I would say that the world has reached its limit of lending to us at essentially a zero rate of return. We both know that the world (pronounced “China”) will soon demand a return commensurate with the true risk. Moreover, I think we can safely say that China (err…I mean the world) no longer buys or holds U.S. debt because it is the best investment vis-a-vis the other investment options with similar risk profiles. Instead, “they” buy or hold it because China remains still too invested in our survival to allow us to collapse. We remain the world’s primary importer. We also remain the primary educator of the world’s people. Both of these functions are vitally important to China and other emerging markets. But as China, India and the like become better able to serve both of these functions themselves or for one another, they will have no use for the U.S., its people, its currency or its debt. Having staved off the financial abyss (at least for this decade), the U.S. has simply postponed the inevitable. The question is for how long. The day of reckoning will come. The first question is when. The second question is what role will the U.S. play in that new world order.

As for savings, it is illogical to expect (I know you really don’t) the government to encourage personal savings when its entire economic structure is based on people spending everything they have. What is the number? Three-quarters of U.S. GDP is based on consumer spending. Take the current euphoria spreading across America regarding alleged life signs in the housing market as example. Existing home sales volume and prices are up year over year and month to month (or something like that). At the same time, unemployment continues to creep up (expected well into 2010) and defaults on “prime” mortgages are skyrocketing. Yet the government is touting the bottom of the housing decline and encouraging Americas to buy (and still giving them starter money to do so). This is in addition to giving them money to buy cars. I already noted to you how indiotic I thought this program was – why also do “Cash for Christmas” while we are printing and throwing money to the wind. Another interesting stat is the current level of lay-away financed purchases and the items being financed. These days, lay-away is the “credit card” of last resort for a population of people who have tapped out all their other means of acquiring new stuff.

Now I am rambling. My point is this. In the movie Scareface, Michelle Pfiefer’s character at one point says, “Nothing exceeds like excess!” This sums up the U.S. economic philosophy for sometime. The problem is excess always has consequences that we never want to have to experience. Or, better stated, that certain powers are invested in never having to experience themselves. So, when the collector calls to collect on the latest binge, we create a new ponzie scheme to pay him off. We are in a cycle of trading one problem for another instead of dealing with the systemic problems in our economic philosophy and practice. We can only play this game for so long.

Keep up the good work!