, best capitalized, most high-tech economy in world history could not add a single dollar to the real wealth of the average working man over a 40 year period?â
More to come…
Regards,
Bill Bonner,
for The Daily Reckoning
Bill Bonner
Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning. Dice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Billâs daily reckonings from more than a decade: 1999-2010.
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The good old-fashioned January rally is back in the municipal bond market. Certain âgenericâ tax-exempt yields as measured by indices fell to 1967 levels this week.
“How is it possible that the most dynamic, best capitalized, most high-tech economy in world history could not add a single dollar to the real wealth of the average working man over a 40 year period?”
easy.
1) debt currency. no matter how much money you made in the short term, it only meant you owed more in the long term. no matter how hard the citizens worked, it only meant more for the non-citizens.
2) demographic decline. the citizens stopped having children. the non-citizens didn’t. and new non-citizens flooded into the county.
capitalism did not fail. it was poisoned.
âActually, there is some very intelligent and sophisticated thinking going on in Europe.”
doesn’t matter. thinking about poison doesn’t make it any less poisonous.
“But we know that something very important has changedâŚand we are not at all sure how to respond to it.”
nothing has changed. simply the long run has arrived. the system will now stop working. it was meant to do so.
âBut we know that something very important has changedâŚand we are not at all sure how to respond to it.â
$ 700 TRILLION IN DERIVATIVES…EASY ANSWERS ALL THE LIARS AND THIEVES THAT BROUGHT THESE PRODUCTS TO MARKET DO NOT GET PAID..AND THEY ARE BROUGHT TO TRIAL…THIS IS THE ONLY WAY TO PURGE THE SYSTEM OF FRAUD AND CORRUPTION…
……and of course, the distribution of wealth and income since 1972 has nothing to do with any of the above mentioned problems…
Who distributed wealth?
You mean the welfare state?
I personally think it did. The riots all around the US is the sign of it. Since more and more people are getting financial and investment awareness, it is very possible that US will have to adjust its strategies… You are invited to check out our following blog regarding riots and economic crisis.
http://www.takeshiyashima.com/us/my-blog/62-current-economy/302-riots-around-the-world
Thanks.
Is it because we let politicians “create” jobs? We used to make stuff that people wanted to buy. Now China makes it all. All were left with is taxpayer created work the debt the gov created to keep it all going. Capitalism hasn’t failed, but the market manipulators have.
I don’t think you really have capitalism if you have a central bank. It kind of ruins the whole concept of a money-based market economy.
The Article title is and the question asked is
“Has Capitalism failed Us”.
When money is created, it has interest attached to it before entering into circulation. Therefor, we do not support and live in a capitalist system.
“has capitalism failed us” is a hypothetical question asked because it’s not reality.
Most of you have been fooled for a very long time. Period
Is it possible to grow permanently? Can we not now focus for a while on quality of life, income and work distribution? We are seeing a global rebalancing of incomes and work. Can we not see this as a good thing, given the extremes of poverty that has existed in various parts? Shouldnt we define a minimum level of comfort for everyone where food, clothing, shelter, health and education/recreation are met? Excess in anything is distracting and not productive of a full life. I say this from practical experience: I went camping for 5 weeks with just a car and a tent – no electricity, no TV, no PC, no email etc. Greatest holiday I ever had. Realised the extent to which my time and attention were wasted on looking after stuff. We have limited life spans.
Capitalism in true clean form has not necessarily failed but yes corrupt capitalism has and should be expected to fail but question is if we call a spade a spade will we be arrested or locked up with no charges,no lawyer?Likewise corrupt communism should fail also.
AEFH
Okay, so if capitalism has failed us, what is the solution? Communism maybe? I don’t think so !!