The American economy, such as it is, is a Finance, Insurance, Real Estate, Law, and Entertainment heavy shadow of what it once was. The states of New York (Finance) and California (Entertainment) are the best indicators of what will be across the nation. Municipal bankruptcies, 25 % of Americans on food assistance, up from 10% or 11% now (and then only if the system does not collapse), political crisis, and even the possibility of food shortages await Americans over the next decade. The TAXPAYERS (people who pay taxes on a NET basis) will simply be unable to meet the burden. And unlike the 1930's, we have constructed a HUGE underclass of folks with no ability to provide for themselves, and no family farm to return to for meaningful work - hell, no family (fatherless households) at all.
But we do have a great many guns; a great many groups that see themselves as "victims" of bigotry or economic exclusion; a number of religious groups that encourage their members to believe that there is something more special about their group than others; and an establishment with substantial capacity to show just who REALLY is the boss when challenged (but not in the end).
This "establishment" is likely to be pretty grumpy. They had an astoundingly fortuitous position: Some phenomenon within our system directed the vast majority of society's resources into the pockets of the top 1%. Think about that. The "Establishment" had EVERY incentive to increase the aggregate debt load of our society to the absolute max, because every debt is an equal and opposite asset to the contra party. As we expanded the American debt load from 110% of GDP in 1974 to 350% in 2007, there was a corresponding increase on the OTHER SIDE OF SOCIETY'S BALANCE SHEET. Your debts are somebody else's assets, right? The term "wage slave" was far more accurate than the masses realized, but the establishment kept the masses distracted with the pro life/pro choice, equal pay, racisim, blah, blah, blah. Anything to keep the lumpen masses at each other's throats and not keeping their eye on THE ball.
Out rolls the propaganda machine (media advertising), convincing you to work hard at jobs you HATE in order to buy shit you don't need (McMansions, cars with 2 million horse power, blood diamonds, golf club memberships), and what's worse... you were convinced to go into DEBT to do it - debt that spread out amongst the masses with the interest cash flowing back to an establishment with every incentive to keep the cycle going and expanding until, as in all exponential growth in finite medium, it crashes. (Of course, on an individual basis, most of us come to our senses deep into middle age... unfortunately, a bit too late to fix the con that has been perpetrated upon us.)
And that is where we find ourselves at this very moment. (And BTW, I firmly believe in free market capitalism. I just do not believe in fractional reserve banking or the Federal Reserve system.)
The funny thing is that the Democrats - "The Party of the Working Man and Woman" - the party in power, is desperately trying to re inflate this system. Ironic, no?
For better or worse, they will be unsuccessful in this endeavor. Americans, representing 25% of the world's GDP, need to SAVE. That means LESS net debt (dealing a death blow to attempts to re inflate), and less consumption (after all, the definition of savings is under consumption). Ergo, cars will continue to pile up in sales lots and ports around the world, empty houses will continue to rot in the rain, local and state budgets will continue to come under unbelievable pressure from a decline in sales taxes and an increase in demands from their citizens who long ago have lost any sense of self sufficiency, work ethic, and thrift.
The markets (take Gold: In 2000 it took 40 ounces of Gold to buy 1 share of the Dow Jones Industrial Average. Today it takes just over 8. In other words, stocks have lost 80% of their value against the only currency that matters) and the state budget offices are telegraphing pretty clearly what they see in our future. I have tried to communicate the stark implications of our acute dependence on the rest of the world to finance our way of life - and while I thought the crash would come through energy shortages, the financial collapse beat Oil to the punch. Rather than the world ending by fire, it now appears ice will be the culprit, with fire to follow any spring thaw.
I firmly believe events will unfold more quickly now, though I have no crystal ball to tell me what, exactly, will happen and when. I bet you will know it when you see it. The U.S. pension system cannot withstand 10% unemployment (as it is measured today) and its corresponding effects on the U.S. equity and corporate debt market. There is no guarantee that the unemployment rate is not somewhat higher.
At the time, then U.S. Treasury Secretary Henry Paulson's plea to Congress less than 4 months ago to save the banking system or risk martial law seemed rather shrill. (Don't believe that conversation took place? Just click the link and listen to members of Congress.) Now I don't think so at all, and I am convinced the banking system will be nationalized to save us, or maybe just postpone, from that unhappy outcome. Paulson and his team were wrong on the timing, not the eventual outcome, I think.
The economy is contracting wildly. This will result in substantial under investment in productive capacity of nearly all commodities - but especially energy, food, and fresh water - and the effects of shortages of these critical commodities and political repercussions of years of decline are going to hit us so hard, snot is going to come out of our collective noses.
Mentatt (at) yahoo (d0t) com
P.S. One of our regular readers (Coal Guy) made the observation that the time to prepare was last year. Although I think he is correct, it could not hurt to get going.
P.P.S. "Bureaucrat" will decry my conclusions and assertions here. There are 2 sides to every trade, a winner and a loser. I write this stuff for my own purposes, and you have to take responsibility for your own actions.
20 comments:
Thanks for the honesty.
Sounds like it's time to step up the contingency plans.
I don't decry your conclusions or assertions. :) If I did, I'd move on to another blog. There are lots of them. I aggregate information, compare it to reality, and adjust as I see fit. The gas stations are still full, as is the Jewel food stores. For now.
I watch the reruns of "All In The Family almost every night. In them, the Meathead talks about why would we want to bring a child into a crummy world like this. That was the 1970s. Well, things did change for the better -- mankind did "correct" itself somewhat at least for awhile (no coincidence the cheap oil from Prudhoe Bay and the North Sea came online about the same time. I don't think we have a savior like that available this time around). So, I always try to remember that the future is unwritten and anything can happen. But as an investor, I have to face reality and allot cash accordingly. This is allll just friendly conversation. :)
Bureaucrat:
I was just pulling your leg as you have pulled mine on occasion. I wanted to beat you to the punch, as it were.☺
The data indicate that the mortgage payment strike I spoke of in the past has materialized in much of the system. It does not have to be an all/or nothing thing.
The better metaphor is "the straw that broke the camel's back".
The banking system is going down, and will need to be nationalized. What happens from there can be very, very, very surprising to many Americans.
Long time reader, second comment. You have nailed in on the head. The PTB's believe they are entitled to the labor of the slaves. Up-risings have proven them wrong on occation for short periods of time and then it is business as usual after a while. The game is rigged for them not us.
Coal guy is wrong, the time to prepare was years and years ago.. the time Be Prepared is now.
Carl In wisconsin
>The banking system is going down, and will need to be nationalized. What happens from there can be very, very, very surprising to many Americans.<
Please elaborate.
I would guess that the fall of Wall Street/London as the world financial centers will leave the USD$ in a precarious position ... and with it, all the energy, food, and manufacturing imports that are critical to the high-level functioning of American society?
Jim Rogers feels that the few world financial centers will be in Asia. This has massive implications for currencies re especially reserve currency status of the dollar. Comments?
It may not be significant, but... the FDIC closed 3 banks yesterday afternoon. One of them, MagnetBank of Utah, is being liquidated - no other bank would take over their branches and asset/debt sheets, even with what the FDIC described as a 'significant marketing effort'. Up until now, failed banks have been taken over by other banks (paid by the FDIC to do so). This appearance of business as usual now has a crack in it.
Elaborate? It is hard to say with any confidence how this will unfold. I prefer to use Dmitri Orlov's methodology, this will occur over time and at different rates for different nations. I will say that we are talking years, not decades.
The markets are "discounting mechanisms". They discount in their values future economic conditions. Once the market figures this out, it will be point, set, match pretty quickly.
In the short run, the US$ could actually benefit from all of this.
Longer term, no fractional reserve economy can withstand the collapse of its banking system.
Please stay tuned for a couple more posts so I can flesh this out a bit.
Thanks for your comments...
"Americans, representing 25% of the world's GDP, need to SAVE."-jeffers
US may represent 25% of world's GDP if you include all the FIRE commissions, McMansion construction, highway construction & maintenance, university waste, gvt pensions, etc. And of course all the charges associated with pet expenses, fast food eating, mall excursions, tobacco use, liquor & drug purchases, medical overcharges in the trillions, NASCAR tickets, prepared food buying by people who don't know how to cook rice & beans, etc etc.
It's all a BS economy with most of the essentials except food (which depends on foreign imported oil) shipped in by outside producing economies.
And barely a dollar to be found for electric rail, localized agriculture, serious alternative energy efforts, residential insulation schemes, preventive health programs, etc. And still the college graduates in law & business far outnumber the folks who go in for engineering & sciences- unlike China & India where the ratio is reversed.
Hi!
No, it's not over, and it's going to get worse, and worse until the system is flushed. I saw Barney Frank on TV wailing about the need for a bigger social safety net, as he hawked his plan for bailing out every government agency at taxpayer's expense, along with roads to nowhere, etc., etc. A foolish Socialist who thinks that printing money creates value. And the Fedex guy protecting free trade and the Republican lowering taxes, and blah blah blah... Everyone is protecting his own turf.
This has got to be the BIG shakeout. And, still, no one has his eye on the ball.
Very discouraging.
Regards,
Coal Guy
Coal guy- you need to realize that evil can come from any direction- not just "socialism". This massive bust we are experiencing resulted from free-market fundamentalists who turned loose the bad guys without any adult supervision.
The US socialist programs have been pretty well trashed starting with Clinton's overhaul of the welfare system- and still the big market guys went and destroyed the US economy. Unlike market theory, the big bad financial elites were not restrained by free market mechanisms.
On the other hand, the EU countries who are derided as "socialist" have some of the best run societies on the planet. The EUers describe their form of socialism as social democracy- meaning that the people agree with the main themes but are able to vote out bad governments.
Of course the Democrats are desperately trying to reflate the economy. Look at the Billionaires that run that outfit too. They are as bad as the Republicans but much less honest about it. These billionare "Men of the People" have no trouble assuaging their white guilt (Now there's and exquitsitley racist concept!) or whatever with dollars taken from us at gunpoint. There are as many of that special 1% on the Dem side of the aisle as ther Rep. People who work, obey the law and pay taxes have NO ONE in their corner, and haven't since the early 60's.
Regards,
Coal Guy
I understant that this thing got rolling the 70's, and has expanded regardless of administration. This is not particularly a right or left problem There is a host of problems on both sides. No one is looking out for the common good. There are serious structural issues in our economy that have to be fixed before anything will get better. But, all I see for miles are political hacks pandering to their constituencies. I don't like Socialists. Neitehr do I like the bunch of Republicans in congress who helped rig the systsm. Both sides of the aisle are complicit in this and have been for years.
There are all kinds of ways to lose your freedom. You can lose it to repressive legislation. The Right tends toward this. They'd like to outlaw everything that doesn't agree with their narrow view of the world. You can lose it to taxation. When do you become a slave? When the government takes 40% of your earnings? 50%? 80%? A small group can usurp all the wealth. Or do you lose your freedom when free speech is compromised, or the right to make contracts, or property rights? No, it's not just Socialism. It is BIG GOVERNMENT, and the Good Ole Boys that are running it. Both parties are in love with it.
I was in Hannover, Germany recently. Compared to here, they lead a much more austere lifestyle. And despite their wonderful social safety net, I still had to step over homeless men sleeping on the sidewalk. And all those well run social-democrat states in Europe are at least as messed up in this credit collapse as we are here. How can that be? It's not necessarily as wonderful as the Media here let on.
It escapes me how people on the left will rail about business monopolies, but think that is just fine for government to have a monopoly on EVERYTHING.
And your are right. I fear Socialism. Especially the Socialists that think single party socialist government is a good thing. About 30% of the Democrats in the House of Representatives are members of political organizations that believe this. Do they actually subscribe to it themselves?
It's these folks that really bug me. To understand why, please review the names of the most prominent leaders of single party socialist governments, and then make a list of the biggest thugs and mass murderers of the 20th century. You'll get pretty much the same list.
Regards,
Coal Guy
Coal guy- I agree with you about the higher and higher tax rates but it depends on what those taxes are being spent on.
Here in the US we don't see a whole lot for our taxes paid- welfare to private corporations, roads, humongous military spending, political pork. None of these things really help(or will help in the future) the individual beyond a point. Do we really need to spend over One trillion$$ on the military? Is ANYONE in the world capable of actually attacking and defeating the US- even if we cut the military budget by 2/3? NAFC.
I would welcome the chance to pay more taxes to kill off the predatory medical system...if it was possible to have a public system that works. We are the only nation in the world where medicine is a massive profit center. A lot of folks put the corruption of big pharma to the period when big business moved in and transformed the pharmaceutical industry into a hyper-charged profit machine.
EU has higher taxes. But they don't spend it maintaining an empire. They see those taxes back in first-class transportation systems, quality health care, clean cities, a good social safety net. France has high taxes but they produce 85% of their own clean electrical supply. Wouldn't that be nice to have in the USA right now?
It comes down to this- the financial elites that run this country like the idea of they themselves being fantastically rich while mass population is poverty stricken and leashed down with unpayable debts. They don't want to see a lot of money in the public sector(unless it goes in their pockets through payoffs) because that means that their operations will be controlled and downsized.
And they want the US military to enforce conditions throughout the world that are favorable to private business elites.
Sorry for a lot generalizations here tho mostly accurate.
I agrees with most of what you have said and plan on reading all your posts sometime today. What I have done since coming to roughly the same conclusions several years ago is to eliminate all debt including home well I have a small loan that I am not bothering to pay off as it is 12 years ahead in payments. I have made money on oil futures since I truly beleaved in peak oil I purchased oil in Nov 2007. I was on vacation when the price went up and laid over in a motel room to sell all my stock and make the purchases. That turned out to be the best vacation I have ever made, I took the chance and leveraged myself to the hilt, sold at near the high and have had it in cash since but plan on going back into oil in the future. I think that all who read and believe blogs like this one should use their knowledge to help them secure their future and oi is the way to do it. All this about oi was said by Sam Sam many years ago go to his site http://www.sfu.ca/~asamsamb/sb.htm -- Oil will spike again when we start to pull out of this mess and will send up right back into it again, use that information to secure your future. One other point is I do not want to be in US dollars as it is very likely that they will be devalued in the second half of this year, in commodities that are fungible you protected from this, at least as much as is possible. I live in Australia and switched my supper from the most agreive to all cash las feb so I actually made money last year. Again current thought as told to me by my mates was that I was crazy to do that, and not they think it is a geat time to buy stock because it always goes back up. I took a lot of flak from local people for having my money in US dollars but not after the Australian dollar devalued last fall, however I feel that the US will devalue soon that is why I want to be in a fungible commodity. The Australian government will not allow us to take our money out or our suppers [like a 401] so I feel it is a complete loss but am doing for myself what the supper should be doing. Will I succeed well at 65 I have little other chance of having a future when all the employers are employing young people using my knowledge is the only hope for me and anyone else. I would say that arbitrage and oil commodities along with a very few others are the only way to secure a future and it can be done by anyone.
Greg, where you been?
I want to posit a catalyst that would support your food shortage theory. I think it's no secret that Mexico is on the verge of collapse. It's not clear whether political/military change or currency collapse and central bank failure will set them over the edge, at this point. The bank is trying to defend the Peso near 15, and they may run out of reserves or fail.
I know that A LOT of the food I eat comes from Mexico, especially produce. What % of US food comes from Mexico? How soon could we make our own if it stopped coming? Can we afford to make our own? What would the new price of spinach be if we made it here? Would it double? Triple? Quadruple?
I want to see a post on this.
>What would the new price of spinach be if we made it here? Would it double? Triple? Quadruple?<
Yah, Greg. What about the peak spinach problem?
gregoryw:
It appears that the U.S. is a net food exporter to Mexico... particularly corn.
Mexico certainly has its risks to the U.S., though I think more political and energy.
I have to believe Mexico falling apart would immediately become California's problem. I wonder if California is a net recipient of Mexican food exports.
Imagine what would happen to NAFTA trade if the border was unstable. It could be sealed for a period of time.
I keep thinking about Mexico and food. I think there's more to it than meets the eye.
Firstly, if we have a trade surplus with respect to Mexico in food, I would examine whether that is a currency phenomenon. We might export expensive food products and import a much larger quantity of food at a favorable price or exchange rate. In other words, we may import more metric tons of food than we export to mexico.
Secondly, are we exporting food to Mexico that doesn't meet FDA approval for consumption by humans? Meaning, do we sell them Grade D eggs? Do we sell them animal feed? Do we sell them field corn?
It might be the case that we send them animal food and they send us prime steak.
Or, that we are drowning in corn and they are sending us all of our fresh vegetables.
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