“Deleveraging” - new term, new century as dollar collapses

Bill Bonner founded Agora, Inc., in 1979. Since then, he's published a number of New York Times best-sellers about how to “avoid the public spectacle of modern finance,” and he's a daily contributor to “The Daily Reckoning.”

This is a brief excerpt from an interview he gave “The Daily Bell” at a recent conference in Vancouver. It's a wide-ranging exploration of America's money troubles and increasing national debt to Chinese and Japanese creditors.

The Daily Bell: Could you define "deleveraging?"

Bill Bonner: People were certainly not borrowing for investing purposes. This is an important distinction because if you borrow money to build a factory, then you can get the income from the factory to pay the debt off. But if you borrow to buy breakfast, there's no income. You've started the day nutritiously, but you have no way of paying your debt back. This cycle is well known in the financial world. It happens occasionally when you get a central bank like the Federal Reserve that is overly committed to the idea of encouraging people to borrow money. Also when you get a development in the global world, say China for example. The US consumer was committed to consuming. The Chinese, generally, were committed to developing cheap exports. They were willing to take American money and to hold it so Americans would never really have to settle up...