InBev NV’s acquisition of Anheuser-Busch Cos. Inc. this week serves up a sobering reminder of the impaired state of the US economy.
The dollar’s rapid decline internationally has devalued all dollar-denominated assets, from the currency in your pocket to the value of the building where you work and the value of your 401(k). And it has devalued the assets of US corporations to the point where many of them are now very attractive targets for foreign acquirers.
The InBev-BUD transaction illustrates the point: the aggregate sale price for BUD is US$52 billion, or about €32.7 billion. Had the exchange rate remained stable from the day George W. Bush was installed as president (when €1.00 = $0.83), the price would have been closer to €63 billion – far too expensive for InBev then or now.
But the exchange rate did not remain stable. Seven years of profligate financial management – including tax cuts, tax rebates, economic stimuli, years of unbalanced budgets, unmanaged spending, and an unfunded (not to mention unprovoked) war – have shaken the world’s trust and confidence in the US. The currency markets have responded accordingly, devaluing the US dollar to the point where the greenback has dropped 48% against the euro in just seven years.
Thanks to mismanagement on an epic scale, the US has racked up a $9.3 trillion national debt, a $6.4 trillion trade debt, and a projected $400+ billion budget deficit for FY 2009. We also have some $50 trillion in future commitments – Social Security, Medicare, veterans’ benefits, etc.
Add to that some $2.5 trillion in consumer debt and if becomes clear that we US citizens are presently on the hook for some $69 trillion.
When you think of that in terms of our GDP, about $15 trillion, we as a country are in debt for nearly five years' income. Could any of us handle that much debt and keep piling on more? I doubt it.
Our assets include about $50 trillion of real estate and $16 trillion in the value of the equities markets -- $66 trillion. Subtract the liabilities from the assets and you can see that we are basically insolvent on an economic basis.