The global imbalances created by this dynamic of American borrowing and foreign lending appear stable for now, but if they slip suddenly, that could pose serious dangers for middle- and working-class Americans through soaring interest rates, a crash in the housing market, and sharply higher prices for anything no longer made domestically.
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With sterling on the verge of collapse, "Eisenhower told them, ‘We are not going to bail out the pound unless you pull out of Suez.’" Facing bankruptcy, the British withdrew. This incident "marked the end of Great Britain’s ability to conduct an independent foreign policy."
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The question to ask now is not, ‘Is the country living beyond its means?’ The question is, ‘Is the money going to increase the productive capacity of the economy?’
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"Part of the reason people are spending beyond their means is because they are -- in a way -- witnessing the end of the American dream.” Between 2000 and 2005, even as the US economy grew 14 percent in real terms, and worker productivity increased a remarkable 16.6 percent, workers’ average hourly wages were stagnant. The median family income fell 2.9 percent.
