We can't outsource the shopping

The NYT's Dec 6, 04, "We Pledge Allegiance To the Mall" includes some thought-provoking tidbits:

• American consumption eats up 80% of national income.
• Other countries subsidize consumer credit via $600 bil in loans to the U.S. annually. Without the borrowed money, interest rates would rise, and consumption rates would fall.
• Because we're importing more goods than we export, our account deficit will near $630 bil this year.

Here's the part that's really fascinating:

Indebtedness to foreigners, mainly to pay for this imbalance, was $4.5 trillion in the third quarter, double what it was less than six years ago. The debt is rising most quickly in Asia, where the Chinese government, for example, takes the dollars that Americans spend on imports from China and lends them back to the United States so consumer spending can continue, on credit. The dollar's reputation as a particularly safe reserve currency only adds to the willingness of other countries to lend to Americans.

The recycling comes mainly through the purchase of Treasury securities. These purchases in turn help fund the Bush administration's budget deficit, and the influx of cash is enough to hold down American interest rates. The lower rates keep down the cost of consumer credit and encourage the raising of cash through mortgage refinancing - a type of consumer credit that is rare elsewhere in the world. This borrowing sustains the spending binge, even as incomes have stagnated since the 2001 recession and jobs have disappeared.

So what happens next? It could go one of two ways: other economies could decide they want to spend like crazy Americans, or the crazy Americans who buy, buy, buy could collapse as debts rise and incomes stay the same.

The Rage Diaries has already covered Americans' precarious personal finances and the increasing budgetary difficulties many people face.