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Nov. 6, 2009
Rabbi Berel Wein: Choosing to hear
JWisdom.com Zero to 1/60th: How to Empower An Hour with Gavriel Aryeh Sande (7 minutes)
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Suzanne Fields A Fallen Wall for Fallen Man
Nov. 5, 2009
The Kosher Gourmet: Three scrumptious -- but simple -- butternut squash dishes
JWisdom.com Hidden Hints: Unlocking Faith & Prayer with Rabbi Jay Yaacov Schwartz (10 minutes)
Nov. 4, 2009
Tom Hamburger and Kim Geiger: Should prayers be covered?
JWisdom.com When God played peacemaker With Rabbi Sroy Levitansky (5 minutes)
Nov. 3, 2009
Martin Peretz: Beware, Barack. Beware, Rahm. Beware, Axelrod
JWisdom.com Are you are closet idolater? With Sara Yoheved Rigler (10 minutes)
Nov. 2, 2009
Paul Greenberg: The Holocaust is now on Facebook
JWisdom.com Abraham's Strange Change With Rabbi Yitzchok Fingerer (5 minutes)
Oct. 30, 2009
Rabbi David Aaron: Secret to Immortality
Caroline B. Glick Silencing dissent in America
Oct. 29, 2009
Lini S. Kadaba: Do tactics avert flu or reduce humanity?
JWisdom.com We Must Revamp our Religious Vocabulary With Gavriel Aryeh Sanders ( 10 minutes)
Oct. 28, 2009
Rabbi Yonason Goldson: Atheists in Bubbleland
JWisdom.com Why what we wear impacts who we are With Rabbis Mordechai Becher, Menachem Golberger and Aliza Bulow ( 10 minutes)
Oct. 27, 2009
Paul Greenberg: The United Nations Is Outraged Again, Or: Department of Mideast Static
JWisdom.com The Science of Love With Rabbi Jonathan Rietti ( 7 minutes)
Oct. 26, 2009
The Jewish Ethicist by Rabbi Dr. Asher Meir: Damaging disclosures with a twist
JWisdom.com Wisdom and Wonks With Rabbi Eytan Feiner ( 7 minutes)
Oct. 23, 2009
Rabbi David Aaron: Are you ready for the ultimate pleasure?
JWisdom.com Watermark and oneness with Rabbi Sroy Levitansky ( 4 minutes)
Caroline B. Glick Stop using limited powers in a way that expands our enemies' advantages over us
Oct. 22, 2009
Steven Emerson: Terror Cases Share Desire to Kill Americans
JWisdom.com No More More Family Fights --- Really? By Sarah Chana Radcliffe ( 5 minutes)
Oct. 21, 2009
Tonya Alanez: Holocaust denier sues survivor, calling Auschwitz memoir 'vicious lies'
JWisdom.com Meditating Jewishly: A Panacea for Success by Sarah Yoheved Rigler ( 7 minutes)
Oct. 20, 2009
Dennis Prager: Obama and Dalai Lama: Why Israel Worries about U.S. President
JWisdom.com Abraham was not religious By Rabbi Yitzchok Fingerer ( 6 minutes)
Oct. 19, 2009
JWisdom.comWhy Good People Do Bad Things By Rabbi Eytan Feiner ( 7 minutes)
Oct. 16, 2009
Rabbi Yonason Goldson: The Perfect Number
JWisdom.com Hearing Voices By Rabbi Sroy Levitansky ( 5 minutes)
Caroline B. Glick How Turkey was lost
Oct. 15, 2009
Jeff Jacoby: Peace vs. the 'peace process'
JWisdom.com: Former MTV producer and stand-up comedian Rabbi Lawrence Hajioff: Taming a Control Freak (A VERY fast 15 minutes)
Oct. 29, 2003
Mortimer B. Zuckerman: Graffiti On History's Walls (MUST-READ!)

Jewish World Review Oct. 11, 2006 / 19 Tishrei, 5767

Better to Borrow or Lend? Rethinking conventional wisdom

By Paul Johnson


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http://www.JewishWorldReview.com | Charles Lamb wrote a famous essay, "the two races of Men." In it he refers to those who borrow and those who lend. Most people are brought up to believe it is better to lend than borrow. I certainly was. My father said to me, "Never borrow money. Never have an overdraft. Only take out a mortgage on your first home, and pay it off as soon as you can. Always pay bills by return post." I have followed this advice all my life. But is it good advice?


My friend Jimmy Goldsmith took the opposite view. He and I first met when he was 16 and had run away from school (Eton College). He'd won an accumulator bet at the horse races and thought it was time he began enjoying life. When he died, Goldsmith was a billionaire (in dollars). I once asked him, "What is the key to your financial success?" He replied, "Borrowing. I have become rich on other people's money."

OPPOSITE ENDS OF THE SPECTRUM
The argument — lend (save) or borrow? — applies to countries as well as to individuals. The Chinese, for instance, have traditionally been savers. It's an axiom of Chinese culture that a prudent man saves 40% of his net income. This axiom also applies nationally, in that China's policy has traditionally been to export the maximum and import the minimum. This approach led to trouble in the 19th century. Western countries, led by Britain, imported vast quantities of Chinese luxury goods but found it nearly impossible to sell anything there in return. Opium was the one exception — and the Chinese authorities did their best to forbid its sale to their citizens. Ultimately, Britain fought a series of wars, which became known as the Opium Wars, in order to force China to allow its sale.


Chinese financial culture has not changed all that much, even though the country is now becoming a major manufacturing power. China runs an enormous balance-of-payments surplus by pegging its currency low, so that its exports are cheap and its imports dear. This makes the Chinese feel good, morally. But, as in the past, there is a price to pay. Pegging its currency below market value means that China must spend more than $100 billion of foreign currency (chiefly U.S. dollars) annually in buying securities and other assets, largely in the U.S.


This brings me to American financial culture — spending and borrowing — which is just the opposite of China's. This culture was evident even in the colonial days of the early 17th century. If figures were realistically presented, I think they'd show that America has usually run a current accounts deficit. King James I's ministers persuaded him not to ban smoking in England because tobacco was the only crop earning the growing American colonies enough profit to pay for their imports of luxury and manufactured goods from England. Americans have traditionally spent up to the limit — and beyond — of their credit, believing that G-d, or the world economy, would provide. And it has. Like Jimmy Goldsmith, the U.S. has become the world's richest nation by using other people's money to finance its own spectacular and continuing growth.

WEALTH STORAGE
In the 15 or so years since 1990 the U.S. current accounts deficit has gone from 0% to 7% of GDP. America is able to do this by offering the rest of the world the biggest choice of wealth storage options — bonds and other assets — that they can buy with their savings, knowing these instruments are secure and will give a good return on investment. The truth is, if you make a lot of money by making cheap goods, as the Chinese do, or by selling expensive oil, as the Arabs do, you either have to spend your money, riotously, or save it. And if you choose to save, you have to put those savings somewhere that is secure and rewarding.


Thanks to its political and social stability and its record of a continually growing economy, the U.S. has become — almost unconsciously rather than through set policy — the biggest and most successful wealth-storage economy in history. It exports wealth-storage facilities in exchange for net imports of goods. A recent calculation by the American Enterprise Institute shows that foreign storage claims of U.S. assets are $13.5 trillion, or about 25% of U.S. wealth (about 10% of global wealth).


However, as with Jimmy Goldsmith, this borrowing has enabled the U.S. to become richer and richer. The U.S. also invests abroad and now holds about $11 trillion in foreign assets. That leaves net foreign claims on U.S. assets of about $2.5 trillion. But this is only 20% of one year's income for America's enormous GDP. Moreover, while wealth stored in the U.S. is mostly in short-term assets, American wealth stored abroad is chiefly in long-term assets, and those will grow in value — and grow faster — than wealth stored in the U.S.


The fact is, in the international economy there is no such thing as absolute borrowing or absolute lending; they are intertwined. As an individual, however, I prefer to stick with my father's advice, for I put peace of mind before other considerations. But for a giant nation like the U.S., the Goldsmith approach may make more sense.

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Previously:

08/22/06: Don't practice legal terrorism
08/08/06: A summer rhapsody for a pedal-bike
08/03/06: Why is there no workable philosophy of music?
07/11/06: Historically speaking, energy crisis is America's opportunity
07/06/06: The misleading dimensions of persons and lives
06/06/06: First editions are not gold
05/23/06: A downright ugly man need never despair of attracting women, even pretty ones
04/25/06: Was Washington right about political parties?
04/12/06: Let's Have More Babies!
04/05/06: For the love of trains
03/29/06: Lincoln and the Compensation Culture
03/22/06: Bottle-beauties and the globalised blond beast
03/15/06: Europe's utopian hangover
03/08/06: Kindly write on only one side of the paper
02/28/06: Creators versus critics
02/21/06: The Rhino Principle

© 2006, Paul Johnson

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