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Tuesday, 13 December 2005 00:00 |
Last week at a speech that I gave, one attendee said he attended a presentation the night before where the speaker said that the trade deficit doesn’t matter. In fact all those foreign countries that buy our debt have nowhere else to go with the money they have made from selling products to us. They suggested that this was a great symbiotic relationship that will go on forever. They said it’s different this time. That reminds me of all the investors who said it’s different this time in the year 2000 and all the investors who said it’s different this time in the year 1987. History has a way of repeating itself and those that ignore it are doomed to repeat it. If we as individuals continue to spend more than we make some day our net worth will be negative and for individuals the banks will stop lending us money. We would be bankrupt. And as a country if we continue to spend more than we make some day our net worth will be negative and the International Monetary Fund will not loan our government any money and foreign countries and investors will not want to own our treasury bills, notes, and bonds for fear that they will be worthless or devalued. We will be bankrupt. If we get that far it will be a sad day for U.S. currency, all financial institutions, holders of all of us that, and all American citizens.
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