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"We Are Totally Running on Fumes"

From an interview (audio only available here) by NPR's Alex Chadwick of Howard Davidowitz, chairman of the retail-consulting and investment-banking firm Davidowitz and Associates, heard on Day to Day this past Monday. Pretty sobering stuff:

Howard Davidowitz: [Consumers] are sitting there with the biggest debt they've ever had in history and the lowest savings they've ever had in history, and I think consumers are pretty worried about that debt. So I don't look for a terrific holiday season.

Chadwick: What is it, credit card debt that people are worried about?

Davidowitz: Personally, as a country, we have the biggest government debt we've ever had, the biggest deficits we've ever had, we're giving away our wealth to foreigners, the American consumer has the highest debt he or she has ever had, and the savings are now under one percent. Let me give you an example: someone who has $30,000 worth of debt on their total credit cards, they're paying $5,000 a year in interest. And the credit card companies are continuing to bombard people with more cards. See, that's what's driving the economy: we're running on air. 75 percent of this economy is consumer-driven, and consumers keep borrowing more and that keeps us going. The problem is, it's not sustainable. And now consumers are starting to think about that debt load...

[The] bottom line is that American consumer is feeling the heat of a non-sustainable economy built on a growing mountain of debt.

Chadwick: All right, you study retail sales, you're also an investment banker. So, long-term, what do you think? I mean, six months, a year, what is going on with the economy and how are we going to get back to better times?

Davidowitz: Things are going to get worse, see, that's our forecast. When you have a free lunch like we've had, you have to buy dinner. Foreigners all over the world, who -- by the way, we are sustained by foreigners, you understand -- this economy only is operational because of the Japanese and Chinese buying our bonds, you understand that?

Chadwick: Yes.

Davidowitz: We are totally running on fumes. So we have mortgaged our future and our economy. We are totally dependent on foreigners buying our bonds. Now when the foreigners see how far in the tank we are -- and by the way, they're looking at it, and talking to me about it -- they are going to demand higher interest rates for buying our bonds and they're going to diversify more into European bonds. That's going to make it more difficult here in America. And President Bush says everything is great, well, wonderful, I just don't see it that way.


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Is it just me - or does this interview have a 'foreigners are out to get us' ring about it? Davidowitz says "we're giving away our wealth to foreigners". This is so untrue on so many different levels. For example:

- The US represents 4% of the world's poopulation and yet owns 25% of the world's resources - exactly how much more do you want?

- Despite being the richest country in tthe world, the US ranks 22nd in terms of the global aid it gives expressed as a percentage of GDP.

- 70% of US global aid goes into buying US products and services. Hmmmm.

Exactly how are you giving away your wealth to foreigners?

I listened to the interview twice and it really didn't come off that way to me. Davidowitz certainly doesn't seem like an America-Firster. In fact, he apparently derives a significant amount of his income advising foreign organizations on the US retail market.

Davidowitz's point is that the US is accumulating unsustainable amounts of personal and federal debt, that we are completely reliant on foreign investors to buy this debt, and that as they realize how shaky things are here, they may not be so willing to continue to buy our debt -- at least not without the incentive of higher returns, which would mean higher interest rates. This makes it that much more difficult to control spending, and it's the sort of downward spiral that can be hard to arrest.

But surely that's a part of being in the global economy? Is it possible in today's day and age to be independent of 'foreign' countries - regardless of who you are?

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