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Empire of Debt: The suicide pact of global debt

Posted August 26, 2008

Empire of Debt: The suicide pact of global debt

The subprime meltdown has taken down lenders and borrowers alike. That makes the U.S. national debt look like a double-edged sword — especially to global creditors. Watch the video now…

by J. Christoph Amberger

Baltimore — (TFN): The national debt has recently been weighing heavily on the minds of pundits. Colleagues of mine have filled libraries with books that they catapulted on the national bestseller lists using the marketing stratagems of L. Ron Hubbard.

One of them even turned national debt into an evening-length cineastic adventure. For a moment, it was a toss-up for me… Debt or Dark Knight. I’m ashamed to say the Caped Crusader was able exert a stronger pull on my wallet than an interview with the Oracle of Omaha.

Now, debt in itself is not a bad thing, provided you have the ability to service it. It’s a bit like using a lever to move a big, unwieldy chunk of weight. Like the price of a house. Or a warship. Or worse, tuition.

Hence, the term leverage.

Of course, in international politics, it can also be a weapon of war. FDR managed to eradicate the British Empire by the allowing the Brits to pawn their empire in return for their survival.

But debt works two ways. The debtor may appear to be at a natural disadvantage. After all, he depends on the benevolence of the creditor to be allowed to pay off his debt piecemeal.

Conversely, the creditor depends on the debtor to pay back the principal with interest. In case of default, he stands a good chance to lose both.

The demise of the high-risk mortgage business — the media like to use the euphemism subprime — illustrates very dramatically what can happen in this kind of scenario. As the small debtors default, they take the creditors down with them. The Evil Capitalist is destroyed by the little man’s disability to pay.

I can’t help but think the lessons of subprime are not lost on the foreign lenders who have kept the United States flush in cash — for the entirely unselfish reason to enable American consumers to buy their countries’ exports.

Based on the recessive economic growth in Japan and Europe, and the narrowing of the Chinese trade in the last two quarters, the mere limiting of credit to the American consumers is re-importing the consumption shortfalls of the respective domestic markets right back home.

Now, just imagine what a default on debt could have… not just on the United States.

But on those who hold American debt.

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Posted by J. Christoph Amberger · Filed Under Featured Video, Politics, Videos 

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