American vs. Cheap

[scottj]

I think if you don’t understand how the increasing US trade deficit affects the American way of life, then you owe it to yourself and society to educate yourself. Teachers, politicians, and the media certainly aren’t going to do it for you. Actually, in 7th grade, my teacher gave the class an economics project where the class divided into groups that represented countries. We learned that countries could not for long sustain large, ever-growing trade deficits.

Until the 1970s, the US enjoyed a trade surplus. Additionally, the surplus was reinvested abroad, resulting in increasing net holding of foreign assets. The benefit of increasing net holdings was increasing net investment income from those holdings. The net holdings reached a high of $360 billion in 1980. In the late 1970 the trade situation reversed and we had a deficit equal to 1% of the GDP. Today the deficit is over 4% of the GDP. Even worse is the fact that the rest of the world now owns $2.5 trillion more of the US than we own of the rest of the world. The negative net ownership is equal to 5% of the US national wealth and it is currently growing at 1% per year. Also increasing is the negative net income from those holdings.

We, as a nation have become obsessed with consumables and are increasingly trading the net worth of the nation to pay for these consumables. Essentially, you could liken the US to a very wealthy family whose kids inherited an immense fortune. The kids, instead of maintaining the estate, are on a huge spending spree. They are paying for this spree by trading assets, while lowering their ability to earn income from those assets.

To quote Herb Stein, "If something cannot go on forever, it will stop."

Some of you guys are he!! bent on authenticity re: your Cobras. You gotta have a Ford engine. Then you stuff it full of Chinese cranks, rods etc. You won’t find Eagle, Scat, Cat, Manley, or any other foreign junk in mine.