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Well it’s a lot better than a lot of people thought it was gonna be. Let’s start with that. It is rather surprising to me in some ways that it’s done this well this long, because I was taught at the University of Chicago and Northwestern that it was terribly important for countries to have savings, and to invest a lot in the future. And that had a lot to do with how well they’re doing. Well America today has the lowest savings rate it has had in many, many years. At the national level, it’s fallen dramatically from 10, 11% of the GDP as we call it down to one or two. Personal savings rates stunningly have gone from nine percent of our disposable income to a minus one percent. And we’ve become very gifted, ardent, robust consumers and borrowers, and not savers. Now the big question is . . . We’ve become huge borrowers as a country with our very large deficit. We’ve become borrowers at the consumer level with very hard debt levels and a really lousy savings level. And the big question I have about the American economy is not today . . . but it’s how long we think we can continue, because we’ve got some huge challenges that are coming. There are 78 million baby boomers, plus the size of the current generation due to begin retiring next year. We have Social Security and Medicare that are programs that are . . . where we’ve made a lot of promises but we haven’t funded them. And we’ve grossly misled the American people with such euphemisms as the Social Security Trust Fund. I argue that it’s an oxymoron, and it shouldn’t be trusted and it’s not funded because the money has already been spent. We haven’t provided for those programs. We are getting to be fancy language; but if something called a “current account deficit”, which measures our deficits abroad, which is largely a trade deficit . . . It’s now twice as high a percentage of the economy than it’s ever been in American history. And we’re borrowing, borrowing, and borrowing and becoming _______ and I think destructively dependent on the long run on Chinese money, and Japanese money, and Asian money and so forth. And which they lend us this money. But you know it’s a funny thing about borrowing. You have to pay it back some time. And as a country, we can’t continue to borrow seven percent of the economy, which is what we’re borrowing now, for very many years without looking like a very different America than we have now. So I think the economy today is in pretty good shape; but it’s getting pretty turbulent now with housing. And housing is a wonderful example. I did quite a study about 18 months ago, and I was simply astonished at the number of people who bought homes no money down. It’s called “interest only”. And then I was astonished that even though mortgage rates at the lowest level in 30 years have averaged around 9.7% or something like that, and now they’re like six, people are not taking long term fixed mortgages. About half of them are taking what are called “adjustable rate mortgages”. Well one might say, “Gee, that’s fine if we have a lot of savings that we’ve stacked away, and if we aren’t borrowing very much for other purposes.” That isn’t true. We’re borrowing more _______ income than we have in many, many years. So now we’ve had this big blowout of the so-called “subprime mortgage” market. And today I hear in the press that housing prices are falling and so forth. What did we think was going to happen? How are these loans gonna get paid back? We don’t have any savings, and we’re already heavily borrowed. So my concerns about the economy of this country are much more in the future, and much more of our culture. We have become one of the biggest savers in the world. And saving, remember, is a metaphor for the future. We’ve become the biggest consumers and borrowers in the world, which is kind of another way of saying, “I want it all. I want it now, and I don’t want to give up anything.” And a kind of “to hell with the future.” Well I’m far more concerned with America’s economic future 10, 15, 20 years from now than I am with what happens over the next six months. Recorded On: 7/26/07

 

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