Cover of MoneyWeek magazine issue no 545

The return of the dollar

8 July 2011 / Issue 545

Profit as the US currency rebounds

PLUS:

  • This tech giant is a money-printing machine
  • What Gaddafi can teach us about investing
  • The new queen of the Tea Party

Excerpt

End ‘extend and pretend’

The biggest threat to the global economy today can be summed up in one word: ‘debt’. There’s Europe of course, where the list of countries on the hit-list gets longer by the day. Never mind Greece or Portugal, the cost of Italian borrowing is now rising inexorably into the danger zone.

But it’s not just Europe. In the US, politicians are turning a debate over their artificial debt ceiling into a potential disaster for the US Treasury market. Even China, the superpower-in-waiting, has a wodge of bad loans to sweep under the carpet. As the central bank tries to tackle inflation by raising interest rates, China’s commercial banks are sitting on lots of infrastructure loans made during the investment binge of recent years, which are now likely to turn bad.

Why did we build up all this debt in the first place? You need look no further than Britain’s example for the answer: to keep the people happy. Low interest rates fuelled a consumer boom that kept house prices rising and home-owners cheerful. Meanwhile, government spending bribed voters who might otherwise have lost out, with a vast expansion of state-funded jobs and welfare benefits.

• Read the full editor’s letter here: End ‘extend and pretend’