Let The Circle Be Unbroken 3

The Third Circle differed quite dramatically from the first two. In those circles, we gave the money and they bought the goods. In the third, they gave us the money and we bought the goodies. Not insignificantly, in the midst of the last circle, we went back to being a debtor nation (1986)—which we had not been since 1916.
It began gradually. We lost the shoe business to Italy and Asia. So what? We stopped producing our own televisions and bought them from Japan. So? We lost textiles (something we'd had since the 1830s), foreign steel mills began to compete aggressively. Then there were those pesky little Volkswagens and Volvos.
Toyota and Honda came later. And so it went. Did we care? Hey—fifty cent an hour labor over in Asia or Latin America was cheaper. Chains of bargain stores sprang up. Mothers could dress themselves and their children much, much less expensively from abroad than from American labor.
As the decades rolled on, the flood of foreign goods—and of loaned foreign money to enable us to pay for it all—became a raging torrent that nothing appeared able to stop. They loaned us money; we bought cars and TVs, they took the profits from those sales and loaned us more money. As long as the circle remained unbroken … .
Our life style became more and more extravagant; they loaned us more and more money to keep us in the game. (The circle was spinning faster and faster—something that had not happened during the first two circles.) It was a wild party that could afford to be so wild because somebody else was paying.
Starter houses now came with central air, vacuum cleaners in the walls, underground sprinkling, and cost $150,000—dirt cheap at that. Kids barely old enough to shave were buying them (some had no money left for furniture or any kind of decorations on the wall.)
All of this on Chinese, Japanese and Indian money—as they piled in the dollars, viewing them as more secure than their own currencies. The Arabs piled up massive amounts of dollars as they, too, bought American treasury bonds, funding our huge deficits.
Two thirty to forty thousand vehicles in every garage, riding mowers, snow mobiles and snow blowers, all on other people’s money. No new technological device was too expensive. The latest widescreen TVs (at two and three thousand dollars) walked out of the stores. Pocket gadgets that talk to your computer, play music, call California, take pictures, and—should a fit of inactivity come upon you—offer you games to play were on every belt. On Chinese money.
We were like children turned loose in Toys R Us with grampa’s credit card—no limit. Our saving rate dropped to zero. We kept on spinning the circle. I confess my own house contains seven computers for four people. We have at least three working televisions (none of them very new or big—but, still, three?!?)
What was in it for them? A couple of things—the dollar was, for most of the Twentieth Century, the most secure currency you could hold. It seemed like the Gold of the 1900s. But, more importantly, and this is the basis for the circle: we were the consumers of last resort.
If Sony made too many radios and had no place to sell them—not to worry. Put them on a boat for San Francisco and have someone get on the phone. The incomparable American retail chains will suck them up in five or six phone calls. They’ll be sold before the ship reaches harbor.
Then the highway system built by Eisenhower will rush them to the American consumer within a matter of three or four days, in trucks driven sixteen hours a day. We were the last, best safety net for everyone else’s bottom line. It seemed a small price to pay: buy a few million more American bonds and guarantee that everybody stays in the black.
The sybaritic American consumer allowed nations that hadn’t even existed during the first and second circles to build their own factories, their own car companies and begin to create their own middle classes—all on our debt. More and more American manufacturing capacity left our shores in search of their lower wages. Our real wages stagnated, but we borrowed on those incredibly expensive new homes we were buying. The circle was now almost a blur.
As those who made our soccer balls and shoes went hungry, as millions starved across the globe, no delicacy was too expensive or too out of season for the American gourmet. The corner grocer routinely carried luxury foods from all over the world that our grandparents couldn’t have pronounced. This, too, was part of the circle, the good life on other people’s money.
By 1960 we faced a world in which our traditional manufacturing rivals had recovered. At some point in this century we will face a world in which a whole new set of rivals (we never dreamt of back then) will have reached a point where they can and will compete with us without feeling that we are their only possible safety net.
Then this third circle will break. Then we will be caught without savings, with ludicrously expensive housing, automobiles few can actually afford, with rooms full of luxuries in homes where the grocery bill is too high to endure.
God help us, that may have begun to happen. If it has, no clever plan by a new President Obama or anyone else will fix the problem. It’s very, very hard to see where a fourth circle will come from once this one stops—as the last two did. But we’d better be looking hard.
The shattering of the Third Circle is what may very well have begun this past fall.