The U.S. Economy Is In A World Of Hurt

If you are not terrified, right now, about the prospects for the U.S. economy and its currency, you aren't paying attention.

The U.S. is in debt up to its EYEBALLS.  Policy makers have "lessened" this debt through fabricated reports of "growth", which has in truth just been plain old price inflation, and they have been doing it IN EARNEST for the past 8 years (prior to that they were still doing it, just half-heartedly).  You see, REAL INFLATION, the kind that measures wages versus the things those wages buy, was likely 20% over the past 12 months, and since 2000 has probably been 6 - 10% per year.  Where did I come up with that?  Just take a look at: 

1. Food
2. Gasoline
3. Healthcare
4. Tuition
5. Electricity Rates

I, personally, do not give a good fart about computer equipment prices or Ipods versus stereos. I am a family man, and I can tell you first hand that our family health insurance premium has more than DOUBLED since 2001.  Well, if something DOUBLES in 7 years, the "rule of 72" says its price increases were 10% COMPOUNDED each and every year during those 7 years.  In 2000, 8 years ago, I was paying $1.25 for gasoline (now $4.40 in Florida)... That works out to what, 17% or 18% to compounded per year (too lazy to break out the calculator)?  Don't even get me going on food, property taxes, or my son's tuition bills.

The fact is, the U.S. has not been growing out of its debt, as some jerk offs argue, we have been INFLATING out of our debt (Budget and Trade, that is) as percentage of GDP, by Bullshitting about the GDP deflator.  "Inflation" masked as "Growth"  The fly in ointment is this - the U.S. has had essentially ZERO job growth outside of GOVERNMENT for the past 6 or 7 years AND has had wage growth of only a couple percent per year.  Well folks, it doesn't take an advanced degree from a ridiculously expensive institution (whose graduates FAILED to see the damage their contrived mortgage merry go round was wreaking) to grasp that if REAL inflation is 8% and wage growth is 3%, and a trade deficit of 5% of GDP, is going to catch people up short at some point.  THAT POINT IS NOW.

And this does not take into account the doubling of oil over the past 9 months or so (which we will feel in very real and disturbing ways in about 6 months).  Meanwhile, in the background:

1. The U.S. has become the largest debtor nation in HISTORY.  
2. The U.S. has the greatest percentage of population in prison in HISTORY.  
3. The U.S. spends more on its military budget than any nation in HISTORY.  
4. U.S. manufacturing as a percentage of GDP is the lowest in HISTORY.  
5. The number of U.S. children receiving food assistance is the highest in HISTORY.  
6. The U.S. household savings rate is the lowest in its HISTORY; conversely household debt as a percentage of income is the highest in the history of the DEVELOPED WORLD.

Here we are, entering the greatest banking crisis since the advent of the 1929 stock market crash ushered in the surreal economy of the 1930's (and fascism, nazism, socialism, etc...), and this is the the theme music playing in the background.

So here's the deal. Sometime in the near future:

1.  The international central banks are going to go on a "buyers strike" of U.S. Treasury Bonds.  The interest rate on the long bonds will rocket and their prices will plummet. 
   
2. The U.S. $ will plunge in the Foreign Exchange markets.  This will usher in extreme import inflation, tripping domestic production inflation as well.  (i.e., That $120,000 imported sports car will go to $500,000.  Now think Oil, chinese goods at Walmart, etc...)
3. The U.S. will have no choice but to monetize its debt, selling bonds to the Federal Reserve who in turn creates the money to buy these bonds out of THIN AIR depressing the value of all of the OTHER DOLLARS (you know, the dollars you and I have diligently saved) around the world (and there are already too many of these).

This going to happen.  There is no force in the world that can stop this at this time.  We simply ran out the clock in this game of chicken.  Why now?  Oil imports have recently entered a permanent state of decline, and the U.S. system was constructed upon an ever expanding availability of cheap, imported Oil.

You have been seeing this in the price of Oil, Gold, and the value of the U.S. $ in the FOREX markets if you have been paying attention.  If you have not been paying attention, you are feeling it, RIGHT NOW, like a SCUBA diver that forgot to check his air pressure and is suddenly unable to breathe, in the form of declining purchasing power, crummy business conditions, falling home values, etc...

This is only the beginning.  Like a choking victim with no one around to perform the Heimlich Maneuver, the U.S. economy, which has slowly been asphyxiated, will now feel that process accelerating.  When it finally passes out, it will fall and smash its head on the concrete floor of our Trade and Budget deficits, Medicare & Social Security, Oil Imports, Mortgage Debt, and Military Spending.

No one is going to sort this out for you.  You are going to have to do it yourself.  

Good Luck!

Mentatt (at) yahoo (d0t) com