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186 pages, Hardcover
First published January 1, 2009
"The secret of the growth of the United States economy during the 1990s, years characterized by a quasi-stagnation of the European economy, resides in a policy that no other country can afford itself and which, sooner or later, will have fearsome consequences. Like the other northern economies, the United States economy suffers from a shortage of creditworthy demand. However, it alone is capable of offsetting that shortage by allowing itself to accumulate debt or, in other words, by effectively printing money. To prevent creditworthy demand falling and the economy going into recession, the Central Bank encourages households to get into debt with their banks and consume what they hope to earn in the future. It is the growing indebtedness of 'middle class' households that was and remains the main engine of growth. At the end of the 1990s, each household owed on average as much money as it hoped to earn in the next 15 months. In 1995, households spent 350 billion dollars more than they earned and this consumption, which was not linked to any productive work, was reflected in a deficit of 100 billion dollars a year in the United States current account balance. It was entirely as though the United States was borrowing externally what it was lending internally: it was financing a debt with other debts.
By buying overseas 500 billion dollars worth of goods more than they sold, the United States was keeping the world awash with liquidity. Virtually every country in the world competed to sell the Americans more than the Americans bought from them - that is to say, for the 'privilege' of working for American consumers. Far from ever thinking of calling in US debts, America's creditors did exactly the opposite: they returned to the United States what that country was losing, by buying American Treasury bonds and Wall Street stocks.
However, this amazing state of affairs can last only so long as the Wall Street Stock Exchange continues to rise and the dollar doesn't fall in relation to other currencies. When Wall Street goes into long-term decline and the dollar begins to weaken, the fictional character of outstanding dollar balances will become evident and the world banking system will be in danger of collapsing like a house of cards. Capitalism 'is teetering on the edge of the abyss'."
"Every bubble ends up bursting sooner or later, bringing serial bankruptcies in its wake, unless it is followed very quickly by a new and larger bubble. In this way, the stock-market bubble was followed by the dot.com bubble, and the bursting of that bubble was followed by the current property bubble, which is, according to The Economist, 'the biggest of all time'. In three years, it has increased the stock-market value of the property sector from 20 to 60 trillion dollars. No one can predict what will follow. The bigger a speculative bubble, the more it threatens, when it bursts, to bring about the collapse of the banking system and of currencies."