American Debt Has Destroyed American Independence

Today is America’s national holiday. But we’ve always been indifferent to the appeal of patriotism and idleness. So, we put on our tie and raise our standards just as we do every other day.

Reckoning is our métier. And there is always something to be reckoned with – even on holidays. Today, we reckon with a familiar subject, but in a new way.

On this day, 232 years ago, a sweaty group of rich lawyers and planters gathered in Philadelphia, plotting mischief. They were determined, they announced, to overthrow the lawful government of the American colonies and replace it with something more to their liking. They acted, not in the name of their own self interest, they said, but on behalf of liberty and independence, which they all claimed to cherish more highly than life itself.

What they wished to do was to give up one George in London in favour of another George in Virginia. This was no sure thing; George III was not going to give up without a fight. George Washington would have to raise an army and boot him out… or else the signers of the Declaration of Independence would probably hang.

“We must hang together,” remarked Franklin, “or we will surely all hang separately.”

Luck was with them. None of them were hanged. Instead, Franklin himself went to Paris and convinced the French to help. They gave them money to buy war materiel. More importantly, a French squadron blockaded the entrance to the Chesapeake Bay, cutting off the British troops from their lines of supply. The British commander had no choice; he had to capitulate. And so, America became independent of England.

But there is nothing like a long stretch of good luck to ruin a nation. Americans went from strength to strength, victory to victory, coast to coast – always struggling to preserve and extend their precious independence. And now, here we are, more than two centuries later. We have a new George in the White House…and Americans have never been more dependent on others. But now it is not to the English that they are bound…but to their creditors.

On Monday, the dollar fell to a near 26-year low against the English pound. Against the euro, it dropped to near its lowest level ever. Why this should be happening is both a long story and a short one. The short story is that currencies go up and down all the time; the long story is the subject of so many of these Markets and Moneys that readers are getting bored with them.

Dollars are losing their appeal, generally, because there are so many of them. One of the great laws of economics is that quality and quantity vary inversely in many things, not the least of which is money. Each paper dollar represents an I.O.U. from the USA. As the United States increases the quantity of dollars, their credit quality comes into question.

Logically, each new dollar is worth less than the last one.

This little insight has not been particularly useful to dollar bears. Many have lost their shirts, their girlfriends and their minds waiting for the laws of economics to be enforced. Today, we are not predicting when or how law and order will be restored to the world’s markets. But in the last couple of weeks, at least it looked as though the sheriff was back in town.

What also makes the dollar suspect is that Americans, themselves, seem to be in such a hurry to get rid of them. Piles, mountains, Himalayas of them are building up overseas. China may have almost a trillion dollars in its reserves. Russia’s foreign exchange reserves – mostly dollars – are growing at an astonishing rate of 63% per year. At the present rate, Russia will accumulate additional reserves of more than US$200 billion in 2007.

These IOUs are stacking up outside of the United States because Americans can’t keep them at home. Every day, US consumers spend US$2 billion more on overseas products and services than they receive in payment for their own exports. This leaves the typical American household a little short of cash. It has to borrow to fill the gap between income and outflow. Since it saves almost nothing, it depends on the savings of foreigners.

The balance of investment income – the difference between what US investors receive from overseas and what the US pays out in interest and dividends to foreigners – also turned negative last year, for the first time since 1915.

“Foreigners now earn more on their US investments than we do on our investments abroad,” Warren Buffett explained “In effect, we’ve used up our bank account and turned to our credit card. And, like everyone who gets in hock, the US will now experience ‘reverse compounding’ as we pay ever-increasing amounts of interest on interest.”

Whole books have been written on this subject – at least one of them by your author (with Addison Wiggin)…they all tell the same story – that there aren’t many people on the planet who can afford the luxury lifestyle Americans enjoy…not even Americans themselves!

Debt and dependence stalk young and old. Back in the late ’70s the cost of college began to rise sharply. Lenders rushed to provide credit to help the masses pay tuition. Educational debt exploded…rising more in the ’90s than it had in the three previous decades, and three times faster than college costs. By 2007 the average student graduates with about US$19,000 worth of student debt…and US$2,000 in credit card debt.

Even before they are out of school, they are trussed up with debt like a pervert in a cheap motel. Credit card debt almost tripled between ’85 and ’05. Now, the average family owes about US$9,000 on its plastic “safety net”.

But the biggest increase has come in mortgage debt. It’s been increasing at a half-trillion dollars per year. Never have so many homeowners owned so little of their own homes. Even during the biggest boom in housing prices in history, Americans took money out of their equity so fast that the ratio of mortgage debt to housing value dropped – from 70% in the early ’90s to 52% in 2007.

Meanwhile, US government debt has grown at a sprinter’s pace too. By our calculation each and every American household has the weight of half of million in extra debt on its back – its share of the US “financing gap,” an amount that includes not only the official debt, but also the present value of future commitments less anticipated revenues.

All of which is to say, that this Independence Day finds Americans less independent than ever before. They count on the Arabs for energy. And they depend on the Asians for money to pay for it. Soon, they will not be able to go to the bathroom without out asking permission from their Chinese creditors.

But for you, dear reader, the situation is not hopeless. You suffer through this missive on a daily basis, and so you must heed some of our economic warnings and forecasts.

Bill Bonner
Markets and Money

Bill Bonner

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 Markets and Money.
Bill Bonner

Latest posts by Bill Bonner (see all)

Leave a Reply

7 Comments on "American Debt Has Destroyed American Independence"

Notify of
Sort by:   newest | oldest | most voted
Bonner loosely claims we’re not indebted to the Queen anymore, but I can’t get far enough away from the mouse lately to buy into this. London/Rothschild, etc. seems to be much in control of everything. And while it’s fun to imagine our coming melt-down as a remake of some B&W classic depression-era movie, the coming firestorm will doubtless reverberate in Sydney too. Actually, it’s the 54 votes carried by the Crown in the UN that disturbs me, coupled with a police-state mentality, and the ongoing power-play with Pounds Sterling against the Euro. So, my question from here is where do… Read more »
Alan Cohn
This scenerio is chilling to say the least. Economists have been warning of higher consumer debt for decades and yet nothing much has been done to slow it down. The debt of the government just compounds the problem. Has anyone wondered what would happen if the countries holding the majority of U.S. dollars were to suddenly start spending it instead of holding it such as what China does to prop up sales to the U.S.? As of now as I understand, much of our excess dollars are held not spent back into the market. If that happened, the price of… Read more »

No good jobs are being created and that is the whole basic global problem. I can think of one project which is to bring LNG back from Titan in trains of huge bladders but humans are simply too stupid to see what a good idea it is, along with numerous others. Then there are those like Bill Bonner who do nothing but make fun of people while not producing a single thing of any tangible value to this planet.
Frankly, I am stunned at how few people have taken ANY action to protect themselves from a declining dollar. The average American does not own any silver. They own no gold. They do not own resource stocks, and they have far more debt than reserves. For the last 4-5 years I have very nicely and firmly suggested to friends, family and associates that they buy at least a little gold and silver. Out of the nearly 100 people I made this case to (with a lot of data, charts and so on), one (1) has heeded the advice.
I see the open borders issue along with the National ID issue as one of the biggest (and contrived) issues of the 2008 election. What better way to control the economy than have a National ID, that can be tracked by anyone in the government (and otherwise) and you can’t buy or sell in that economy without it. Sounds very 666, doesn’t it!?! Combine that with the push for a North American Union (NAU) with the USA, Canada and Mexico entering into one economic entity. A crash comes, a new currency is coined the “Amero” and old debt is simply… Read more »

The problem is that the US use to be the worlds foremost oil exporter and was very wealthy. Now, since the US peaked in oil in 1970, the US is the worlds largest oil importer. Thats why it went from the worlds largest creditor nation to the worlds largest debtor nation in that timespan. Peak oil is real people.


Whos to say that America has any intentions whatsoever of paying back this ever increasing debt.
Those pulling the strings are all to well aware that Peak Oil and Climate change are destined to change the World as we know it so sqeezing it for every last dollar (borrowed) is a obvious and tactical decision.
Cant beat Mother Nature, only thing thats Infinite in our Finite world is mankinds demand for more.

Letters will be edited for clarity, punctuation, spelling and length. Abusive or off-topic comments will not be posted. We will not post all comments.
If you would prefer to email the editor, you can do so by sending an email to