Empire of Debt | William Bonner

Summary of: Empire of Debt: The Rise of an Epic Financial Crisis (Agora Series)
By: William Bonner

The Dark Side of Borrowing

The United States’ debt crisis has been brewing for years, with borrowing becoming an increasingly problematic strategy. Historically, borrowing worked in favor of the country because the balance of trade tilted in its favor, but as the scales tipped and the country found itself with an annual trade deficit of $700 billion, borrowing became an increasingly unsustainable strategy. While the US Federal Reserve encourages Americans to spend more, instead of saving, China has become America’s largest trading partner and creditor, making the situation even more complex. As a result, every dollar earned by an Asian worker adds six cents to the US debt. Additionally, the US is burdened with an outdated manufacturing industry, overpaid workers, and a culture of spending rather than saving. The US military budget is larger than any other country, and if the US were to cut its military budget in half, it would still have the world’s most advanced armed force. However, the consequences of the US’ debt crisis are significant, and the impact of Asia’s control over the economy is concerning. For example, if China sold its US Treasury bonds, it could sink the US economy. Furthermore, Americans are buying stocks hoping they will appreciate, forgetting that stocks were once valued more highly if they paid a dividend. The US government spends borrowed money: for every dollar the government receives in tax revenues, it borrows another 80 cents. However, if China were to stop lending the US approximately $300 billion annually, the US would enter into a recession or depression.

The Rise and Fall of the American Empire

The United States of America has a precedent of amassing empires like many countries throughout history, all of which share a common outcome – eventual decline. Empires have economic implications, and they affect how their citizens view and interact with the rest of the world. America’s foray into becoming an imperial force initiated under President Wilson, who saw himself as a world protagonist, led to shelling and invasion of Mexico, backing a rebel who murdered U.S. mining engineers, and ultimately drew the U.S. into World War I. The country spent euphorically, fueling an economy based on deficits, inflation, and credit, leading to an increase in federal spending with successive presidents. Instead of reducing defense spending after the fall of the Soviet Union in 1989, the U.S. continued to increase it and pumped money into Iraq, trying to persuade the country to like America. The rise and fall of the American empire serves as a cautionary tale of the dangers of imperialistic interests and unchecked spending.

The Future of American Retirement

Americans need to prepare for retirement with caution and insight to avoid a financial crisis. According to recent data, the average American has $68,000 in retirement savings and increasing financial obligations. To retire comfortably in 10-15 years, one must aim to have a nest egg of at least $500,000, which requires early planning and saving. As investors age, they become more risk-averse, preferring income over appreciation in their portfolios, but current market trends make it difficult to ensure a secure retirement. Housing prices, in particular, have inflated, creating a real estate bubble that could soon burst. If this were to happen, many households could experience the same financial crisis that Japan experienced during its decade-long deflation, creating a real possibility that foreign creditors would be watching anxiously, leading to a sharp drop in the value of the US dollar. To avoid such a situation, Americans must take action to secure their retirements, even in the face of economic uncertainty.

Master the Art of Essentialist Investing

Speculation in the housing market and stock investments has led to distorted perceptions of investing, with people buying into information meant for the public rather than relying on private knowledge. In this book, you’ll learn how to become an essentialist by studying the traditions and collective wisdom of past successful investors. Essentialist investors focus on making essential decisions that ensure survival and prioritize buying good companies with price-earnings ratios between five and 10, investing for the long term. They understand that houses do not increase in value but only in price, making them critical not to overestimate. Essentialists realize that investors tend to magnify each other’s sentiments making them miss an opportunity to profit from taking a contrary position. By going against prevailing investment winds, contrarians stand to gain while others lose out. As history teaches us, empires do not last, so wise investors prepare by avoiding junk bonds, tech stocks, and the US dollar.

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