HE PUT THE FAUX IN FAUX PAS :

Falling Dollar, Rising Debt : The market is crumbling, accounting's a mess -- and we owe the rest of the world about a quarter of our GDP. (Jeff Faux, 7.18.02, American Prospect)

The fundamental problem is that for the past quarter-century, we Americans have been spending more on imports than we have been earning from exports. And given our shop-till-we-drop culture, we do not save enough out of our national income to cover the difference. So in order to raise the money to buy their goods, we've been borrowing more from foreigners (by selling them American bonds) and selling them our assets (U.S. stocks and other property). The result has been a growing annual deficit in what's called the "current account" -- the net amount we owe to foreigners for goods, services, interest and dividends over what they owe us. By the end of last year, our accumulated current account deficits -- our total foreign debt -- amounted to 23 percent of our gross domestic product. Economists at Goldman Sachs predict that if we continue on our current trajectory, our foreign debt will amount to 40 percent of GDP by 2006. Like any enterprise whose debt payments are mounting faster than its income, we cannot go on like this.

I don't get it. Ed Johnson down the street just borrowed $125,000 to put his kid through college. Ed's got a job that pays $50,000 a year. He's about half way done paying off his home mortgage (120k house). He owes $5,000 on a credit card. He has $100,000 in in his 401k. He's got no savings account. So if I'm following Mr. Faux, Ed is in catastrophic shape because his current account deficit is about four times his GDP. I'd better go tell him.
Posted by Orrin Judd at July 25, 2002 7:00 PM