I.O.U.S.A - Addison Wiggin [54]
8/26/08 6:59:05 PM
William Bonner 113
Q: What do you think lies ahead, given the lifestyle that we live today in our country?
Bill Bonner : We had an expression in the book that basically said that there are not many people who can afford to live like Americans today, and too bad Americans can ’ t either. The fact is that Americans live beyond their means. This is a very, very old concept, but today people don ’ t even think about it because they don ’ t know what their means are. You know, when you start down this path where you ’ re introducing so much credit and monetary infl ation, which just means that there are more and more dollars fl oating around, then people don ’ t know what a dollar is worth.
For example, when you get a credit card in the mail with a credit line of $ 2,500, does that mean that you can spend $ 2,500? As Warren Buffett has explained many times, you can ’ t live beyond your means forever; eventually it catches up with you. What ’ s happening in America today is that people are taking their credit cards, spending money they don ’ t have, and believing that they ’ ll never have to pay that money. But they will, somehow, sooner or later. That mathematics has to catch up to them, and they ’ ll have to spend less money, because they ’ re right now spending more than they can afford.
Q: If the current generation is getting into a position where it can ’ t pay off its debts, who is going to pay those debts? Is it moral; is it fair what ’ s happening? With both a family that has large debts and a country that carries large debts, what happens to the next generations?
Bill Bonner : Jefferson went on record saying that it was immoral for one generation to load up the next generation with debt.
And in private life we don ’ t do that. A person goes to his grave and his debts go with him, more or less. In public we have this system whereby one generation can spend money before it ’ s been earned. Then somebody ’ s got to pay that money in the future, and that somebody is the next generation. To me, that is an immoral situation, and it ’ s not just immoral, it ’ s fundamentally wrong —
and mean — for one generation to spend the next generation ’ s money .
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114 The
Interviews
During the Depression, people didn ’ t have any money, but at least they came into the world without money. They didn ’ t have any debts either, so they came in as free people and they could create whatever lives they could for themselves. But now, when a person comes into the world and into the United States of America, he carries with him this enormous public debt. It ’ s like part of his time and money has already been spent and now he will have to spend time earning money to pay for things that people enjoy today. The offi cial public debt is $ 9 trillion, but the fi nancial gap is something like $ 60 trillion. If you divide that up among all of these babies being born, each one has a lot of money to pay out over his lifetime. When a person goes to the drugstore and gets some pills on Medicaid, where does the money come from for that? His children and his grandchildren will have to work to pay for those pills that he took in 2007, or roughly speaking.
Our whole society is in a trap where it is spending more than it can afford and is transferring its assets. Foreigners end up with our money and they use the money to buy U.S. assets, and so Americans become less and less likely to own their own property.
And we ’ ve seen this, of course, in a very fundamental and simple way in the housing market. People used to own 70 percent of their homes; 30 percent was mortgage, 70 percent was owner equity.
And now that fi gure is down to 52 percent, meaning that the average American barely owns half of his house. Who owns the other half? Is it the neighborhood bank? No. The neighborhood bank has sold the mortgage to a fi nancial company, which probably sold it to a hedge fund. Now it ’ s fl oating somewhere in the great wide world. It may be in the hands of the Chinese fi nanciers or London speculators.