Why America?
I’m sure you have noticed me saying that the thing about America is the
flexibility of its economy and that remains absolutely true. The contrast with
Europe and the EU is stark and does much to explain why America continues to
outperform the sclerotic EU. To take just one thing, America has run away from
energy dependency because of fracking. It is estimated that it has saved some
$5 trillion over the years because of it. In Europe – and especially the UK –
fracking is a no-no. It’s largely ideological. It has been proven that the small
earthquakes that were said to be related to fracking had nothing to do with it.
There are earthquakes every day in the UK – some 300 annually with about
10% actually causing damage. The point is the Americans allowed prices to
respond to the market. Europe has relied on long term contracts and such like,
so much so that when the Ukraine war broke out, it very nearly sunk Germany
in particular. America breezed through it. With the current tensions in the
Middle East, Europe remains beholden to countries that by definition don’t
wish it well.
Rebecca Christie, senior fellow at the Brussels think tank Bruegel, has another
theory about why America. In the UK if you go bust you’ve pretty much had it.
In America it’s almost a badge of honour. Investors have an entirely different
attitude to risk to what pertains this side of the Ocean. In particular, they are
very open to short-term risk in the service of a long-term advantage. Europe is
generally risk averse. America over the last few years has spent some 14% of
GDP on capex and R&D. The UK and Europe typically spends 8-9% which is a
clear pointer to why innovation in America now far outstrips Europe as a
whole. When tariffs hit, America doubled down on capex to “tech” its way out
of lower margins. Europe scaled back.
Businesses in the States are typically financed differently to Europe. They tend
not to rely on bank loans, but on equity funding and venture capital firms.
Pensions are another flexible construct. In the UK in particular pensions are
doled out by very large capital heavy companies. In America, workers have the
right to do their own thing with their own pension, and hence there is yet
another huge pool of cash available for investment. Of course there is risk in
that – but that is exactly what Americans are comfortable with. As Christie says
“If you finance your business with a bank loan, you don't have the same
flexibility that you do if you sell shares or attract venture capital.”
So how does that play out? A very simple explanation would be AI. Whatever
you think about it and whatever you think it can and cannot do, there is no
doubt it is very definitely an important development. Since 2013 until 2025,
America has spent nearly $286 billion on AI – and that doesn’t include the
infrastructure of data centres which are probably half as much again. If I told
you that Europe as a whole spent just over $20billion you might think I had
dropped a “zero”. Sadly I have not. And just so you know, at last count the
commitments for 2026 going forward are some $665 billion in America. I’ve no
idea what Europe is – nobody has bothered to tell anyone. Risky? Of course.
Rewarding? Potentially world changing. And if it doesn’t work out? There will
be all those lovely data centres selling compute for peanuts.
Employers added 173,000 jobs in May in America, way above the expected
80,000 or so. Even that is a great figure. But the figure that caught my eye this
week was $1.79 TRILLION of stablecoin settlements. USDC accounted for about
two-thirds of that figure but the real point here is that digital is very definitely
what I would describe as a proper challenger to Tradfi in the good old
settlement game. And what are the leading stablecoins? USDC and Tether
USDT. Both American.
American companies in general eschew additional borrowing because of the
drag on earnings and the potential collapse in collateral. If you borrow 70%
against an asset and that asset falls 30% you are wiped out. Many have found
themselves paying back loans that exceed the value of the asset secured
against and its life-changing. So the higher equity and participation of capital
that they work with has a profound effect not only on their bottom line but
also on their attitude to risk and the calculations they make on future
profitability.
In general, they don’t have debt rising faster than earnings. That only leads to
crushing debt
They don’t have income rising faster than productivity. That makes you
uncompetitive very quickly.
And they do all they can to raise productivity. We are back to spending on R&B
and tech. Without any doubt this is the most long lasting and sustainable
benefit equity finance brings you.
American reliance on petroleum within its GDP has fallen more than 50% over
the last 50 years. That alone has helped drive innovation, growth and progress
in increasing measure. The good old attitude the Americans have is “Can do!”
whilst ours is we need a committee to think about it.
Typically, the UK spends 93% MORE on infrastructure projects than other
countries – and we get less back for it. That means our Government finances
permanently face a reverse premium. Counterintuitively, this is a good thing. It
means the Treasury could fix practically ANY black hole by simply spending the
same on like-for-like projects. The premium we pay is billions and billions a
year.
So should we think of America as a nation of gamblers, whose collective bets
add up to growth? Probably not. But remember what President Trump said “I
am not a gambler. I never gamble. I make profits.” That could be the anthem
for American business. They don’t gamble – they don’t need to. The dice are
already loaded in their favour. And they – because of their flexibility – cut and
run when necessary. I remember the Americans swarming all over the City of
London after “Big Bang.” When it all went a bit iffy a few years later, they
reduced their presence to skeleton crews whilst the Brits soldiered on. By the
time things picked up the Brits were unable to repel boarders having
exhausted themselves, and were forced to take the American cash. “Semper ex
America novum” – but “Plus ca change.”
On a tangent, but very much in the spirit of what America does, I had an
excellent meal the other night at Tiger Lilly on George Street in Edinburgh. I
and nine others, all Scottish Digital and crypto luminaries, were entertained by
Stephan aka Cap who is part of Superteam leading Solana Ecosystem growth in
the UK.
And that he is definitely doing. They are about to take a permanent office in
London from whence he will sally forth to all parts of the country to spread the
gospel. One of the really nice things Solana does is support startups and off-
beat ideas generally with cash and physical support. The whole growth is
predicated on building the community all around the country and having more
people involved today than were yesterday. It’s a lovely concept and has paid
dividends in the way Solana is seen in the community. Worth around $40
billion, I’m sure SOL will be one that stays the course.
