“The dollar is weakening partly because of growing U.S. current account deficit. The United States used to produce more than it consumes, and the rest of the world owed us. We reached a turning point in 2006 and headed in the wrong direction. We started consuming more than we produce. We now shovel $2 bilion per day out the door and into the pockets of the rest of the world. It is as if we have a large lot of land and are selling off the fringes of our gardens so we can buy more consumable goods for the house. We are transferring a part of the ownership of our country abroad. For the first time in about 100 years, we are relying on credit with the rest of the world and have become a net seller of our assets to subsidize our current spending habits. The current generation is spending and building up a large debt. How will your children and grandchildren feel if after you die they have to spend part of ther time working to pay off tens of thousands of dollars of credit card debt you left behind? While the debt we are taking on is not credit card debt, our children and grandchildren will have to pay it off if we do not come up with a better solution soon. The solution is to start producing more than we consume, and it will not be easy. America is aging, and the number of workers is declining.
Washington has created a $9 trillion national debt. The size of the debt is around 8-% of the $11.5 trillion U.S. residential mortgage market, or about $38,000 for each citizen of the United States (counting children and those no longer working). The only way to reverse this course is to increase national productivity relative to spending, practice sound lending (especially for the housing market), stop bailing out those responsible for this mess, and force the bloated regulatory system to go on a diet and do its job. American ingenuity and innovation may create future productivity gains, but we cannot depend solely on that.”
(- Dear Mr. Buffet, 195)
I think her analogy of selling the yard around your house to fill the house with consumables is right on the money and a sobering image of what is happening all around us due to our use of credit and living above our means. If we continue to consume more than we produce the hole will just get larger. Pair that up with the decline in the work force (those who would presumably be the producers) and the amount each individual has to produce in relation to how much they consume will be enormous. I don’t think we are ready as a nation for what it will take to turn this thing around. For more information about Janet Tavakoli see this link.