Even though the U.S. financial system nearly experienced a total meltdown in late 2008, the truth is that most Americans simply have no idea what is happening to the U.S. economy. Most people seem to think that the nasty little recession that we have just been through is almost over and that we will be experiencing another time of economic growth and prosperity very shortly. But this time around that is not the case. The reality is that we are being sucked into an economic black hole from which the U.S. economy will never fully recover.
The problem is debt. Collectively, the U.S. government, the state governments, corporate America and American consumers have accumulated the biggest mountain of debt in the history of the world. Our massive debt binge has financed our tremendous growth and prosperity over the last couple of decades, but now the day of reckoning is here.
And it is going to be painful.
The following are 20 reasons why the U.S. economy is dying and is simply not going to recover….
#1)
Do you remember that massive wave of subprime mortgages that defaulted in 2007 and 2008 and caused the biggest financial crisis since the Great Depression? Well, the “second wave” of mortgage defaults in on the way and there is simply no way that we are going to be able to avoid it. A huge mountain of mortgages is going to reset starting in 2010, and once those mortgage payments go up there are once again going to be millons of people who simply cannot pay their mortgages. The chart below reveals just how bad the second wave of adjustable rate mortgages is likely to be over the next several years….
#2)
The Federal Housing Administration has announced plans to increase the amount of up-front cash paid by new borrowers and to require higher down payments from those with the poorest credit. The Federal Housing Administration currently backs about 30 percent of all new home loans and about 20 percent of all new home refinancing loans. Tighter standards are going to mean that less people will qualify for loans. Less qualifiers means that there will be less buyers for homes. Less buyers means that home prices are going to drop even more.
#3)
It is getting really hard to find a job in the United States. A total of 6,130,000 U.S. workers had been unemployed for 27 weeks or more in December 2009. That was the most ever since the U.S. government started keeping track of this statistic in 1948. In fact, it is more than double the 2,612,000 U.S. workers who were unemployed for a similar length of time in December 2008. The reality is that once Americans lose their jobs they are increasingly finding it difficult to find new ones. Just check out the chart below….
#4)
In December, there were also 929,000 “discouraged” workers who are not counted as part of the labor force because they have “given up” looking for work. That is the most since the U.S. government first started keeping track of discouraged workers in 1949. Many Americans have simply given up and are now chronically unemployed.
#5)
Some areas of the U.S. are already virtually in a state of depression. The mayor of Detroit estimates that the real unemployment rate in his city is now somewhere around 50 percent.
#6)
For decades, our leaders in Washington pushed us towards “a global economy” and told us it would be so good for us. But there is a flip side. Now workers in the U.S. must compete with workers all over the world, and our greedy corporations are free to pursue the cheapest labor available anywhere on the globe. Millions of jobs have already been shipped out of the United States, and Princeton University economist Alan S. Blinder estimates that 22% to 29% of all current U.S. jobs will be offshorable within two decades. The days when blue collar workers could live the American Dream are gone and they are not going to come back.
#7)
During the 2001 recession, the U.S. economy lost 2% of its jobs and it took four years to get them back. This time around the U.S. economy has lost more than 5% of its jobs and there is no sign that the bleeding of jobs is going to stop any time soon.
#8)
All of this unemployment is putting severe stress on state unemployment funds. At this point, 25 state unemployment insurance funds have gone broke and the Department of Labor estimates that 15 more state unemployment funds will likely go broke within two years and will need massive loans from the federal government just to keep going.
#9)
37 million Americans now receive food stamps, and the program is expanding at a pace of about 20,000 people a day. The United States of America is very quickly becoming a socialist welfare state.
#10)
The number of Americans who are going broke is staggering. 1.41 million Americans filed for personal bankruptcy in 2009 – a 32 percent increase over 2008.
#11)
For decades, the fact that the U.S. dollar was the reserve currency of the world gave the U.S. financial system an unusual degree of stability. But all of that is changing. Foreign countries are increasingly turning away from the dollar to other currencies. For example, Russia’s central bank announced on Wednesday that it had started buying Canadian dollars in a bid to diversify its foreign exchange reserves.
#12)
The recent economic downturn has left some localities totally bankrupt. For instance, Jefferson County, Alabama is on the brink of what would be the largest government bankruptcy in the history of the United States – surpassing the 1994 filing by Southern California’s Orange County.
#13)
The U.S. is facing a pension crisis of unprecedented magnitude. Virtually all pension funds in the United States, both private and public, are massively underfunded. With millions of Baby Boomers getting ready to retire, there is simply no way on earth that all of these obligations can be met. Robert Novy-Marx of the University of Chicago and Joshua D. Rauh of Northwestern’s Kellogg School of Management recently calculated the collective unfunded pension liability for all 50 U.S. states for Forbes magazine. So what was the total? 3.2 trillion dollars.
#14)
Social Security and Medicare expenses are wildly out of control. Once again, with millions of Baby Boomers now at retirement age there is simply going to be no way to pay all of these retirees what they are owed.
#15)
So will the U.S. government come to the rescue? The U.S. has allowed the total federal debt to balloon by 50% since 2006 to $12.3 trillion. The chart below is a bit outdated, but it does show the reckless expansion of U.S. government debt over the past several decades. To get an idea of where we are now, just add at least 3 trillion dollars on to the top of the chart….
#16)
So has the U.S. government learned anything from these mistakes? No. In fact, Senate Democrats on Wednesday proposed allowing the federal government to borrow an additional $2 trillion to pay its bills, a record increase that would allow the U.S. national debt to reach approximately $14.3 trillion.
#17)
It is going to become even harder for the U.S. government to pay the bills now that tax receipts are falling through the floor. U.S. corporate income tax receipts were down 55% in the year that ended on September 30th, 2009.
#18)
So where will the U.S. government get the money? From the Federal Reserve of course. The Federal Reserve bought approximately 80 percent of all U.S. Treasury securities issued in 2009. In other words, the U.S. government is now being financed by a massive Ponzi scheme.
#19)
The reckless expansion of the money supply by the U.S. government and the Federal Reserve is going to end up destroying the U.S. dollar and the value of the remaining collective net worth of all Americans. The more dollars there are, the less each individual dollar is worth. In essence, inflation is like a hidden tax on each dollar that you own. When they flood the economy with money, the value of the money you have in your bank accounts goes down. The chart below shows the growth of the U.S. money supply. Pay particular attention to the very end of the chart which shows what has been happening lately. What do you think this is going to do to the value of the U.S. dollar?….
#20)
When a nation practices evil, there is no way that it is going to be blessed in the long run. The truth is that we have become a nation that is dripping with corruption and wickedness from the top to the bottom. Unless this fundamentally changes, not even the most perfect economic policies in the world are going to do us any good. In the end, you always reap what you sow. The day of reckoning for the U.S. economy is here and it is not going to be pleasant.
Item #20, more than all the rest, I find, describes the real problem. I believe that God foresaw this, and showed it anciently to his prophets. David, the king and prophet wrote—
2 The LORD looked down from heaven upon the children of men, to see if there were any that did understand, and seek God.
3 They are all gone aside, they are all together become filthy: there is none that doeth good, no, not one.
4 Have all the workers of iniquity no knowledge? who eat up my people as they eat bread, and call not upon the LORD.
—Psalm 14
Conservativism will not save you now (not that so-called "liberalism" ever helped). But you have noting to "conserve". Money can't save us. We have too few children. Since the early 1970's, there have been born an average of around 170 babies per lifetime, for every 200 adults among whites in the U.S. The so-called "baby boom" of 1946 – 1964, a mere 18 years, is much more defined by the birth dearths preceding it (from WWI to the end of WWII) and following it, due to "the pill", abortion, patches, implants, etc, than by any extraordinary amount of children being born during the "boom". (For example, the 1900-1910 period saw a higher birth rate per woman than the post WWII "baby boom" did.
What caused a worldwide "population boom" was as Nick Eberstadt stated, "…Not because people suddenly began breeding like rabbits, but rather, that they quit dying like flies". The 20th century saw a surge in improved health, that kept many more people alive from infancy to old age. Vaccines, anti-biotics, improved sanitation and much increased refrigeration of food, besides other healthcare advances, is what increase population numbers by far the most.
But old people, or older people, cannot bring about an improved economy. It is younger married couples, with children, and more of them (than we have seen for quite a while), that is the ONLY thing that can bring us out of the economic doldrums. And, worldwide, outside of Africa, this is only happening, among advanced economies, in Israel.
Between non-commitment among young couples (lack of marriage, and an increase in divorces), fewer people are getting or staying married. This lack of commitment has brought about a birth dearth. We are in subreplacement mode.
Add to the above reasons "careerism", going to school (college) longer to get more degrees, contributes to people avoiding marriage and/or child bearing. Once they get around to it, for those who do, they have fewer children than couples use to.
Add to this, homosexuality, women working outside of the home far more than they use to (like in the fifties and early 1960's), and we are, in a sense, "eating our children". Increased debt, and losing manufacturing jobs in a worldwide economy haven't helped. But by 2050, the UN Population Division projects that, worldwide, the overall fertility rate among women will have dropped to about 185 children born for every 100 women or for every 200 adults.
Human Beings are "going out of business", slowly (for now), but surely. Turning things around, will be EXTREMELY DIFFICULT. There are now in advanced economies, and soon will be in 'developing economies' too few bodies, and too few families (2 parents with children) to earn enough to support grand parents and great-grandparents while raising enough children to make up for those who did not and are not having enough children to grow the population, to grow the economy.
David Goldman at firstthings.com shows also how, without enough of those in certain age groups, how the economy, worldwide, has been broken. Younger people borrow more than older people. Not having sufficient numbers worldwide, led people to investing in the American economy, in the early 2000's, because they didn't have enough young people to invest in. Goldman writes that the US economy was like the "leper with the most fingers left". That led to the ridiculous lack of rules that led to the subprime fiasco in real estate.
—Guest
“The United States of America has not had a trade surplus since 1975. We have not had a trade surplus with Japan since April, 1976. Every year since 1983 we have been in deficit with Europe. The last time America had a trade surplus with both Russia and China was a very brief period during the Cold War. We have been running ever increasing trade deficits with South Korea since 1998. Our 1993 trade surplus with Mexico is now a 100 billion a year trade deficit. In the 1970’s, 80’s, and much of the 1990’s our trade deficit was never more than one half of 1% of GDP. We now find ourselves with a trade deficit of between 5% and 7% of GDP depending on how you count. From 2002 to 2007 the trade deficit exploded. The only reason unemployment stayed well under 6% is because of the credit bubble. 63% of all jobs created from 2000 to 2006 were housing or credit bubble related. We did not feel the destructive affects of the trade deficit because of this credit bubble. I have concluded from work I have been doing that America will never get unemployment even under 7% with a trade deficit of over 3% of GDP, without a major credit bubble. The U.S. Economy has actually stopped functioning like a real economy. We literally need a credit bubble to function. America must move from the ideology of free trade to the economic policy of balanced trade. Until this structural shift takes place you can bank on the American economy being the laughing stock of the world economy.”
-Ames F. Tiedeman
Lower taxes? Higher taxes? Does anyone actually think being plus or minus 5% on taxes will make a lick of difference for the U.S. economy at this stage in the game? The economy will never again work the way we all want it to work with the current account deficit at 6 or 7 percent of GDP. You cannot get unemployment even under 6% without a credit bubble, with a current account deficit as large as ours. We have not had a trade surplus since 1974. We have been in decline for 40 years and this decline has only accelerated in recent years. We closed 55,000 plants in the United States since 1980. Your politicians won't tell you this because some of them fed you the false promise of free trade. Others don't want to admit NAFTA has been a complete failure for America. Great for Mexico as that giant "sucking sound" Ross Perot predicted has materialized. Clinton and Gore promised the American people ever bigger trade surpluses with Mexico and ten's of thousands of new high paying jobs. Just pass NAFTA they exclaimed! Quite laughable, really. We have gone from a trade surplus of a few billion a year to a trade deficit nearing 100 billion per annum with Mexico. What is equally as laughable or insulting is the trade deal Obama has just signed with Columbia. Do we make anything they can afford? Of course not. Columbia will simply become a new launch pad to make textiles and sell them into America. How about the trade deal Obama signed with South Korea? This is an interesting one. Within the bill on the U.S. side is a provision to provide worker training for displaced Americans. So we are now so stupid that we are signing trade deals that we know will diminish the U.S. labor force. The insanity is just that! Does anyone think the South Koreans would agree to a trade deal if they were not sure to win? Does Obama understand that the South Koreans are fierce nationalists who will never let America win a trade contest? Did my ancestors lead pre-Revolutionary War skirmishes against the British at Lexington and Concord in 1775 and early 1776 only to have America end up how it is today? My blood has been on this land since 1635. How many of my ancestors ever dreamed that America would be so deep in debt and short on ideas? Would any of them ever have thought that such mediocre men would one day be leading this nation? America has done a terrific job of creating a low employment and low wage society, for millions. Quite sad indeed. No civilization has succeeded by consuming more than it produces. We must massively restructure. Until America decides to produce what it consumes you can forget about any long term economic recovery. The financial games all failed. The credit bubble is gone and now the U.S. economy is exposed as the biggest joke of all time. Credit bubbles have a way of masking the real issues. How do we fix the American economy? Start by making every American who has received a Nobel Prize in economics return the award. Why? because they were either 100% wrong or their work proved to be of no benefit to the American economy. Next, round up every economist who advised Nixon that if America left the gold standard and moved the world to a floating currency regime; that America would never, ever, run a current account deficit. And I am very sorry to inform everyone that this would include the late and great Milton Friedman. Sorry Milton, you were dead wrong too! Next, leave the WTO, end NAFTA, and go about setting up country-by-country trade deals that are realistic based on where America stands today. It is not 1955 anymore. The world has either matched us or surpassed us in industry after industry. We have literally become an emerging economy is some industries as we have faltered so badly. Next, move to a flat tax, and end all farm subsidies. Cancel most government social programs like food stamps and deport 100% of the people living in America illegally. Make it a high crime to employ anyone not here legally. Finally, for major industries such as steel and automobiles, move to a must-be-made-in-America policy. No longer allow imports of products in specific industries. They must all be made in America. We must employ our people. We can no longer employ the world via our consumption as so many Americans remain unemployed. We must use our 50 state union to our advantage. We must promote massive trade between the states. We must socialize CAPITALISM to avoid becoming a socialist state! We must reinvigorate the American people. We must manufacture. And who running for office can lead America on this grand and pious endeavor? Who running for office today has the passion of a General MacArthur or the skill of a Chester Nimitz? Who has the energy of a Teddy Roosevelt? The men who command the attention of the electorate in this age of mediocre ambition are all too small to make a difference…