The Great Consumer Crash of 2009 177 comments
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“It is easy to ignore the storm if you look at the opposite horizon. When the storm reaches your location there can be no more ignorance.”
I hate to tell you, but the storm has reached your location and it is a Category 5 hurricane. The levees are leaking. Ignore it at your own peril. The 6,000 sq ft McMansion buying, BMW leasing, $5 Starbucks latte drinking, granite countertop upgrading, home equity borrowing days are coming to an end. The American consumer will not go without a fight.
For the last seven years the American consumer has carried the weight of the world on its shoulders. This has been a heavy burden, but when you take steroids it doesn’t seem so heavy. The steroid of choice for the American consumer has been debt. We have utilized home equity loans, cash out refinancing, credit card debt, and auto loans to live above our means. It has been a fun ride, but the ride is over. We can’t get steroids from our dealer (banks) anymore.
After examining these charts, it is clear to me that the tremendous prosperity that began during the Reagan years of the early 1980’s has been a false prosperity built upon easy credit. Household debt reached $13.8 trillion in 2007, with $10.5 trillion of that mortgage debt. The leading edge of the baby boomers turned 30 years of age in the late 1970’s, just as the usage of debt began to accelerate. Debt took off like a rocket ship after 9/11 with the President urging Americans to spend and Alan Greenspan lowering interest rates to 1%. Only in the bizzaro world of America in the last 7 years, while in the midst of 2 foreign wars, would a President urge his citizens to show their patriotism by buying cars and TVs. When did our priorities become so warped?
How Did I Get Here
And you may find yourself behind the wheel of a large automobile
And you may find yourself in a beautiful house, with a beautiful wife
And you may ask yourself-Well...How did I get here?And you may ask yourself
Where is that large automobile?
And you may tell yourself
This is not my beautiful house!
And you may tell yourself
This is not my beautiful wife!-Talking Heads, David Byrne lyrics to Once in a Lifetime
By 2005 practically everyone had a large automobile and a beautiful house. By 2010 many of these people will be asking where is that large automobile and will realize as the sheriff escorts them out of their house that this is not my beautiful house. There is plenty of blame to go round for this predicament. According to Northern Trust economist Paul Kasriel, “We’re a what’s my monthly payment nation. The idea is to have my monthly payments as high as I can take. If you cut interest rates, I’ll get a bigger car.” Major banks offer credit cards using your home equity as a way to pay everyday expenses like groceries, gas and clothes. Eating your house was never so easy.
I have been accused by many of my friends and family as someone who sees the glass as half empty. I disagree with their assessment. I see the glass as it is. I find myself scratching my head trying to figure out why a society that always saved for a rainy day, consistently saving between 8% and 11% of their disposable income, now has a negative savings rate. I believe that keeping up with the Jones’ is the primary reason that Americans have taken on so much debt.
The authors of the book, Why Middle Class Mothers and Fathers Are Going Broke, contend that the costs of housing and a good education for their children are killing them. It now takes two incomes to provide what one income provided 30 years ago: a middle-class house in a safe neighborhood with a decent public school. Bidding wars erupted for homes in what are thought to be good school districts, making homes in those areas ever more expensive.
A phenomenon called “expenditure cascade” has occurred in the U.S. according to Cornell Professor Robert Frank. When top earners build large multi-million dollar mansions, they shift the frame of reference for those just below them on the income scale. Those people then respond by building bigger houses and so on down the food chain. This has resulted in families living on the edge. If one parent loses their job, it’s an easy slide into bankruptcy.
The U.S. is the country in the developed world with the lowest savings rate. Canada and Japan are trying to keep pace. Germany and France have social programs which allow for more savings. We may come in last in savings, but no other country in the world can spend like us. Our motto is live for today, the government will bail me out in the future.
click to enlarge images
We have outsourced our savings to the emerging economies, along with our manufacturing jobs. The Chinese are saving the money we’ve paid them for flat screen TVs and the Middle Eastern countries are saving the money we’ve paid them for oil. You need savings in order to increase investment. The emerging markets are making the vast majority of the investments in the world. While the U.S. endlessly debates drilling and construction of nuclear plants (none built in U.S. since 1987) and oil refineries (none built in U.S. since 1977), China brought four oil refineries online in 2008 and plans to build 30 nuclear reactors in the next twelve years. The Asian Century has begun, but the U.S. has tried to keep up by using debt. It will not work. If anything, this has accelerated the shift of power to Asia.
Source: Creditwritedowns.com
Positive Feedback Loop
The last thing that anyone thought would result while watching the Twin Towers collapse on September 11, 2001 was the greatest housing boom in the history of the world. When a country goes to war, it usually asks its citizens to sacrifice.
“I have nothing to offer but blood, toil, tears, and sweat. We have before us an ordeal of the most grievous kind. We have before us many, many months of struggle and suffering.” (Winston Churchill – May 13, 1940)
In the true spirit of Winston Churchill, President Bush could have paraphrased Churchill by saying: I have nothing to offer but tax cuts, tax rebates, 0% auto financing, and no-doc mortgages. Americans grieved for a few weeks and then did their patriotic part by buying everything they could get their hands on. As Alan Greenspan denies causing the housing crisis today, his words from November 2002 come back to haunt him, “our extraordinary housing boom…financed by very large increases in mortgage debt, cannot continue indefinitely into the future.” After making this statement, he proceeded to slash the discount rate to 1% in June 2003 and left it at that level for a year. This began the positive feedback loop:
1. The Federal government cut taxes and sent rebates to all Americans.
2. The Federal Reserve cut interest rates to 1%.
3. Government officials urged Americans to spend in order to defeat terrorism.
4. Alan Greenspan told people that adjustable rate mortgages were a good thing.
5. Congress and President Bush believed that everyone should own a home and pressured lenders to provide mortgages to low income people.
6. GM, Ford, and Chrysler offered 0% financing on their cars through their finance arms, while also encouraging low rate leases. Credit card companies sent out 5.3 billion offers in 2007. In 1968, when the credit card was a new concept, total credit debt was $8 billion. Now the total exceeds $880 billion, according to the Federal Reserve.
7. Wall Street created new investment vehicles that allowed mortgages to be packaged and sold to investors throughout the world with investment grade ratings provided by Moody’s and S&P, for a price.
8. Mortgage companies and lenders developed ARMs, Option ARMs, teaser rate loans, no-doc loans, negative amortization loans and 100% financing loans.
9. Low income people started buying homes, with these exotic mortgage products, from middle income people. Middle income people started to buy larger houses from rich people, boosting demand for new homes. Rich people bought mansions and second homes. Bidding wars for houses were common.
10. The demand caused by this influx of new home buyers drove prices skyward, with home prices doubling in five years. This price rise brought in the speculators/flippers, who began to buy multiple houses with nothing down, pre-construction, with plans to sell them for a profit without ever moving into them.
11. Average Americans who saw their paper wealth growing rapidly, as their home value increased, took advantage of this by refinancing their mortgages and extracting the equity from their homes and spending it. The chart below shows that in 2004 and 2005, Americans sucked $800 billion from their homes in each year.
Source: Calculated Risk.com
12. Homebuilders throughout the U.S., but particularly in California, Arizona, Florida, and Nevada, went on the biggest building binge in the history of the U.S. These builders either believed their own bull about demographics, or just decided to ride the wave as far as it would take them. This binge led to 8.5 million total home sales in 2005, about 3.5 million more than what would have been expected based on historical rates.
13. The massive number of excess home sales and equity withdrawal led to huge demand for home furnishings, remodeling services, appliances, electronic gadgets, BMWs, and exotic vacations. This led to massive expansion by retail and restaurant chains based on extrapolation of this demand.
14. Retailers, homebuilders, restaurants, and car makers extrapolated the false demand far into the future. There are now over 7,000 Wal-Marts, 6,000 CVSs, and 30,000 McDonalds. Any company that built their business on false assumptions and excess debt will be meeting their maker, shortly.
15. Because the originators of virtually all loans to consumers were immediately selling the loans off, they had no incentive to follow any guidelines or due diligence when issuing the loans. Anyone with a pulse could get a mortgage, car loan, or credit card. Unscrupulous mortgage brokers popped up everywhere, luring uneducated and willing people to join the party. Greedy appraisers went along with the scam by overvaluing houses to whatever the banks desired.
16. The debt induced spending that occurred from 2001 until 2007 accounted for virtually all the GDP growth over this time. Without the mortgage equity withdrawal, the U.S. would have had less than 1% average GDP growth for the entire period.
Source: John Mauldin
Negative Feedback Loop – Underway
The pseudo-wealth that has been created in the last seven years has begun to unwind, but will increase in speed in 2009. You only know how you’ve lived your life over the last seven years. Your neighbor who has been getting their house upgraded, sending their kids to private school, driving a BMW, and taking exotic vacations may have been living the high life on debt. As usual, Warren Buffet’s wisdom comes in handy.
“Only when the tide goes out do you discover who’s been swimming naked.”
The tide is on its way out, and the naked swimmers are numbered in the millions. Mohamed El-Erian, the number two man at PIMCO, fears a negative feedback loop consuming the country. I believe we have begun the negative feedback loop and it is starting to accelerate. The stages are as follows:
1. Home prices reached an unsustainable level in 2006. Prices had gone parabolic between 2001 and 2006, with the average price reaching above $225,000. In 2001, prices were just above $125,000. As the pundits keep looking for a bottom in housing, the chart below clearly shows there is a long way to go.
2. The massive overbuilding based on false demand has led to 3.5 million excess homes in the U.S. based upon historical trends. The most shocking fact is that there are 1.5 million vacant homes. This oversupply can only be corrected by massive price decreases.
3. With the tremendous price increases in houses over the last decade, you would think that equity would be at all-time highs. But no, owner equity as a percentage of house value has reached an all-time low of 45%. People have sucked the equity out of their homes and spent it faster than the prices were rising. The problem is that house prices can and will fall, debt remains like an anchor around your neck until paid off or it drags you down into bankruptcy.
4. The millions of exotic mortgages (subprime, alt-A, ARMs, no-doc, and negative amortization), which have started to blow up, has led to a tsunami of foreclosures. In 2005 there were less than 600,000 foreclosures in the U.S. In the 1st two quarters of 2008 there have been more than 1,350,000 foreclosures, with the pace accelerating. Approximately 15% of all subprime mortgages and 7% of all Alt-A mortgages are in delinquency. According to UBS, 27.2% of subprime mortgages originated in 2007 by Washington Mutual are in delinquency. Washington Mutual is the poster child for how not to run a savings and loan.
Source: MBA
5. The combination of oversupply, over-leverage, and foreclosure tsunami has now taken on a life of its own. Home prices have been spiraling downward for two years to the point where 29% of all households that purchased in the last five years owe more than their house is worth according to Zillow, the home valuation company. For those who bought in 2006, 45% have negative equity. It is now making economic sense for people to just walk away from their house and send the keys to the lender. This is referred to as ‘jingle mail’.
6. The ongoing housing price decreases are now affecting prime mortgages, home equity loans, and home equity lines of credit. Prime mortgages for less than $417,000 had a delinquency rate of 2.44% in May, up 77% from last year. Prime jumbo loans over $417,000 had a 4.03% delinquency rate in May, up 263% from last year. According to the ABA, 1.1% of all home equity lines are in delinquency, the highest level since 1987.
7. Consumers have dramatically increased the use of credit cards, now that the housing ATM has run out of cash. The average American household has credit card debt of $9,840 versus $2,966 in 1990, at an average interest rate of 19%. Credit card delinquencies have increased to 4.51% in the 1st quarter. Amex just announced a major unexpected write-off because its prime customers have hit the wall and are defaulting. Consumers used their credit and debit cards to buy $51 billion of fast food in 2006 according to Carddata. According to the Federal Reserve, 40% of American families spend more than they earn. This has led to the result in the chart below. The reversal of this trend will be necessary but traumatic. It has already begun, with the savings rate increasing to 2.6% in early 2008. David Rosenberg, the brilliant economist from Merrill Lynch, describes what has happened and what is to come:
"This is an epic event; we're talking about the end of a 20-year secular credit expansion that went absolutely parabolic from 2001-2007.
"Before the US economy can truly begin to expand again, the savings rate must rise to pre-bubble levels of 8pc, that the US housing stocks must fall to below eight months' supply, and that the household interest coverage ratio must fall from 14pc to 10.5pc.
"It's important to note what sort of surgery that is going to require. We will probably have to eliminate $2 trillion of household debt to get there," he predicts, saying this will happen either through debt being written off, as major financial institutions continue to do, or for consumers themselves to shrink their own "balance sheets".
The elimination of $2 trillion of household debt will lead to the closing of thousands of retail stores, strip malls, restaurants, and bank branches. There should be a lot of vacant buildings available in the next few years, and a few suspicious fires.
Source: Creditwritedowns.com
8. Banks are doing what they usually do. They are closing the barn door after the pigs have escaped. As their losses have crossed the $500 billion mark, it is getting tougher for them to convince more suckers to buy their stock. They have so much toxic waste “assets” on and off their books at inflated values that they can not or will not lend. The Federal Reserve reported that banks have tightened standards for all loans in record numbers. After giving loans to anyone with a pulse for the last five years, this information is refreshing. But based on the well qualified assessments of Bridgewater Associates and NYU economist Nouriel Roubini, there is still $1.0 to $1.5 trillion in losses to go. Bank lending to consumers will be subdued for years.
Source: Mike Shedlock
9. Government unemployment figures have begun to skyrocket, while the true unadjusted unemployment figures point to a major recession. If the number of people who have given up looking for a job were included, the official 5.7% unemployment rate would jump to 14%. People without jobs can’t spend money or make mortgage payments. With the deep recession that I anticipate, the official figures will reach 7%. This will result in lower consumption.
Source: Haver Analytics
10. Car sales have plummeted. The major car manufacturers have stopped leasing cars to consumers. J.D. Power and Associates forecasts car sales of 14.2 million units in 2008, a 12% decrease over the 16.1 million units in 2007. This would be the lowest level since 1993. For many years, virtually anyone could lease a luxury automobile and appear to be successful. In 2007, one of every five new vehicles was leased. When that current lease runs out, good luck trying to get a new one. Chrysler, GMAC, Wells Fargo and others will no longer offer auto leasing. They have taken massive losses due to the huge decline in residual value not accounted for in their nice little financial models. You can’t give away a truck that gets 10 MPG today. Expect to see more junkers on the road.
Source: J.D. Power
11. Retail store closings and retail bankruptcies have begun to accelerate. This will lead to hundreds of thousands in job losses. Barry Ritholtz recently documented the fate of many retailers so far:
Ann Taylor closing 117 stores nationwide
Bombay Company: to close all 384 U.S.-based Bombay Company stores.
Cache, a women’s retailer is closing 20 to 23 stores this year
CompUSA (CLOSED).
Disney Store owner has the right to close 98 stores.
Dillard's Inc. will close another six stores this year.
Eddie Bauer to close more stores after closing 27 stores in the first quarter
Ethan Allen Interiors: plans to close 12 of 300 stores to cut costs.
Foot Locker to close 140 stores
Gap Inc. closing 85 stores
Home Depot store closings 15 of them amid a slumping US economy and housing market. The move will affect 1,300 employees. It is the first time the world's largest home improvement store chain has ever closed a flagship store.
J. C. Penney, Lowe's and Office Depot are all scaling back
Lane Bryant, Fashion Bug, Catherines closing 150 stores nationwide
Levitz - the furniture retailer, announced it was going out of business and closing all 76 of its stores in December. The retailer dates back to 1910.
Macy's - 9 stores closedMovie Gallery – video rental company plans to close 400 of 3,500 Movie Gallery and Hollywood Video stores in addition to the 520 locations the video rental chain closed last fall as part of bankruptcy.
Pacific Sunwear - 153 Demo stores closing
Pep Boys - 33 stores of auto parts supplier closing
Sprint Nextel - 125 retail locations to close with 4,000 employees following 5,000 layoffs last year
Talbots, J. Jill closing stores. Talbots will close all 78 of its kids and men's stores plus another 22 underperforming stores. The 22 stores will be a mix of Talbots women's and J. Jill
Wickes Furniture is going out of business and closing all of its stores. The 37-year-old retailer that targets middle-income customers, filed for bankruptcy protection last month.
Wilsons the Leather Experts – closing 158 stores
Zales, Piercing Pagoda plans to close 82 stores by July 31 followed by closing another 23 underperforming stores.
I know Linens & Things just went belly up, and Steve & Barrys recently filed for bankruptcy protection and sale.
12. Mall owners and commercial developers are on the brink of bankruptcy. Commercial developer CB Richard Ellis didn’t sound too optimistic in their recent 10Q filing:
We are highly leveraged and have significant debt service obligations. Although our management believes that the incurrence of long-term indebtedness has been important in the development of our business, including facilitating our acquisitions of Insignia and Trammell Crow Company, the cash flow necessary to service this debt is not available for other general corporate purposes, which may limit our flexibility in planning for, or reacting to, changes in our business and in the commercial real estate services industry. Notwithstanding the actions described above, however, our level of indebtedness and the operating and financial restrictions in our debt agreements both place constraints on the operation of our business.
General Growth, a mall developer, looks like a prime candidate for bankruptcy based on their recent 10Q info. Mike Shedlock assesses their situation:
Interest expense for 3 months ending June 30, 2008 was $312,943,000.Net Income for 3 months ending June 30, 2008 was $34,082,000 Earnings per share from continuing operations was $.01 Earnings per share from discontinued operations was $.12 If the cost to refinance $18 billion were to rise to 8.0%, interest expense would rise by 50% to a whopping $469,414,000 per quarter. Even 7% would be a killer based on the numbers presented above.
Given that the Shopping Center Economic Model Is History and credit is tightening everywhere, General Growth Properties is going to be in deep trouble if credit conditions remain as they are, or even if they improve slightly. I expect credit conditions to worsen.
13. Consumer and business confidence is shot. Consumer confidence is at multi-decade low levels. Small business confidence is also at historic lows. Small businesses do most of the hiring in the U.S. Consumers and businesses are correct in their assessment of the situation. It is our political and corporate “leaders” that are in denial.
In conclusion, the gathering storm has arrived. It will be long, painful and destructive. Those who prepared for the storm by not taking on excessive debt and living above their means, will ride it out unscathed. Those who built their house on sand by leveraging up and living the “good” life, will see their house swept out to sea. The storm will pass and we will rebuild. Our country is resilient. The purging of this massive debt will result in the creative destruction that is the hallmark of American capitalism. New opportunities, new technologies and a new attitude will put us back on course.
There has been and will be resistance to the inevitable deep recession that is coming. The American consumer is not cutting back willingly. They are being dragged kicking and screaming towards the joys of frugality. The “material generation” needs to dematerialize. My biggest concern is that our politician leaders and their cronies running our government will continue to try and reverse the normal capitalistic course of recession and expansion. Companies need to fail, housing needs to find its bottom based on supply, demand and price. Those who gambled must be allowed to lose and suffer the consequences. If the government attempts to shift the losses to those who lived lifestyles of thrift, an angry uprising will ensue. Government intervention in this natural process could lead to a decade long depression. Let’s hope that reasonable heads prevail.
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This article has 177 comments:
The small frugal family needs to take proactive action to protect whatever capital it has. Get out of stocks and (most) bonds. Put at least 50% in precious metals - gold or silver coins. Lay down stocks of long-life staple foods if you can get them at a fair price, well-packaged and continually rotate the stocks (only buy what you like to eat). Make all essential repairs to your property and lay down a stock of spares and tools. Think about where you would get water in a civil emergency and take action. Now is the time to make sure you have a working bicycle; there is a high probability of either rocketing fuel prices or unavailability. Buy a decent book written by Pioneers; tips and methods used by your great-grandparents. They lived off the land before industry started.
Thanks again for sharing your excellent article.
I agree with a previous commenter that you are too optimistic about assuming that the Government will not try to shift the losses to those who lived in thrift. Some early signs are ominous: for example, we are handling the foreclosure crisis by trying to prevent foreclosures. We are planning to spend more by means of stimulus packages instead of less. As you mention, this reversal of the capitalist process will only delay the inevitable. I would have liked a better, more elaborate treatment of an investment plan in that scenario. Also, you should include in your article the possible fates of the dollar.
Good article, lots of facts, and hence, I can't argue with the conclusion.
I will predict a huge run on the stock exchange starting in about 8 months and will let time set who is right.
www.contraryinvestor.c...
And, there are always ways to make money in the market...always.
The commentary in this was enough to make a few people up here with me remember their grandparents comments about the Great Depression and how they made it through that. they survived quite well considering the stuff they had to do and , well, let's face it, the party is well and truly over, as it should be...
When one listens to the quiet one can hear the bleats of in the distance...
I found his discussion of alternative investments of interest. His chapter on improved risk management covered overlays. He discussed that the portfolio “requires a high-frequency monitoring of the betas” to key market risk factors such as equity, interest rate duration, currency and credit risk. When he started the discussion of the factor decomposition of the portfolio, it made me think we all need to consider the overlay strategies in investment and pension funds. Your thoughts?
This time it is the "Great Correction".
Also nut trees, a large garden and some chickens. A strong fence, some guns (lots of ammo) and several guard dogs. Your own water well, solar power... a house designed to repel small arms fire, with several camoflaged, secure emergency exits. Also 4-wheel drive vehicle, flood survival gear (canoe or small boat), survival gear including 1st-aid kits. Lots of bottled water and 1 dozen extra cots & blankets (when eveyone else sinks, you may want to accomodate a few others). You get the idea.
Can a massive “readjustment” be far off (e.g. the UK in the 1949 and then again in '67)?
"...The debt induced spending that occurred from 2001 until 2007 accounted for virtually all the GDP growth over this time. Without the mortgage equity withdrawal, the U.S. would have had less than 1% average GDP growth for the entire period."
One quibble...credit card debt is going up, but not at previously seen rates nor is interest paid (NI) going up. Many, granted not all, folks use cards and pay at month end. Plus, as the auto bill, internet, etc expands, credit card usage goes up. Delinquencies and losses certainly are going up, but soon credit card balances will have to be separated into revolving vs paid.
Key:
My biggest concern is that our politician leaders and their cronies running our government will continue to try and reverse the normal capitalistic course of recession and expansion. Companies need to fail, housing needs to find its bottom based on supply, demand and price. Those who gambled must be allowed to lose and suffer the consequences. If the government attempts to shift the losses to those who lived lifestyles of thrift, an angry uprising will ensue.
great points:
The elimination of $2 trillion of household debt will lead to the closing of thousands of retail stores, strip malls, restaurants, and bank branches. There should be a lot of vacant buildings available in the next few years, and a few suspicious fires.
Government unemployment figures have begun to skyrocket, while the true unadjusted unemployment figures point to a major recession. If the number of people who have given up looking for a job were included, the official 5.7% unemployment rate would jump to 14%.
thanks james, great job
Thomas Jefferson was concise in his early warning to the American nation, "If the American people ever allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all their property until their children will wake up homeless on the continent their fathers conquered."
found on: sonic.net/sentinel/nai... (note: not affiliated with this site)
People aspire to move up, mimic the life of rich. This is wrong of course, but it is a human nature that will not be stopped. Same thing --keeping up with your neighbors will always be there no matter what economy. People in slums do the same thing! This is true in the whole world, not only in America. But only in America you can make it from nowhere to multimillionaire. Aspiration for wanting more is not a bad thing. It fuels ambition to be the better than others, to make money. create business, etc.
2.If government would not punish our savings by taxing them, we could start saving more. What if government woud provide some incentive for savings? Our economy is based on sales and not savings. I am not sure if anything will change this.
3.I slightly disagree with your post 9/11 assesment of what US should have done. We all remember that. Terrorists wanted to cripple us financially. This is also one of their ongoing strategies. Stock market was rapidly sliding, people were scared home. Donating money did not boost economy.
4.Also I disagree that it was Bush whos objective was: housing for everybody. Bush did not create FHA. This idea stems from this kind of program. I don't know this, but I bet this idea stems from democrats.
If you look closely at retailers--most of them are old, or those who did not pay attention to trends, or overbuild. Retailers are hurting, but these particular retailers--reasons are more complex than just downturn.
Overall I really like your article. It brings clearity to this situation. We will need time to heal. Government actions will be crucial--you are right. This election will be nail biting for so many reasons. America needs experienced leader, not a cheerleader.
THE FUTURE OF FAMILIES IN AMERICA
In this ever changing and increasingly perplexing world, many Americans peer into their future with uncertainty and confusion. I am convinced that a widespread deception is at the core of this confusion. Modern day Americans have been duped and are in dire need of clear teaching and leadership about the times we live in.
We in America have been led to believe that Americans will escape suffering and hard times. Where does this belief come from? To begin with, it evolves from “life as we have always known it.” Our generation has experienced one of the most prosperous eras of any nation in history. As a whole, we don’t have a clue as to what real suffering and difficulties are; we just know the “good life.” Additionally, the popularity of all the “super success books” focusing on easy wealth accumulation, have diverted Americans from observing the events unfolding right before our eyes. We have been fooled into thinking that America guarantees us a soft life because we are # 1. But this deception leaves Americans confused, asking, “Where is the good life?” Why is this happening to me? This isn’t what I’ve been promised!” As a whole, the American people of today have bought into the American Dream & the Gordon Gecko entitlement philosophy, hook, line, and sinker. However, neither history nor reality gives credence to this popular “easy times for life” gospel of today. It is not consistent with current trends, or history itself.
And what does history demonstrate? In 1900, Great Britain ruled the world, fully convinced she would forever retain her supremacy. However, gradually over the next hundred years, her standard of living fell by 50% compared to the rest of the developing world. Meanwhile, due to our nation’s industrial productivity and military might, America’s standard of living surpassed Great Britain, more than tenfold. By 2000, Great Britain and America had merely swapped places as world rulers. Do we really have any reason to believe we will maintain our preeminent position? Or will America, like Great Britain, fall to the wayside and become a far lesser entity in the world? All current indications point to America falling from the top, and falling hard.
It behooves us to contemplate the fast-approaching storm that will soon hit all of America, especially families and the poor. Out of the East, China and India are fast becoming economic superpowers, soon to claim America’s status as world leader (as America once did to Great Britain). China’s GDP (gross domestic production) is currently running at about 12% -15% a year. At this rate, China will add approximately 300-400 million middle class consumers over the next ten years, all with surplus money to spend. This scenario will create enormous upward pressure on commodity prices such as gasoline, wheat, corn, cotton, lumber, steel etc. Furthermore, India is on track to add another 100 million middle class consumers to the planet and on top of that, there are over one hundred smaller, but expanding, economies in nations such as Russia and Brazil with a current GDP of at least 3% - 4%. Collectively, we’re looking at close to one billion consumers poised and ready to purchase our precious commodities. At the same time, globally, we are losing approximately 38,000 acres of arable land a year while adding approximately 100 million people per year. What will the end result be? The “pinch” Americans now feel at the check stand will escalate into an “economic tsunami.” Our nation will suffer hardship never thought possible in America.
To further confuse people, politician after politician, President after President, keeps promising Americans a better future, a future they cannot produce. And Americans, so used to good times, desperately cling to the promises, not wanting to face a life of less that seems to be inevitable.
Now more than ever my fellow Americans, we need to live wisely, build community, save and invest our recourses, and adjust quickly to the global changes of our world.
He was distraught because he thought that the financial crises was, for the most part, behind us. These guys on CNBC, including Larry Kudlow and that raving lunatic Jim Cramer, don't have a clue.
I take issue with some of the comment thought "But only in America you can make it from nowhere to multimillionaire"
The richest man in the world is a Mexican who was not born rich. I have relatives who live in England who have a life-style as good or better than any Americans I know. This arrogance of Americans in thinking that they are the only ones in the world who can get rich or have a superior life-style is a bit nauseating.
The "American Era" is over, this is the dawn of the "Asian Era" and those who think not will die with the old Era. Unfettered Capitalism has run it's course and the golden goose was slaughtered.
There has to be a reward to saving beyond patting yourself on the back for being virtuous.
On Aug 14 05:54 PM xsuddensam wrote:
> I had a good laugh this morning listening to chief CNBC talkinghead
> Joe Kernen complaining about another Wall Street Journal article
> reporting more credit problems on the horizon.
>
> He was distraught because he thought that the financial crises was,
> for the most part, behind us. These guys on CNBC, including Larry
> Kudlow and that raving lunatic Jim Cramer, don't have a clue. <br/>
>
There is a easy solution to the housing crisis - open the tap for immigration. Any rich foreigner, who does not have a criminal record and can document his earnings, and who can buy a house for cash (no mortgage) should be given a green card.
The problem will not only be solved in no time, but there will be a huge boom in real estate fueled by equity - not debt.
I guess I could exchange my dollars for euros, yen, or Aussie dollars and park that money in foreign banks. At least then I could afford to escape if things got really bad and I acted promptly enough.
Instead, I plan to invest in more education - business and a foreign language. Guaranteed high returns and the flexibility to not be trapped in a declining soon-to-be 3rd world country.
"If you want to blame anyone it should be the democrats who forced banks to loan money to people to buy homes they could not afford..."
Since most bankers are Republicans, can you tell me how this works? I thought banks are in the business of making money. Surely, no banker is going to be forced to make fraudulent and stupid loans to people who don't qualify. The incentive for making these loans was simply greed.
As I recall, congress has only been a Democratic majority since January of 2007 (seated) -- less than two years. The bulk of these loans were originated with the blessing of a Republican congress and a Republican white house.
Where will the money come from to merely pay the INTEREST on $53 Trillion of current PRINCIPAL (not future DEBT=PRINCIPAL + INTEREST).
How did we get here?
We got here altogether.
While government is corrupt, voters empowered the corruption by repeatedly rewarding corrupt politicians with perpetual re-election:
one-simple-idea.com/Co...
We got here due to these 10+ abuses over the past 30 years:
one-simple-idea.com/Di....
Now we are only beginning to feel the painful consequences, as evidenced by these 17+ deteriorating economic conditions, which have never been worse ever and/or since the Great Depression:
one-simple-idea.com/Ne...
But, perhaps enough voters will be less apathetic, complacent, and blindly partisan when enough of the voters are deep in debt (one-simple-idea.com/De...) , jobless (money.cnn.com/2008/06/...) , homeless (one-simple-idea.com/Di...) , and hungry (www.results.org/websit...) ?
At any rate, the voters have the government (one-simple-idea.com/Li...) that the voters elect (one-simple-idea.com/Co...).
one-simple-idea.com/Co... (Pressing Problems...)
one-simple-idea.com/Di... (Root causes...)
one-simple-idea.com/Ne... (Painful consequences)
one-simple-idea.com/So... (Solutions...)
I kept waiting for someone, anyone, to mention energy. Doing a search puts the first mention of that word (thanks, Tim Miles!) in the second-to-last comment.
Let's talk a bit about fundamentals -- REAL fundamentals. Everything we do depends on energy. Some have said that Americans are resilient, creative, inventive, etc., and that we will figure a way out of this, and civilization will soon resume its upward path of infinite growth in a finite world. And yet, there is only so much energy -- and there is evidence that it is on the edge of terminal decline.
Today, even the poorest person supporting a family on a minimum wage income has the support of hundreds of "energy slaves." Pop a slice of bread in the toaster in the morning, and the energy equivalent of FIVE or more human slaves gathers fuel and starts a fire for you. Hop in that beater vehicle to go to your minimum wage job, and the energy of a THOUSAND human slaves push your vehicle down the street.
This will not continue. The gross energy consumption of the US exceeds the energy collected from sunlight of all the plants growing in the US by some 50% or more. We are in the last few decades of consuming the "ancient sunlight" that nature has stored.
So what we are seeing is simply the result of the beginning of energy suffocation of civilization. James Quinn does a brilliant job of analysing the secondary and tertiary effects of the beginning of the energy decline, but totally misses the underlying reason.
Understanding the energy decline is the key to survival.
And yes, the devotees of Adam Smith can be counted on to chorus that rising energy costs will simply enable other technologies and sources of energy. The problem is that cheap energy is a pre-condition for making solar panels, wind turbines, and biofuels. Take away the scaffolding, and the entire platform collapses. Analyse these in terms of energy, rather than dollars, and the future is not so predictable. Adam Smith's "invisible hand" is blind to finite limits.
Imagine you're in a space suit, orbiting earth. The space suit is stuffed with millions and millions of dollars of US paper money. Or what the heck -- call it gold, diamonds, or whatever else you can stuff in there. You have ten minutes of air left. The question is: how much will you have to pay for an additional ten minutes of air? Or even one minute?
To bring that analogy "down to earth" in the immortal words of Kenneth Deffeyes, "The economists all think that if you show up at the cashier's cage with enough currency, God will put more oil in ground." It ain't so.
If this concept is new to you, I encourage you to explore some of the following websites. This is not simply nut-case stuff. It's real, and we're now feeling the first effects of the terminal energy decline.
www.energybulletin.net
www.peakoil.org
www.peakoil.com
www.dieoff.org
One-Simple-Idea.com/US...
You know the saying: "When it rains, it pours".
However, in my opinion, the most significant root causes of most of our problems today are these 10+ abuses:
One-Simple-Idea.com/Di...
. . . which are mostly the cause of these 17+ deteriorating economic conditions:
One-Simple-Idea.com/Ne...
Voters are culpable too, since most voters repeatedly reward bad politicians with perpetual re-election.
But, perhaps enough voters will be less apathetic, complacent, and blindly partisan when enough of the voters are deep in debt (one-simple-idea.com/De...) , jobless (money.cnn.com/2008/06/...) , homeless (one-simple-idea.com/Di...) , and hungry (www.results.org/websit...) ?
Perhaps when enough voters are feeling enough pain, they will do what most voters did in year 1933 (3+ years into the Great Depression; too late to avoid the pain of the excesses of the 1920s), when a whopping 206 members of Congress were voted-out of office.
One-Simple-Idea.com/Co...
At any rate, the voters have the government (one-simple-idea.com/Li...) that the voters elect (one-simple-idea.com/Co...).
one-simple-idea.com/Co... (Pressing Problems...)
one-simple-idea.com/Di... (Root causes...)
one-simple-idea.com/Ne... (Painful consequences)
one-simple-idea.com/So... (Solutions...)
One-Simple-Idea.com/De...
Our current nation-wide debt pyramid is now so huge (e.g. over $53 Trillion), it's probably no way to avoid the collapse. All that can be done now is to try to delay the collapse by creating more money out of thin air. But that won't work when most people can no longer carry any more debt.
This is why no one can answer the simple question:
WHERE will the money come from to pay merely the INTEREST on $53 Trillion of nation-wide debt, much less the money to pay down the PRINCIPAL, when that money does not yet exist?
It may take several more years, but the DEBT will continue to grow and grow. The Federal Reserve's only choice is to continue to keep inflation high by creating more money out of thin air. In fact, the government will give away money if necessary (in the form of more stimulus checks).
The writing is on the wall.
Do the math.
$53 Trillion of nation-wide debt is a recipe for economic disaster.
Where will the money come from, when it doesn't already exist?
Especially when 80% of all Americans only own 17% of all wealth?
"May you live in interesting times," the old Chinese admonition goes. Investors are headed for some interesting times indeed.
I am not sure that the government is corrupt since I have spent nearly 32 years in it and work alongside highly dedicated and professional public servants. Perhaps certain people in our political system are corrupt, but American voters have a responsibility to do something about it. I have voted in every election since I received the right to vote so I am not to blame.
For an alternative take on CC debt, see:
articles.moneycentral....
IMV wrote: The economy will recover by mid 2009. Buy assets NOW!! And join me in the next party.
______________________...
Think so?
Where will the money come from to pay the INTEREST for $53 Trillion of nation-wide debt, much less the money to keep the PRINCIPAL of $53 Trillion from growing ever larger?
And that $53 Trillion of nation-wide debt does not even include the $12.8 Trillion borrowed and spent from Social Security, leaving it pay-as-you-go, with a 77 Million baby-boomer-bubble approaching.
It may take a few more years; perhaps even another decade, but there will be painful consequences for so much debt.
Take of those rose colored glasses.
The U.S. is in serious economic trouble that will be painful for many people for many years.
Sure, blind pessimism is foolish, but so is blind optimism; like an ostrich with it's head stuck in the sand . . . it had better be careful it really isn't a bucket of setting concrete . . . a mishap that perhaps could be avoided if it weren't for the rose-colored glasses.
P.S. David Walker, former U.S. Comptroller has been warning us about the massive debt and exacerbating problems for years.
Watch some of his videos.
It's more serious than many know.
One-Simple-Idea.com/De...
At any rate, here's one simple question.
WHERE will the money come from to pay the INTEREST alone on $53 Trillion of nation-wide debt, much less the money to keep the $53 Trillion PRINCIPAL from growing larger, when that money does not yet exist? Can you say: inflation ?
The Federal Reserve and government are now in a real pickle, and they will be creating massive amounts of money, and giving it away for free (i.e. more stimulus checks) to keep the pyramid from collapsing.
At any rate, the voters have the government (one-simple-idea.com/Li...) that the voters elect (one-simple-idea.com/Co...).
one-simple-idea.com/Co... (Pressing Problems...)
one-simple-idea.com/Di... (Root causes...)
one-simple-idea.com/Ne... (Painful consequences)
one-simple-idea.com/So... (Solutions...)
into America then who would have built all of these homes? My educated guess leaves me to believe that the normal working man would have built these homes. Less soldiers means smaller army.
Smaller army means less homes. Less homes means better economy. If you think about it these homes built by illegal criminal immigrants were in retrospect illegal operations. Illegal doings have consequences. Thanks to all of our politicians who were to much of a coward to stand up for what is right has now lead us down the very spiral we fall today and tomorrow. Anyone who cannot see the problem
America faces today and in the coming YEARS has something wrong
with there reasoning system. It is a new disease. Something that plagues us all. Denial. GOOD LUCK AMERICA!!!!!!!!!!!!
You are living a life based on false economic pretenses.
It doesn't really matter that you are no longer able to lease that overpriced luxury car. You wouldn't be able to afford the gasoline to operate it even if you could.
Don't think that just because you were able to borrow your way into high six or seven figure balance sheet, that you are wealthy. Far from it!
In my father's day they called it a DEPRESSION.
These days it is called a correction.
Either way, it is the Middle Class who will suffer the longest and hardest.
Thank you Alan Greenspan, Ronald Reagan, Bill Clinton and G. Bush 1 & 2.
Great work!
www.wharton.upenn.edu/.../
Hmmmmmm?
You seem to be an intelligent man. But you have quaffed too much of the media Kool-ade.
To wit: GAO says 68% of corporations pay no Federal income taxes.
To wit: The Federal income tax system favors the rich.
The facts...the GAO study also mentions that 50% of corporate earnings passe through the Sub-S and LLC corporations untouched but flows DIRECTLY to the shareholders pro-rata to be taxed on their 1040s instead of the corporations' 1120s. No tax is lost.
The 68% allegedly lost is reduced by the 50% paid by the shareholders directly. The other 18% represents (in the main) corporations that had negative earnings.
Of Federal income taxes, the top 1% of income earners pay 39.4% of all Federal income taxes yet own only 21.2% of all income. The top 10% of all earners pay 70.3% of these taxes with only 46.4% of the income.
Moreover, the bottom 50% of all earners pay 3.07% of the taxes with 12.8% of the income. This favors the rich? I pay 33.4% of my total income for Federal taxes, an amount equal to more than 2000 of the average from the lower 50%.
Do a little fact finding before regurgitating the media myths.
Why don't you try to say something intelligent rather than calling people frauds. I'm not on the faculty. Look in the staff diectory. I guess with your research skills, you aren't a graduate of Wharton.
Details - Public View Close
JAMES G QUINN
Sr. Director of Strategic Planning, Wharton Finance and Planning (Staff)
jamg@wharton.upenn.edu
Try Googling "James Quinn Wharton". You'll find plenty of professional activities for your "fraud". Next time don't go off half-cocked. Get some facts first.
The argument goes something like "screw the other guy more or earlier than he screws you", but bottom line, living on interest (usury) instead of production isn't a solid foundation for an economy.
In fairness to all, could you clarify what your role is at Wharton?
Oh, and to Mr. jlounsbury59, the results you get from your suggested google search do not lead to the author of this article (except for a bunch of reprints of blog entries from the last couple weeks.)
Favorite comment is from OldLimey - great summary about American consumerism.
My own comments:
1) This article would seem to advocate for what Greenspan recently wailed about - wiping out Fannie and Freddie and starting anew. I'd imagine that would fix at least a large portion of the mortgage mess, although not necessarily the balance sheets of American consumers.
2) Interesting to track the boom/busts of the past 10 years. First, it was in stocks, which have since recovered, even the techs given their P/Es. Then, it migrated to housing, which is nearing a bottom. Now, it is in commodities, which with the dollar's ascent, are fast falling themselves. What's next? Am I missing a market? Or are stocks really ready for another speculative boom cycle? Or should we...
3) Look to other consumers - I will focus on China, although other regions may also have a similar backdrop. The size of its currency reserves, the still pristine savings rate, and the more-than-likely continued, unstoppable growth seem ripe for the flourishing of the Chinese consumer. Such a development would be healthy for the country, as it would be able to self-sustain its economic growth, and become less dependent on exports. In the international arena, it has every reason to pursue such a path to smooth relations with debtor nations. Moreover, with the recent plunge in Chinese equities, incredible deals are ripe for the picking.
Conclusion:
I think if one were to take this article seriously a decent course of action would be to
1) Deleverage, as many others have already commented on
2) Buy puts or sell short Fannie and Freddie
3) Stock up on single-digit P/E developing nation stocks with a similar profile as China.
Be careful of
1) Nations reliant on commodities - WSJ just put out an article citing speculative activity accounting for the majority of the transactions in the oil market - it is easy to imagine other commodity markets, and hence other nations' economies, infected by the same disease
2) US consumer discretionaries without a strong, diversified international portfolio (just don't let an AAPL hit my head)
3) Single-digit P/E US stocks, but ahem, there is no such thing.
Cheers, and happy hunting!
When I wrote "Nations reliant on commodities", I meant "Nations reliant on exporting commodities", not importing them. I'm sure Japan would be quite happy (or less unhappy) if commodity prices fell further.
Donnernv wrote: Moreover, the bottom 50% of all earners pay 3.07% of the taxes with 12.8% of the income. This favors the rich? I pay 33.4% of my total income for Federal taxes, an amount equal to more than 2000 of the average from the lower 50%.
Do a little fact finding before regurgitating the media myths.
______________________...
Funny how those accusing others of perpetuating myths are the very ones doing it.
Your numbers and percentages on income taxes exclude one important fact: those tax rates are on adjusted income; NOT gross income. The current tax system is regressive due to a myriad of tax loop-holes that favor the wealthy.
Not only that, capital gains and dividends are not subject to Social Security and Medicare taxes.
Social Security and Medicare taxes are 15.3% (half from employee, half supposedly from employer, but really comes out of employee's pocket).
Not only that, but Social Security is capped at about $98K, making it even more regressive.
Not only that, capital gains are taxed from 5%-to-15%.
The tax system is regressive and unfair.
The middle-income groups is getting soaked.
Here's the proof:
One-Simple-Idea.com/Di...
Sorry for reacting angrily to your post. I am responsible for Planning and Budgeting at Wharton. My group supports the faculty in their efforts in research and teaching. Faculty are referred to as faculty. If the title is director or senior director, that means you are staff.
and give the middle class a tax break. Boy that sure sounds good doesn't it. Oh wait, I just lost my job because the evil big business are now paying huge tax increases and in return has to cut back on 2,600 jobs to make up for lost revenue. I really don't think a tax break for middle class is going to help me if I don't have a job. Now instead let us give big business a tax break and a chance to expand with opportunity for new employment instead of laying people off. Wow, new jobs. Like I said before everyone is in denial of what's going on around them. Americans have become such brats that instead of embracing new data for educational purposes such as the article above they would rather spend all there time trying to discredit. Open your eyes America
and realize it is time to think about the big picture and not just yourself.
This effects us all and it's sad to believe that most will not even try to see the existence of this national problem until poverty comes knocking at their door. GOOD LUCK AMERICA!!!!!!!!
Maybe even more worrisome are the measures the USG will take to get us out of this mess. The more likely will tend to salve the self-inflicted wounds, but not address their systemic basis (such as the much-ballyhooed tax stimulus package). In the end, if we do not do what is necessary to fix our financial system and our own way of living, we will only add pain for ourselves, our children, and our grandchildren.
The Barren wrote: Yes, lets talk about taxing the big business. I do not believe anyone is thinking clearly enough to see who they work for. So lets tax big business
and give the middle class a tax break. Boy that sure sounds good doesn't it. Oh wait, I just lost my job because the evil big business are now paying huge tax increases and in return has to cut back on 2,600 jobs to make up for lost revenue. I really don't think a tax break for middle class is going to help me if I don't have a job
______________________...
You're right.
Taxing corporations is really like yet another regressive sales tax on consumers.
The tax system is already too regressive.
One-Simple-Idea.com/Di...
Taxation doesn't have to be so complicated.
The reason it is so complicated (by design) is so that it will be ripe for abuse.
We need a simpler and fair tax system.
Here's a good start: One-Simple-Idea.com/Ta...
Of course, that would make too much sense, and Do-Nothing Congress (One-Simple-Idea.com/Co...) is a graveyard where good ideas and common-sense solutions go to die.
At any rate, the voters have the government (one-simple-idea.com/Li...) that the voters elect (one-simple-idea.com/Co...).
one-simple-idea.com/Co... (Pressing Problems...)
one-simple-idea.com/Di... (Root causes...)
one-simple-idea.com/Ne... (Painful consequences)
one-simple-idea.com/So... (Solutions...)
We can't raise taxes when the economy is bad, we can't raise taxes when the economy is good, and we can't cut spending. So lets just print more money, hide the tax increase and B.S. the middle class
into thinking they're getting ahead.
That's is the only option left.
But it won't work for long.
Eventually, the debt pyramid will collapse.
The real issue is the energy issue. I am an optimist and believe that it can be solved. I'm not saying there won't be huge pain that comes from lowering expectations. But I don't think it's about to dry up overnight... I don't think the sky is falling. But with energy who really knows? If it's energy that's the long-term problem then debt on the books of Americans won't mean much anyway.
We can build large scale solar, wind, nuclear, and other innovative technologies here. We can build products to sell to China and to other places in the world. The infrastructure is here. If Asia is the next wave of prosperity, it will be because America is paying off the debts it has acquired. In short, just because an era of massive consumption may be coming to an end, this country and the people here won't just wither away. We have agriculture and infrastructure and people and factories here. We will just become producers and savers by necessity. The shoe will soon be on the other foot... ie, we will be the next China. The wave of pessimism seen in the comments here is a necessary stage, but don't forget that the sun also rises. In the long run this isn't the downfall of America, it's simply the rise of other countries. And we went into debt for it. And it won't be fun to work our way out of the hole. But America won't be cut off from from the international finance system. Stop crying, take note of the reality, and deal with it.
Laugh out loud funny.
Hopefully, the I.O.U.S.A. movie will be a success. First you admit you have a problem - and then you can go about the business of trying to solve it.
Brilliant! I wish I could have said it better myself. seekingalpha.com/artic...
A different long-term solution is to invest offshore in global growth stocks. Several international stocks are now growing explosively and are offering good dividends. YUM and DEO are good examples which are linked to food and beverages in EU and Asia. Fundamentally, they are very well-managed companies with strong books, and they are recommended for a "buy & hold" strategy by many groups all over the Internet, that is "buy & forget."
Another angle for approaching the doom & gloom issues is to view everything as a "numbers game." If you think the dollar will undergo something like what happened to the Ruble during the dissolution of the USSR, then consider the price fixing history of gold over the last 50 years. What happened in Japan is also not likely to occur, since the problem there was that the Japanese government didn't do anything. (Our Fed monitors everything very closely). It would be beneficial to start reading up on the history of fiat currencies (paper money) and their demise, why the US got off the gold standard, history of how much gold is in Fort Knox and what happened in the 30's and 70's in the lifetime history of gold. Once the picture becomes clear, you will begin to realize that there is no way that goldville will be the only place to live in the future. There's a lot of manipulated (paper) money out there in the form of electronic digits, and thus, it's an erroneous assumption to expect that significant dollar devaluation will occur and that gold will explode to 2000 overnight. With gold, history has shown that the advantage is related to the long-term chronicity of hedging against dollar devaluation, and not some get-rich-quick scheme based on overnight rallies. Over the long term, you would actually want a lot of gold in your portfolio, so after the price of PM's (precious metals) settles down, then maybe buy again for safety reasons. One thing is certain, if the price of gold got down to say the true value (not overpriced significantly) then you would want to buy say 500K or 1m of it, and then you will have a nice nest egg. Of course, the timeframe here is over the next 10-20 years, when the dollar won't be the fiat currency of the world. Fundamentally, whatever you are doing, you have to invest in growth - companies with rock-solid management and profitable books. Betting (hedging) that your portfolio is going to grow with e.g. a PM is not growth. Last, be careful about groups that focus solely on investment with US stocks, because the US economy makes up only 15-20% of the global economy. In real terms, because we're the greatest debtor nation, the true percentage is probably 5-10%.
Perhaps it is time to rethink the entire idea of usury.
At one time, usury was loaning money at any rate of interest.
It is interesting that we now consider some usury OK.
But if usury is bad, how can a little bad be good?
If inflation is bad, how can a little inflation be bad?
But, aside from the moral question, there is a mathematical problem.
That's why no one can tell us where the money will come from to pay the INTEREST on $53 Trillion of nation-wide debt, much less the money to pay down the $53 Trillion of PRINCIPAL, and keep the PRINCIPAL from growing ever larger, when that money does not yet exist ! ? !
The M3 Money Supply in year 1950 was 135 Billion.
By year 2005, it was $10.15 Trillion.
That's a factor of 75.2.
Yet, we did not become 75.2 times wealthier, did we?
Especially when the population doubled from 150 Million to 300 Million.
So, where will the money come from?
There's only one option left, and it's not a good option.
The government and Federal Reserve will create more money out of thin air.
However, that upside-down pyramid will eventually collapse when we can no longer carry any more debt.
A 1950 Dollar is now worth 10 cents.
Inflation will most likely get worse.
If necessary, the federal government and the Federal Reserve will start giving away more money (i.e. more stimulus checks) and tax cuts to stave off the collapse of the monetary system.
And all of those nations that invested in the U.S.' $53+ Trillion of nation-wide debt may come to regret it (like trying to put a fire out by throwing more fuel on the fire).
At any rate, the voters have the government (one-simple-idea.com/Li...) that the voters elect (one-simple-idea.com/Co...).
one-simple-idea.com/Co... (Pressing Problems...)
one-simple-idea.com/Di... (Root causes...)
one-simple-idea.com/Ne... (Painful consequences)
one-simple-idea.com/So... (Solutions...)
Well done.
I happen to think that it's very unamerican on the part of some to constantly put out the idea that the sun is setting on America. The sun is not setting on our great nation, it is rising!
____________________
Published by SA August 17, 2008 - America's Fiscal Crisis: Tough Decisions Needed Now
Previous title, Published May 2, 2008 - Why We Need Ron Paul
www.lewrockwell.com/or...
____________________
Published by SA August 13, 2008 - The Economic Cost of the Military Industrial Complex -
Previous title, Published June 18, 2008 - Ron Paul and Dwight D. Eisenhower True Patriots
www.lewrockwell.com/or...
____________________
Published by SA August 6, 2008 - Corporate Fraud + Government Intervention = Bailout Nation
Previous title Published June 18, 2008 – Corporate Fraud + Government Intervention = Bailout Nation
www.lewrockwell.com/or...
____________________
Published by SA August 4, 2008 - Delusions of Debt - Published
Previous title Published July 26, 2008 – Truth is Treason in the Empire of Lies - Delusions of Debt – The Ron Paul Solution
freethemarketman.wordp.../
There's nothing un-American about taking a critical look at the sorry state of affairs that has led us, as a country, to the brink of economic collapse. In fact, I'd argue that the collective greed and fiscal irresponsibility of those in a position of both business and political power is what's un-American here.
And though I don't want to introduce an overtly political component into this conversation, I have to say your remarks sound all too similar to those made by "proper" Americans who accused anyone openly critical of the Iraq war of being un-patriotic. Fortunately, some people understand that loving their country doesn't require them to sit passive and mute while it gets run into the ground by a wealthy minority whose own special interests trump (no pun intended) the majority of the population's.
Your statement demonstrates a complete inability to understand reality.
So please answer one question for us:
QUESTION: Where will the money come from to merely pay the INTEREST in the $53+ Trillion of nation-wide debt, much less the money to pay down the PRINCIPAL and keep it from growing ever larger to nightmare proportions, when that money does not yet