With no bloodshed, with not one shot fired, America just completed the biggest heist in history.
For years, Americans did not save. We were busy consuming, buying homes, cars and electronic gadgets. The Chinese, Japanese, Indians and Koreans worked hard and saved their incomes. They funneled their savings into America, buying our government and corporate debt. We lured the Chinese, Japanese, Europeans and Arabs to take our currency and our financial instruments, money market funds, SIV's, CDS's and mortgage paper galore, in exchange for their products and their oil.
They worked and saved, we consumed; they got our paper, we got all kinds of real products. Singapore, Qatar, Sweden and all these other countries put their faith in us. In effect they transferred their very real wealth, in the form of products, to us, in exchange for our word. Now this paper we gave them is worth much less. Especially the assorted mortgage notes. And thus the robbery was completed.
Even the government bonds, which represent the most solid of credit and are in such high demand now, are a robbery. They are paying an interest rate much lower than LIBOR or the rate of inflation, so effectively people are paying to put their money with the US government. Consider: the same government that is spending hundreds of billions to bail out the financial sector, the same government that is running massive deficits, the same government that is inflating the currency and will pay back its mountain of obligations in underappreciated money, thus escaping its fiscal commitments, this is the same government that people believe is a safe haven for their hard earned life savings.
As Lincoln said, you can fool all of the people some of the time, but not all of the people all of the time. America reneged on its implied promise before; will they believe us the next time around?
Alan Schram is the Managing Partner of Wellcap Partners, a Los Angeles based investment partnership.