'The Limits of Control' A Movie

I don't watch that many movies, but I recently watched one after a description of the movie posted outside the theater caught my eye.

'The Limits of Control' is a film by Jim Jarmusch that is currently playing at the Uptown in Minneapolis, MN. Is it good? Let me put it this way. You might like the movie if (a) you think reality is a completely fleeting and imagined experience and like movies that tell you that over and over, (b) you have a healthy liking for the writer Frederich Nietzsche, or (c) you can get entertained by being prodded to wonder questions like, What good are the ethics of our day if they contribute to the least ethical actions we can imagine?

In the end, the movie itself wasn't as good as the language describing it. Save time, just read this synopsis:

Plus, I wonder if the answer the movie gives to all its questions isn't cliche by now. I mean, the moral-less world in which we live is the theme of just about every movie nowadays, right? Tell me if I'm wrong. I don't watch that many movies.

Retail sales down by 9.5 percent on the year

From Calculated Risk.

Excluding autos, retail sales grew by 0.7 percent on the month.

Still, the year-over-year number is remarkable. We are watching a major change. How intense will the change ultimately be? Who knows. The important thing, in fact, that we don't know. Do we consume as readily in the years to come as in the era just passed? Will we merely go back to the still very-high, pre-bubble rates of consumption? Or are we in the middle of a more historic contraction of spending? And what do we consume? These are open questions like no time I can see in the last thirty years. It will be fun to watch and document how these questions come to get answered.

More good news! Consumer credit grew in January

Look at the data here. A few months ago I spent some time pouring over these consumer credit data. I came away thinking they stood out as a very useful macroeconomic indicator of the direction of the economy. I'll get a data-image up soon, and a sense of what I mean.

More on the contraction of total consumer credit

Credit contraction of December 1990-June 1992:

19 months, 16.4 billion

Credit contraction of October 2008-Present:

3 months, 19.8 billion (data through 2008)

This is an interesting data comparison. I note the differing intensities of the contractions as well as the different durations of time (so far). If in 2009 and beyond we combine 2008's rapid rate of loss with 1990's length of time, we would have a nasty result.

There is an argument against Obama's stimulus plan

And it is monetary. Will there there continue to be demand for financing our debt at the levels we are approaching? Due to how much we depend on foreign investment, one wise path might be to let our economy contract and focus instead on getting our monetary and fiscal institutions in order. The argument against Obama's plan is that it exacerbates monetary risk.

This argument to me is strong. For example, there is no plan to pay for the stimulus. In fact, it includes new tax cuts. According to Bloomberg yesterday, the Treasury is planning to incorporate three times as much debt in 2009 as in 2008. The question is not, where will the money come from. The question is, will we continue at these debt levels to get the financing we need? This question, and these factors, are considerable.

But in the end, I support the stimulus for the way it invests in key economic institutions: education, health, infrastructure, jobs, etc. It helps move private action away from a finance model toward a productivity model. This structural shift, stimulated by the Obama plan, will help stabilize the economy by offering new means of growth while we de-leverage from those incredible levels of credit that just collapsed. The plan invests in the American consumer, which, in economic terms, is the primary asset on the nation's balance sheet. Finally, I support the plan knowing the possibility that, to pay for this, we will have to raise taxes and interest rates in the medium term and, once again, put our house in order.

January 2009 retail sales up about 1 percent

Click to enlarge. Data via Calculated Risk.

The small rise is good news, but the above data-image shows the trend is still downward. The 1 percent rise is barely perceptible. Still, could it represent a shifting trend? The great blog at Calculated Risk argues no.

One month does not make a trend change, and January retail sales are still over 2% below sales in Q4 - suggesting a further decline in Q1 PCE.

Regarding the sales numbers, here is the NY Times report. And here is the government release.

Questions and comments

Re: Obama's stimulus

--It shouldn't be called a 'stimulus.' It should be called a government spending program, and conceptualized as a significant shift in the distribution of the country's wealth.

--I liked the first picture of the plan I saw, as laid out in the WSJ on January 15th. A lot of money to states, education, and infrastructure. To me it looks like a distribution of wealth in the direction that the American economy needs to re-balance things. The goals should be to push capital toward productive rather than merely financial activities, and create a viable middle-class of consumers.

--A slightly worse plan than this first one will finally get passed. The Republicans are playing politics rather than giving good-faith arguments about the future of America. But probably we're all doing that, more or less.

--We should pay for the spending program with a repeal of the Bush tax cuts, with the compromise to transition back to the Bush tax cuts within six to ten years, after necessary stabilization happens.

--Short of such new tax revenues, get ready for extremely high interest rates. The government remarkably resembles a broke entity, even though we all know it runs the world's printing presses.

--This contradiction interests me. If, by the design of the system, we have all the money we need at our fingertips, why do American banks, American consumers, and the American government appear to be broke?

--Does the world live by new rules? Does our liquidity crisis mark the end of the old system?

--How can we learn a new system, when we've barely begun to understand the old one?

--Or is the American consumer still king as soon as the world recession turns around?

If so, the old system remains. If not we live in a brave, new world of consumption, in which we are no longer the king, but a powerful entity among others.

Why is there still a liquidity crisis?

What, precisely, is going on with the banks?

With all the money the government has pumped into banks via auctions and direct capital injections, why are they still worthless as organizations? The dollar is a viable currency. We are giving billions of these dollars to our banks. Why is this having minimal effect? Why aren't the banks yet lending money? Or are they?

Without a plausible answer to why the banks are in trouble even though they have all the money they need, thanks to the US government, any explanation of the current economic problems strikes me as hollow.

What have the banks done with all the money they've been given? Didn't they use it to pay down their debts? To the contrary, we still hear that the banks are bogged down in bad debt. What happened, then, to the TARP money?

I think there are at least three possible explanations why, despite the TARP money, the banks continue to face liquidity problems:

1. There is a 'confidence' crisis. In this case, the banks are better capitalized now, but maintain the bad assets on their balance sheets. As a result, despite the capital, there is little trust in lending to US consumers and other banks, at least until these assets are given a price. Moreover, for the same reasons, foreign lenders lack confidence in US markets. The pertinent questions become: When will these assets be given a price? How far will these bad assets come down? And will the prices by then be high enough to re-gain our credibility as borrowers? In this scenario, we should do the stimulus now, the TARP later after stimuls raises the prices of the securities.

2. There is a 'jobs/actual-wealth/actual-productivity' crisis. Nobody has the hard income or the physical wealth to sustain the borrowing that went on the past few years. We are significantly poorer as a result of de-leveraging, i.e. the marking down of debt. At a historically normal level of credit-worthiness, very few Americans and American organizations now qualify in terms of hard equity. Again, the solution is demand-side -- we need to build a consumer class again.

3. The banks are lending the money. The TARP money is going (or has gone) straight into the US bond market, which accounts for the bubble in the yields on Treasuries. And therefore there will be a need for more TARP money, because the bad debts have barely been touched. In this scenario, investors are wondering how long the US government can stop-gap Wall Street, because Wall Street is currently stop-gapping the US government.

If the problem is confidence, then I think the banks are under-priced. If they have the capital to wait it out, a stimulus plan can slowly re-value the price of those bad assets. Once we gain evidence of a strengthened American consumer, these assets will be more valuable than they are right now.

If the problem is jobs and wealth -- the lack of any real productive wealth-building for the past three to four decades -- then I say we have the stimulus plan twice over, minus the tax cuts, paid for by a repeal of the Bush tax cuts. Let's invest in America's productivity again.

If the problem is that the TARP money went into treasuries, that means the money went to make more debt rather than pay down debt. To put it mildly, this is a more complex issue. To put it less mildly, this is potentially a harbinger of even bigger problems. For example: Is this putting the Treasury at risk of a default? Is the only thing worse than depending on China, depending on Wall Street?

If it's any two of those three -- a shift in the direction of economic confidence; a lack of jobs, productivity, and actual wealth on the balance books; or a dead treasury -- or god forbid all three, wow: we are short of the middle of a deep contraction and a difficult recovery.

US-China: Five to ten years from now, which consumer base, relatively speaking, will have gained or contracted as the basis of the world economy?

The WSJ had a story yesterday headlined, 'Global Search for Growth Will Turn to U.S.' The focus of this article is a question -- who will the world economy rely on for its consumer base, more specifically, will America remain that base or will we contract relative to others as the only indispensible consumer? As I see it, the answer will have a lot to do with where America sits, economically and socially, in five or ten years. The question is up in the air because America just created a global recession that threatens to turn into a world depression, just as other nations are developing new consumer bases, i.e, China. You never want to piss off the world, but especially not right as an alternative to you is in the process of emerging.

So, what do we know. We know there will be a fierce contraction this year and next, and then a slow recovery will take over after that. Let's call that a total of three or four years. What about year five and beyond? What about the medium-term?

One deciding factor about year five and beyond could be whether the US remains by far the most significant consumer basis in the world. Right now there is the thought that China might eat into that significance. So the question is, while the US will remain the most important, will it remain as important, as central, as unilaterally determinative? That, we might say, is another question. If China eats into American demand -- in other words, if the world's producers, investors, and bankers transfer a certain amount of the world's business to China as their population, already enormous, creates an-ever growing middle class of consumers that, just by numbers, could swallow us Americans -- our standard of living will go down. We will have to produce more and consume less. We might even feel it, and it will make our lives different than they are now, and have been. Specifically, it would be less access to easy money and less than limitless consumer items.

Of course, the above scenario is but one alternative. The WSJ article suggests another. The article reports the world's elite believe the system still depends on American consumers, and bad. I gotta say, whether they are right or wrong on that, this WSJ story is fabulous. It uses the word 'elite.' I get disappointed when people shy away from using it, in a sociological way. I don't like the political use of the word -- as if anybody should be ridiculed because he or she's an elite. But when just talking about how society works, the word, or something like it, is necessary. Anyway, here's an excerpt and the question is: what do elites think?

Two questions preoccupy the world's economic elite here: Will the government money pledged to prop up national economies be enough to keep the world from going into a prolonged slide? And where will the growth come from, once bottom is touched?

At the start of the five-day World Economic Forum, the broad outlines of answers are emerging. Economists say the fiscal-stimulus packages from Washington to Beijing will cushion the downturn but fall short of preventing a world-wide recession. And global growth, when it comes, will still be powered in part by U.S. consumers -- though they'll spend far less than they did in the debt-fueled years of the recent boom.

Chinese Premier Wen Jiabao, the first Chinese leader to attend a Davos meeting in the event's 38-year history, will likely seek to lower expectations that China can extract the world from the economic crisis. Despite its rise as a global production hub, China -- like emerging Asian economies such as India -- is too small, too poor, and too export-dependent to provide much of a buffer for the global economy in the next few years.

Asia's inability to compensate for the drop in U.S. consumption means any global recovery will be slow in coming and marked by lower growth rates than the world has seen in recent years.

But again, the real question with US-China and who is the world's consumer is not today. It is five, ten years from now, and beyond.

Target Corp. to lay off workers, continue the 'job crisis'

I write this from the Twin Cities, where Target Corporation headquarters itself in downtown Minneapolis. Today, CNBC is reporting that Target is laying off an undisclosed percentage of its corporate workforce. My heart goes out to the unfortunate, and to the company itself: I am sure they would rather not lay off the men and women who make their business possible. My heart goes out to the 65,000 thousand or more workers to be laid off after yesterday's news. And to the 2.6 million workers who lost their jobs last year.

While certainly much of this is due to the 'credit crisis' -- there are fewer consumers and companies have less valuable debt than before the credit crisis -- can we at least begin to understand that the underreported story not just of the moment but of our era is the problem of jobs? For credit/debt levels -- as low as they are -- are only returning to historically normal levels. Now that seems like a kick to the head, but only because the past few decades, and especially the current one, saw credit/debt levels in this coutnry hit almost unthinkable levels. So the credit crisis is about a year, year and a half, old.

In contrast, the jobs crisis is decades old - I would argue three, almost four decades old to be exact. The extension of credit has allowed our economy to grow without great jobs numbers, and the globalization of capital flows and production sites have put a downward spiral on wages, with the benefit of lower prices. So we've had this: More credit. Lower prices. Good, and good. Fewer, lower-paying jobs. Bad. The truth is, if more Americans had had better jobs with higher wages, we wouldn't have had to extend so many bad loans. And thus we wouldn't have a credit crisis right now.

Perhaps that's good logic, I don't know. Maybe my heart is in the way of good analysis. Again, I don't know. What I do know is there are a lot of families today wondering where the bread is going to come from.

I understand we need to get credit flowing again. But it's been far longer that we've needed to improve the job market.

Good luck everyone, and may we develop new knowledge to deal with these present problems.

Housing price data, via Calculated Risk

Even after dropping more than 20 percent from their peak, housing prices are still much higher than what might be thought of as a more normal historical price trajectory. That is, housing prices could conceivably go quite a bit lower. Which means the question is: How much lower? Which really means: How much more wealth will America's families lose?

The data-image is from Calculated Risk, here.

Creating a basis for credible economic growth

For some time now, I have been constructing a two-part (hypo)thesis about the future of the US economy. I am still putting together the pieces, and learning as much as I can, but here it is: About a year and a half ago, after three years of significant study, I began to say out loud to people willing to hear things like this, that within the next five to ten years the dollar would face a day of significant reckoning. I began to believe this because the massive growth of GDP and expansion of the money supply the past three decades have been, as I began to see it, the result of illegitimate and unsustainable systemic actions by the country's elite economic actors. In short, we have borrowed too much relative to how much we have produced. So our economic growth has lacked credibility: the reality does not match the myths we have told ourselves, namely, that our 'fundamentals were sound.'. As soon as, my hypothesis went, the relevant participants in the world economy recognized this -- say, the American government, the Chinese government, American investors, foreign investors -- major change would then be upon us in terms of the dollar and Americans' purchasing power.

Let me explain some of the details, as I see them. Our growth the past three decades has been disproportionately greater than the production of valuable goods, services, or knowledge that should be its basis. And our money-supply expansion has not been the result of greater gold reserves. Rather, it is the result of international political power, the 'right' to disproportionately shape the world's exchange rates, and massively unbalancec capital flows toward US bond markets. In short, we've been living on credit because the rest of the world -- especially China -- have been financing and re-financing our debt.

As such, our growth and monetary actions have been the result of a massive credit-grab unprecedented in the history of mankind.

This is why the relationship between the US and China strikes me as so important, and why I so often write about it in this space. China is the reason we've been able to engage in this credit-grab. Without China we likely wouldn't have been able to so immensely leverage our capital and expand our bottom lines. Therefore, if the relationship between the US and China changes, or is changing, and I think it is, this is a major event. The reason: China's willingness to grow its surplus, constrain its population's standard of living, and finance the US dollar through long-term treasury purchases is the single biggest basis of American growth during this era. As soon as China changes these actions, the American economy will return to a level of wealth more proportionate to the value we add to the world economy through our production of goods, services, and knowledge. We will still be wealthy, but not nearly like we've experienced the past decade. My sense is that America is slowly returning to a more production-based economy, while China will become more consumption-oriented.

This will put the world's economy in a better balance, and America's economic growth -- once we can get it started again -- will be more legitimate, sustainable, and equally distributed within our population. That is, our growth will again be credible. But our standard of living will recede for the next decade or two. How much it will recece, I don't know. We'll have to wait and see.

As a result of all this, the most important thing we can do is recognize that credibility is a multilateral construct. Credibility exists in the eye of the beholder. We cannot force other people around the world to interpret the US economy as legitimate. We cannot force them to behave in a certain way. We can't forever expect the rest of the world to interpret their own economic interests as financing ours. Especially if we continue to act irresponsibly with bad loans and even worse wars. We must create an economy that, once again, inspires confidence in the minds of others. Only after we have created this credibility, will our standard of living begin to return levels we've grown accustomed to.

To this end, we should immediately begin to build the social insitutions it will take to create the goods, services, and knowledge that the whole world craves, and that the US is in the best position to produce. Less finance, more practical creativity.

Nouriel Roubini estimates a total of $3.6 trillion in loan losses

How much of this -3.6 is still to come?

I susbscribe to REG Monitor, economist Nouriel Roubini's global economics newsletter. I just got the following in my inbox, an update on just how many billions/trillions of dollars the US is facing in losses due to the bad loans still clogging up our banks' balance sheets. Of the $3.6 trillion he ultimately sees being written down, he estimates the US is directly exposed to about half -- $1.8 trillion. The key question, then, is: How much of this $1.8 trillion have we already written down? Are we most of the way through? Half-way through? Have we barely begun?

Anyway, here's the email:

RGE Monitor Estimates $3.6 Trillion Loan and Securities Losses in the U.S. Nouriel Roubini and Elisa Parisi-Capone of RGE Monitor release new estimates for expected loan losses and writedowns on U.S. originated securitizations:

--Loan losses on a total of $12.37 trillion unsecuritized loans are expected to reach $1.6 trillion. Of these, U.S. banks and brokers are expected to incur $1.1 trillion.

--Mark-to-market writedowns based on derivatives prices and cash bond indices on a further $10.84 trillion in securities reached about $2 trillion ($1.92 trillion.) About 40% of these securities (and losses) are held abroad according to flow-of-funds data. U.S. banks and broker dealers are assumed to incur a share of 30-35%, or $600-700 billion in securities writedowns.

--Total loan losses and securities writedowns on U.S. originated assets are expected to reach about $3.6 trillion. The U.S. banking sector is exposed to half of this figure, or $1.8 trillion (i.e. $1.1 trillion loan losses + $700bn writedowns.)

--FDIC-insured banks’ capitalization is $1.3 trillion as of Q3 2008; investment banks had $110bn in equity capital as of Q3 2008. Past recapitalization via TARP 1 funds of $230bn and private capital of $200bn still leaves the U.S. banking system borderline insolvent if our loss estimates materialize.

--In order to restore safe lending, additional private and/or public capital in the order of $1 – 1.4 trillion is needed. This magnitude calls for a comprehensive solution along the lines of a ‘bad bank’ as proposed by policy makers or an outright restructuring through a new RTC.

--Back in September, Nouriel Roubini proposed a solution for the banking crisis that also addresses the root causes of the financial turmoil in the housing and the household sectors. The HOME (Home Owners’ Mortgage Enterprise) program combines a RTC to deal with toxic assets, a HOLC to reduce homeowers’ debt, and a RFC to recapitalize viable banks.

Is there a credit crisis? Paul Krugman says yes, Dean Baker says . . .

. . . not really.

The second (bottom) data-image is Mr. Krugman's. It shows a spike in borrowing rates for AAA and Baa grade relative to 30-year Treasuries. Mr. Krugman concludes, "So yes, we do have a credit crunch. It’s not the whole story, but it’s part of the story."

The first (top) data-image is Mr. Baker's, via the NY Times. Mr. Baker points out that while corporate debt issuance dipped dramatically in 3Q of 2008, 4Q saw a return to levels of borrowing similar to preceding months and years. Mr Baker concludes, "the economy is not in a downturn because banks aren't lending. It is in a downturn because we have just lost $6 trillion in housing wealth and $8 trillion in stock wealth. The expected effects of this loss of wealth is the huge falloff in consumption that is driving the downturn. The condition of the banks is very much a secondary issue."

The debate between these two, as I read it, centers then on whether the 'credit crunch' is helping drive the loss of our nation's wealth, or if the 'credit crunch' is a residual effect of the downturn in housing and stocks.

My question to them would center around the loss of wealth in terms of credit. Specifically, is the act of 'de-leveraging' -- which as I understand it is the systematic adjustment of credit-capital ratios back to historically normal ratios -- deemed part of the 'credit crisis' or not? To me, de-leveraging's a primary story. And it has to do with both (a) a deteriorating credit environment, in which the collective debt of US organizations isn't worth what we got used to it being worth, and therefore we can't say as easily, lend me more money; and (b) the drop in the stock prices of companies, who all of a sudden aren't as capitalized, again, as we thought.

Indeed, a lot of things we thought we knew are disappearing into thin air.

US-China: The Shift

Earlier -- I guess yesterday, by now -- I cited evidence that has come out lately suggesting the possibility of a shift in the China-US economic relationship. Specifically, it is possible that China is in the process of slowing down or maybe even contracting its purchases of US treasuries and dollars. Let me be clear, there is evidence of a shift, not proof. But I think it is best if we start analyzing reality as if the shift is here. So we can start planning. In that vein, very few of us can claim to know what the shift means, or would mean. Questions like whether it'll be 'good' for the US, terrible for the US, or perhaps if it'll be boring and non-descript -- these are just about unanswerable except in speculative terms. My sense tells me the shift will mean that America needs nothing less than a new basis of economic growth; that is, if the age of foreign financing is slowly coming to an end. China's move away from the dollar and away from the financing of US debt -- whether already underway, or on the horizon -- is exciting, scary, puzzling, challenging. And probably many other things. It is coming upon us faster than otherwise because of the credit crisis. But really, we should be able to see that the shift was (or is) basically inevitable: China wasn't (isn't) going to finance our lifestyle forever, right? Here's to hoping our leaders had (have) a backup plan, just in case. Because 'in case' just might be what we now have.

Over-leveraged

If you want to read an early forewarning about the collapse of Wall Street and the economic troubles we all now feel and see, try this by Nouriel Roubini. It is his written testimony to Congress way back in February of 2008, before the first bank implosion (Bear Stearns). It is a bit out-dated now, referring to oil in the $100s. But this guy had a good sense of what was to come before it came. Had his knowledge been a greater part of recognized knowledge, our country could have begun a process of planning for the current mess. Instead, we were behind the curve.

A hypothesis of mine is this: American leadership over the past 20+ years has not done a good job analyzing and preparing for a wide-range of possible consequences -- specifically, unintended consequences -- that would result from their actions. The government actions that define the current era -- like expanding the money supply, cutting interest rates, depreciating the dollar, deregulating markets, undermining the tenability of unions, and financing our debt by integrating our economy with China and others -- have led to incredible growth, as they were intended to do. But have these actions created a basis of growth that was sustainable? Events seem to suggest no. And instead of admitting that and preparing a Plan B for the inevitable time when plan A hit the end of its road, have we now come to a point we must adapt to a world not of our own making and not in our interests?

The question is, how prepared are we for this moment when America must 'de-leverage.' De-leveraging means, in a nutshell, returning our debt-income ratios back to sustainable levels. For the past three decades, we -- the country, families, organizations -- have steadily increased the level at which our operations are paid for with credit. For a significant part of the country, and collectively as a country, this credit is no longer there. De-leveraging means we are going to find out we are not as rich today as we thought we were yesterday. The current economic downturn is different than a normal recession in the sense that the contraction itself is not the main story. The main story is the possibility that we may be upon a structural adjustment of the economy away from credit to some other basis of growth.

In the 1970s the great sociologist Daniel Bell predicted economic growth would increasingly come from knowledge. He was right, in a sense. It takes a whole lot of knowledge to create and package debt into forms that look like wealth. But the story of our economic growth the past few decades is the debt, or credit, not the knowledge. In fact, one of the untold consequences of the Wall Street collapse is the speed at which a whole lot of financial knowledge went poof, disappearing into thin air.

But maybe Prof. Bell's vision of a country of theoretical knowledge workers spending their 9-5s hard at work creating socially useful products will still come true. Maybe that's what this 'green economy' is all about.

The unprecedented, unclear, fascinating future of America

For the first time in my life, for the first time in your life, for the first time in the life of anybody alive today, America is not a rising power. It is a declining power. Nobody alive has experienced this fact, till now, and we are only starting to experience it. The fact of this relative decline will lose its obscurity in the years and decades to come. But really, to those with their eyes open, how obscure is the fact? We are right now losing two wars, or have already lost them. And we are right now struggling to salvage anything with redeeming value from a deeply structurally flawed capitalist economic system. America's foreign and domestic policies have failed the country, and there will be consequences. The specific shape of these consequences -- rather than whether there will be any -- is the question going forward.

But, if you don't believe your own eyes, perhaps you believe the American government. What interest would they have to exaggerate their own decline? America is indeed losing power relative to the rest of the world, or so says America's own National Intelligence Council. The NIC recently published an unclassified forecast of the country's future within the world, titled 'Global Trends 2025.' You can read the whole thing here.

Foreign demand for US bonds has fallen off a cliff

From the economist Brad Setser, at his very helpful Council on Foreign Relations blog:

Foreign demand for any US bond with a smidgen of credit risk has disappeared. Indeed, the fall in demand for Agencies over the past three months is more severe than the fall in demand for US corporate bonds (think securitized subprime mortgages and other securitized housing and consumer debt) last August.

Normally, this kind of fall-off in foreign demand would be associated not just with a credit crisis but also with a currency crisis. A country cannot finance a trade and current account deficit without financing, and two big sources of financing for the US deficit — foreign purchases of Agencies and foreign purchases of US corporate bonds — have disappeared. The US, though, isn’t a normal country. The fall in demand for risky US assets was offset by a rise in demand for Treasuries and the sale of foreign assets by Americans.

American debt is less valuable today than it was two, three months ago. Therefore there is less capacity for Americans to borrow and make more debt. This is the heart of why our credit crisis has gotten worse the past few months. As dependent as we've been on foreign financing of our debt, we are now facing that large of an economic restructuring. When the dust settles, we won't have as much wealth as we are used to. We won't have as much credit as we are used to. We won't have the standard of living we are used to. We will have to pay our way as we go, for the first time in about four decades. This is scary in the short-term, but will make us a better, more sustainable country in the medium- and long-terms.

In the meantime, we need to increase savings, as we are starting to do, and adapt our culutral norms to fit better with the changing facts. No longer can we find our identity, both collectively and as individuals, in excessive consumption and spending.

A very interesting sociological question is, what new cultural norms will emerge? And where in who we are now will these new norms come from? Who will we be?