The Coming Economic Collapse, Part 3 51 comments
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Over the last two essays, we’ve detailed:
- How the US outsourced its job market starting in 1971
- The US’s economic shift from manufacturing to financial services
- The rise of credit as a means to maintaining one’s quality of life
- The real decline in US incomes since the early ‘70s
- The rise of China as an economic power (fueled by US consumer spending)
- The real Federal debt problem and deficits
- Why Obama’s Stimulus Plan won’t solve anything
- What the US needs to do to get out of this mess
Today, we’re going to detail what is most likely to happen in the coming years (at least in my opinion). Understand, I’m not a super bear or anti-America, just someone who tries to put two and two together and end up with four.
The US has a MAJOR debt problem. Including future social security and Medicare expenses we owe $65 TRILLION. Because we live in a world in which the words, “billion” get thrown around with too much ease, I’d like to put that number into perspective.
Let’s say you have a stack of $1,000 bills. $1 million would be a stack eight inches high. $1 billion would be a stack 800 feet high (think the Washington Monument). And $1 trillion would be a stack 142 miles high. Total US debt, if laid on its side, would be a stack of $1,000 stretching more than 1/3 of the way around the earth.
Ok, so where is the US economy REALLY at right now?
Year over year real employment, real industrial orders, real housing starts, and real retail sales are all posting their largest drops since the production shutdown following WWII. Put another way, the last time the US economy fell this hard this fast, we were intentionally shutting down the monster that was the US war machine in WWII.
This is no recession. We are already on our way to a Depression (a GDP contraction of 10%) possibly even another Great Depression. One in nine Americans are currently receiving food stamps. Real unemployment (without birth/death seasonal nonsense and all the other Federal gimmicks) stands at 20%.
So I don’t buy the “green shoots” theory at all. Having things get horrendous at a slightly slower rate is NOT a sign of a recovery. Green shoots can pop up anywhere including the asphalt in the parking lot outside my office. That doesn’t mean the parking lot is about to become a lush meadow.
No, the US is heading for a really, really rough time. The US monetary base has doubled in the last year. We owe $65 trillion in liabilities. The US government could tax every company and every American 100% of their annual incomes AND NOT PAY THIS OFF. The Feds will have to inflate this mess away. And they’ve got a master money printer, Ben Bernanke, overseeing this situation.
Now, I cannot foretell precisely how this will all play out. Typically when a bubble bursts it takes 10+ years, possibly an entire generation, before the assets that participated in the Bubble return to new highs (sometimes they NEVER do).
Now, we just got off the biggest credit / debt bubble in the world’s history. I’m talking about 30+ years of spending money we don’t have culminating in a period in which Americans were speculating in the single largest asset they ever purchase (a house) without putting a cent of their own money at risk (0% down NINA loans).
We also saw a bubble in stocks, Treasuries, and most every other asset you can invest in. So the idea that we can recover from this in a couple of years seems over enthusiastic to say the least.
Remember, Japan experienced a similar Bubble (though they had higher savings than we did) and “lost” a decade of economic growth. It’s worth noting that Japan WAS NOT an Empire like the US. Japan did not have an army with bases in 170 countries, a world reserve currency, and a crippled job market (history rhymes, it does not repeat).
So in terms of the real US economy, I don’t foresee a recovery anytime soon. The stock market may soar thanks to the Fed’s money printing, but a jump in financial speculation is NOT an economic recovery. If the S&P 500 goes to 20,000, but we’re drinking $1,500 beer and wiping ourselves with $100 bills, we haven’t gotten richer (nevermind the fact that an S&P 500 of 20,000 DOESN’T create jobs).
So how will we know when a bottom is in and the economy will recover? I’ve postulated a few signs (some humorous, others not so pleasant). Bear in mind, much of this is tongue in cheek. But like all sarcasm, there’s a grain of truth.
We will bottom WHEN:
- CNBC and Bloomberg start firing anchors and cutting their coverage time by hours, not minutes.
- Maria Bartiromo and Jim Cramer start telling investors to short the market with all they’ve got.
- Questions like “do you think we’re heading for a recovery” result in the questioner getting punched in the face or ignored like a loony tune.
- People HATE stocks and stock ownership has plummeted back to one in ten Americans (the pre-401(k) levels).
- Investing is no longer a hobby and people fight tooth and nail to retain their nest egg (honestly what the hell is “play” or “speculative” money?)
- The number of mutual funds has fallen by at least half (why are we paying fees for people who can’t beat the market?).
- People no longer want to get an MBA to become a broker or a financial advisor.
- Our economy is based on “making something,” not “offering advice.”
- Books about Warren Buffett no longer comprise an entire publishing industry (seriously, Amazon (AMZN) lists 5,000+ books on him).
- The Richest 500 people in the world are no longer all billionaires (never happened before in history… how’s that for concentration of wealth?)
- Guys like me are no longer writing about finance or investing but instead take up a respectable profession.
Then… we will have probably hit bottom.
Good Investing!
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You probably know as well as I that Obama was voted the most "liberal" Senator, closely followed by Biden, number 3. They were both to the left of an avowed socialist, Bernie Sanders of Vermont, number 4.
So where does that put them. I have a color to describe them (and it's not green.)
On Jun 09 02:00 PM The Geoffster wrote:
> My friends who voted for Obama tried to assure me he would govern
> as a moderate. I wonder if they meant moderate socialist?
> www.cnsnews.com/public...
...smart investing.
1. Recognizing the abundance of energy, water, food, space, medicine, healthcare, and entertainment mankind can possess;
2. Recognizing the amount of work it will take to bring that to bear for the whole of mankind;
3. Allowing capital to flow- and profits to accrue- to create the tools for this work;
3. Putting people to work to making it happen- when it needs to happen based on realistic price signals;
For some reason, there are people who would rather pay folks to not produce, so the prices of certain items stay higher, so the cost of certain items are higher, so fewer people can afford them, and living standards are lower than they could be. And rather than allow someone to bring capital to a low capital area and then make a profit on it, there are those who would steal the profits.
We need to identify who these people are and throw them out.
And let us not forget that food that lacks nutritive value makes us unproductive and costs our economic systems more in health care and unproductive people.
If government intervention is truly the root of our present ag systems, well, we have one more place to get government OUT of.
On Jun 09 03:08 PM zagrebzagreb wrote:
> Geoffster - The U.S. has a long tradition of socialism... Take our
> agriculture industry - that also happens to be the most productive
> in the world - which would not be recognizeable without government-backed
> programs, investment and infrastructure.
>
> We just tend to ignore our brand of socialism until it clearly effects
> a sacred cow, like the finance industry, autos, etc. And may I remind
> you, it was free market deregulation that created the circumstances
> we are now in, not Obama.
CNBC and Bloomberg start firing anchors and cutting their coverage time by hours, not minutes.
Maria Bartiromo and Jim Cramer start telling investors to short the market with all they’ve got."
I totally agree and have been saying the same things for some time. But please, let's not group Maria and Criminal Cramer together. At least Maria is nice to look at.
On Jun 10 03:34 PM Fred Voetsch wrote:
> "We will bottom WHEN:
>
> CNBC and Bloomberg start firing anchors and cutting their coverage
> time by hours, not minutes.
> Maria Bartiromo and Jim Cramer start telling investors to short the
> market with all they’ve got."
>
>
> I totally agree and have been saying the same things for some time.
> But please, let's not group Maria and Criminal Cramer together. At
> least Maria is nice to look at.
I think they should have them in bikinis to boost the ratings.
On Jun 10 04:19 PM Swashbuckler wrote:
> You could make a good case that Maria Bartiromo and Erin Burnett's
> looks are ALL that CNBC has going for it.
On Jun 10 05:54 PM Tomcat101 wrote:
> My favorite is Becky Quick. Very nice to wake up to in the morning.
>
>
> I think they should have them in bikinis to boost the ratings.<br/>
I say keep her on the show though. Very cute.
Maria's getting old though. They need to replace her with a hot blonde.
On Jun 10 06:04 PM Swashbuckler wrote:
> Surely that would work for me,and I agree, ratings would go ballistic.
>
Even the word 'economics' means "The study of how scarce resources are or should be allocated." (Oxford dictionary)
Just as 'the world was once flat', and many centuries later the people were informed that it's not; similarly many thinking people are understanding that there is no scarcity, changing the context creates new behavior, such as generosity, being free, sharing, excelling and having everyone succeed.
In an abundance context, which is what exists today (despite all of the trillions (of paper money) of indebtedness) ... which only means something in a scarcity economy, there is no theft, no jealousy, no resentment, no fear and no 'need to go to war'.
Do some of your own research and find out what's so.
On Jun 10 06:22 PM Tomcat101 wrote:
> Rebecca Jarvis is so clueless. She just smiles while the smart people
> talk. I often wonder if someone is off camera holding up a card
> that says "DON'T TALK, JUST SMILE AND NOD".
>
> I say keep her on the show though. Very cute.
>
> Maria's getting old though. They need to replace her with a hot
> blonde.
What I would absolutely love to read, from those of you with much more in your head than I, is opinions on how we could get power back out of the Federal gov't and back into the hands of State govt's?
How high would welfare budgets be if each individual State were responsible for the recipients in their perspective states? Would these 57 (oops, I mean 50) added up be 60% of the Federal welfare costs? The list would be very, very long here.
I just cannot help but think that if we were able to get the States to do a "power re-grab" from the Fed's we'd all be so much better off. A few States seem to be trying, but it is all words at the moment, but hopefully words will lead to a fight. They usually do.
On Jun 10 06:39 PM YourHealthyPlanet.com wrote:
> Global situation and the US situation is all based on scarcity. And
> that has been a lie now for 35 years ... check the history, start
> getting an education and study one of America's great independent
> thinkers R Buckminster Fuller and you will quickly know what to do.
>
>
> Even the word 'economics' means "The study of how scarce resources
> are or should be allocated." (Oxford dictionary)
>
> Just as 'the world was once flat', and many centuries later the people
> were informed that it's not; similarly many thinking people are understanding
> that there is no scarcity, changing the context creates new behavior,
> such as generosity, being free, sharing, excelling and having everyone
> succeed.
>
> In an abundance context, which is what exists today (despite all
> of the trillions (of paper money) of indebtedness) ... which only
> means something in a scarcity economy, there is no theft, no jealousy,
> no resentment, no fear and no 'need to go to war'.
>
> Do some of your own research and find out what's so.
That we are on the verge of being forced into economic slavery by a manipulation we can barely comprehend and that does not jive with any of the historical data we are attempting to use to offset our losses.
Astute comments.
On Jun 09 06:44 AM User 353732 wrote:
> Many, perhaps all the problems( monstrous debt, fiat money, MSM lies,
> growing unemployment, shrinking economy etc) you document , in my
> view, have their source in a root problem: the deliberate, successful
> and accelerating assault on the American Middle Class with the objective
> of marginalizing the values of the middle class and its political
> role in national decision making.
>
> The trajectory of American greatness is the lagged trajectory of
> Middle Class success. As the middle class grew in strength , confidence
> and influence so America grew in National stregth, confidence and
> global reach. The values, assets and traits of the middle class became
> the policies and resolves of the Nation.
> The long, measured rise and now deepening decline of the Middle
> Class have foretold and impelled the rise and , for the moment, anyway,
> the manifest decline of the US by every metric of global greatness.
>
>
> From its inception as a Nation thru the generations that followed,
> it was explicit American policy to make the middle class not merely
> central but dominant so that there could be steady and mostly irreversible
> mobility from the lower class to the middle class and to prevent
> an entrenched, heriditary upper class from arising and controlling
> the country.
> The Founders knew perfectly well that tyranny requires a tiny elite
> bribing and manipulating a large enough , resentful enough,and ignorant
> enough lower class to indimidate, control and tax the productive
> middle of society . The founding institutions of America were thus
> explicitly formulated to foster the development of a middle class
> Nation, in reaction against the systems of the old world(everywhere,
> in all nations: a corrupt, heriditary, greedy and vain governing
> elite and a very large squalid, brutal and hated lower class).<br/>As
> America's middle class expanded domestically it sought to not only
> build America in its image but the world. The American Middle Class
> crafted a multi generation foreign and military policy whose ideals
> were battling totalitarianism in all its many varities in all continents,
> the liberation of captive peoples, global reach without imperial
> desire, the encouragement of freedom and dissemination of middle
> class beliefs via free trade, generous immigration, the welcoming
> of tens of millions of foreigners into American universities and
> the establishment of a web of global treaties and bases to bind friends
> closer and to take the struggle closer and closer to totalitarian
> regimes.
> More often than America and the American middle class receive credit
> these ideals were turned into reality. The globalization of property
> rights,the defeat of the Red Empire and Maoism and the economic
> rise of the Global South are the direct consequences of American
> middle class values,sacrifice, resolve and tenacity.
> During the 1960s, however, the middle class started to come under
> attack in America and this attack, for reasons that may be argued
> elewhere, accelerated in the past 20 odd years.
> In 2009, the American Middle class is under siege. It is now the
> cruel and overt policy of the tiny rgoverning elite in the US to
> compress the Middle class and expand the lower class. By turning
> the growing lower class into clients of the State via multiple bribes(and
> threats and insidious encouragement of class warfare: the Middle
> Class has been relabled "the undeserving rich" who must be taxed,
> bullied and regulated in the name of justice for the lower class)
> the elites have found the tool for subjugating, squeezing and inexorably
> fragmenting the political power of the Middle Class.
>
> For America to heal and restore itself, the Middle class must again
> become central in decision making and resource allocation. The elites
> have always been fearful of the revolt of the lower classes but they
> have always been too contemptuous of the middle class to fear them.
> In this, they may well turn out to be strategically wrong.
> The probabity of a middle class revolt in America is rising. Whether
> it actually occurs depends of the rise of an unknown leader who will
> organize and mobilze the Middle Class, If not, the the American experiment
> cannot endure.
The government, including Congress, admits that it has caused the problem and will no longer look for 'scapegoats'. And, if as and when our Nation recovers it will, in the future, conduct itself in a very business-like manner. A smaller government, a balanced budget government, a supporter of free enterprise government and a government that will encourage individuals and businesses to do what is necessary to have a healthy and vibrant economy.
Conclusion, the Country will never hit bottom and should we be so fortunate to work our way out of the current mess, just plan on another bigger mess in the near future.
One of the finest and most correct analysis of the US Middle Class I have ever heard.
Deregulation did not cause the mess we are in; pork barrel spending of our Congress in the last 60 years has caused, particularly since LBJ and the me-too Republicans.
My father in law, a Belgian, came to this country in 1950, went to school, and got a Masters in engineering. He started his own company and lived by his wits for 50 years.
I remember the discussions we would have about value. Me, the baby boomer globalist explaining that it was only necessary to have a comparative advantage (in world finance), therefore, the jobs we lost oversees weren't necessary to our prosperity. My father in law, the former resident of Nazi occupied Antwerp, telling me that when we lose manufacturing, shortly thereafter, we will forget how to make anything.
And now that has come to pass. Our highly regarded financial skills turned out to be 3 card monty skills. A lot of people made a fortune while it lasted. In the end, very little value was created.
Now we are left with the wreckage. I agree with the author that we need to get new companies started now that can produce and manufacture in the US. We need to go back to making and selling things. The shortcuts to wealth create bubbles and ultimately end in financial ruin.
The most important thing that an economy produces for its people is jobs. Jobs that not only provide a decent income, but also stimulate and provide for personal growth. Job quality. Through jobs, we create millions of success stories of fathers and mothers successfully raising the next, well educated, well mannered generation.
Leadership.
The more that is given away by the government the less I feel like working. The more taxes I have to pay, the less I care about making a lot of money. Thus the philosophy of the Democratic Party is doomed. It doesn't motivate anybody and rewards losers.
Leadership.
The Republicans should have ruled for 50 years. But they lacked leadership and descended into a pack of wolves, each ready to grab while the grabbing was good. What a shame. The basic republican philosophy of self-reliance, personal motivation, and entrepreneurship are the proper ones to ensure prosperity for all.
Venture capitalists get out there!