There’s backed debt, and there’s unbacked debt – but debt is debt.
I’m not buying the author’s creative accounting that implies that having some form of ‘national wealth’ behind our loans guarantees that the loans are therefore inherently intelligent, let alone the idea that we have head-room to borrow more without consequence.
The fact that you have cash in a bank to back your loans doesn’t mean you aren’t in debt! It only implies that the lender has less risk, which mostly serves to comfort the lender. The borrower still owns the obligation. And the author implies that putting our national wealth out there as collateral against our largess is not only fine, but that we should do more of it!
A foolish loan with collateral is still foolish. The wisdom required to decide between “borrowing to consume” vs “borrowing to invest towards growth/profit” doesn’t change with the existence of substantiating assets, and further, the notion that “just because I have more to leverage, I should leverage it” is a recipe for disaster.
I’m not buying the premise that we have so much “stuff in our closets” that we can disregard common-sense fiscal responsibility. For one thing, it usually turns out that the loan collectors usually don’t want the junk in my closets either, but rather they prefer the nice new furniture in my living room. Witness the Saudis – rather than buying chemicals from us, they’re buying Dupont (or are trying to).
We, as consumers, and as a country, have received ‘units of value’ from the international market (TVs, cars, cameras), in return for dollars, which are essentially a loan against some future ‘units-of-value’ of our making. We’ve received a value, and now we owe an equal value back to them. Having that debt be justified against the collateral of our national wealth (e.g. companies, buildings, museums, airplanes, etc.) does not, in my opinion, make the magnitude or justification of our current borrowing behavior any less obscene.
