Having a Merry Christmas on borrowed money

December is a time when most Americans will run up at least a little extra debt in order to celebrate the holiday season.

Now, if we only saved up our money the other 11 months of the year, this wouldn't be a problem. But we don't. In fact, for the last two years, Americans as a whole have been spending more than we save. That hasn't happened since the Great Depression. We are officially living on credit.

Americans have become used to living on credit. We think nothing of whipping out the plastic to get those things we "need," like iPods and flat-panel televisions.

In 2005 and the first half of 2006, Americans borrowed $474 billion more than we saved to pay for all of these "necessities." Add in the federal budget deficit, and you are talking almost more than a trillion dollars in debt, in just a year and a half.

Now, big numbers like this are hard to understand, so let's look at it this way. Our economy has been tooling along at between 3 and 4 percent growth in Gross Domestic Product for the last two years. That's not great, but it's not a recession, either.

But if you subtract all that debt, then GDP goes into the red, and you are talking about the worst recession in a generation, headed into Great Depression territory.

Or course, we aren't living like we are in a depression. The fact that other countries, mainly China, are willing to keep lending us money means we can put off all that doom and gloom for another day, and party like it's 1999.

How long can this last?

In the book Empire of Debt, authors Bill Bonner and Addison Wiggin look back in history at how most of the great empires were felled by economics. They observed that once an empire is built, the people become fat, happy and lazy. They let the people in the hinterlands produce all of their goods for them. This leads to trade deficits, just like we now have with China.

Back in Roman times, the government couldn't just print up Treasury Bills to finance the debt, so they did the next best thing. They "clipped" their currency, meaning they reduced the gold and silver content of their coins. Roman emperors kept doing this over and over again to sustain their economy until their money was almost worthless. They didn't have the economic means to fight off the barbarians who destroyed their great empire, a scenario played out over and over by empire after empire.

And the American Empire appears to be next.

Americans generally understand that we have a serious problem. They just don't know how to fix it, or are unwilling to take the measures to fix it. It's not easy. There are no quick, painless solutions. We simply need to stop spending the money we don't have, and deal with the resulting economic fallout, which will be significant. We can't stop the pain, but we can keep adding to it.

For one thing, we should work to come up with an alternative energy source to oil, which will keep hundreds of billions of dollars from flowing to the Middle East, money that is used to fund wars against us, which further erodes our treasury. Not only could we stop the oil dollars from flowing out, we could reverse the process and export energy to the world.

We also need to think about what we consume, and where it comes from. We might save a dollar buying a product from China over one made in this country, but that is a dollar that gets applied to the National credit card. Eventually, we will pay dearly for all those trinkets we buy every day that we really don't need.

For now, we are living large by the good graces of the Chinese Government. They could, without warning, destroy our economy overnight. Does it make you feel better to know that the only thing standing between us and economic ruin is a Communist-run government? If you thought interest rates in the 1970s were high, imagine what would happen if China dumped all their Treasury Bills on the world market, a lethal injection for the American economy. Imagine credit cards with 50 percent interest, or home mortgages at 25 percent.

For now, it is beneficial to China to keep the credit pipeline flowing. But for how long? How long would you keep loaning money to people who insist on living well beyond their means, and show no signs of changing course?

So have a Merry Christmas, and for New Years, make a resolution to spend less on imported goods and put that money in the bank. It may help make all of our future Christmases a whole lot merrier.

• Kirk Caraway is editor of http://nevadapolitics.com, and also writes a blog on national issues at http://kirkcaraway.com.