Economic Facts

USA household consumption expenditures  as a percentage of GDP was, in 2007, 70 per cent, compared with about 35 per cent in China and 54 per cent in India.

China is the world's second largest economy but ranks 5th in consumption.

In 2009 China had a savings rate of 51 per cent of GDP - one of the highest in the world, compared to just US$1.6tn in the USA economy (13 per cent of it GDP), which is 6 times the size of China.

Chinese household savings a lofty 30 per cent of household income. The USA a negative savings rate of 0.4 per cent of US households, meaning the average USA household were saving nothing.

As Stephen Roach, former Chief Economist at Morgan Stanley put it in 2006, "The two major players in the global economy, the USA and China, are operating at different ends of the saving spectrum. Thrifty Chinese have taken savings to excess, while profligate Americans have spent their way into debt."

The tax revenue the USA federal government collects (about 17 per cent of GDP) pretty much offsets the government's spending on defence (even in 2008 Joseph Stiglitz estimated that the costs of the Orqi war alone were US$3tn - almost one third of the US GDP), health and pension benefits (social security, Medicare,  Midicaid, veteran's benefits), and interest payments on debt. The rest is financed on borrowing. Education, infrastructure (roads, railways, bridges, water, transport and tunnels), science and technological innovation, the courts and legal system, aid to foreign countries, security, clean energy and the climate change agenda, are financed with BORROWED MONEY!!

The DEBT for the USA is now 14 Trillion dollars!!  To put it in some perspective to understand this better, when you look at the average USA take-home (after-tax) pay is around 40,000 USA dollars. Every American would have to work for AT LEAST a year for FREE to cover this debt!!!

By 2008 HOUSEHOLD debt had grown from US$680bn in 1974 to US$14tn in 2008 (the size of the American economy). USA household debt as a percentage of income rose to 130 per cent during 2007, verses 100 per cent earlier in the decade, and nearly quadruple the 36 per cent of 1952. The average US household owned 13 credit cards, of which 40 per cent had debts outstanding (this was up from 6 per cent in 1970).

The USA is not alone: according to the "Financial Times" in cash terms, the UK government expects to borrow more in 2009 and 2910 than the entire borrowing of British governments between 1692 and 1997.
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The above facts are taken from the recent new book "How the West was Lost" by Dambisa Moyo.

As she goes on to say, "Of course, one can borrow as much as one likes, as long as someone out there is prepared to lend. The trouble arises when no one is willing to lend to you anymore, and lender's largesse comes to a screeching halt, leaving you with debt, and lots of it; Iceland 2008 being one recent example."

Moyo further  writes: "At the turn of the century, Angus Maddison postulated that China could overtake the USA and reach pole position as the largest economy on earth before 2020.....Goldman Sachs ... projections in 2001 and 2003 ... described China as on the path to the top of the GDP league table. Brazil, India and Russia were not far behind.......In the early summer of 2009 the newly appointed American Treasury secretary, Tim Geither, addressed a roomful of Chinese students at Peking University on the continuing financial crisis. When, in an attempt to reassure them of American's probity, he told them that China's official holdings of Treasury bonds were safe, the statement was met with open laughter. Faith in the almighty dollar seemed no more."

Moyo say: "In 2009, as a way to provide seed money to its trading partners, the People's Bank of China signed of 650bn "renminbi" (US$95bn) in bilateral currency swap agreements with six central banks: South Korea, Hong Kong, Malaysia, Indonesia, Belarus and Argentina. Meanwhile China is in discussions with other central banks to make additional swap agreements and will most likely expand them to cover all the country's trade with Asia. China's strategy to raise the status of the renminbi in international trade and global finance is well and truly underway. no more a world where the greenback is the world's favorite currency, instead it would be the redback. Think about it. Foreign exchange, share prices, the price of copper, the price of oil, all in Chinese renminbi."
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So the USA in debt to the tune of 14 TRILLION dollars!!!!   Will it ever pay back all that kind of money?   President Obama recently talked about making a good effort to get ex trillions paid back over the next 4 or 5 years (if he's elected again as President).....BUT talk is cheap.....wishful thinking is cheap also, as is good intentions.

I've said for years now that I do not think the USA can ever pay back that kind of money, just cannot see it happening at all. And I've said why bother trying, why not just go BUST, just say "sorry guys but we just have to forget it, wipe the slate clean."  Now in reading the last chapter of Moyo's book she gives about 4 scenarios of the way the world can go, and the way the USA can go to stay at the top, at least a good fight to stay at the top. One of those ways.......well it's going to surprise you ...... I'll bring what she says next time, so don't go away, stay tunes in.
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