Here are many reasons why the Economic Outlook for the United States, as well as most of the globe, looks bleak:
1. US citizens are going through a recession, as well as Europe. China is going through a economic bubble, spurned by its own central banking policies, soon to come to an end.
Here's a set of clips of Peter Schiff from 2006 and 2007, predicting our present Recession.
2. US unemployment is increasing beyond 10% for most areas of the country, where some statistics show that under-/un-employment is closer to 22% of the country.
3. The middle class of America is dwindling, and a widening of the upper and lower classes. For example, there were 1.4 million Americans who filed for bankruptcy in 2009, a 32% increase from 2008. The US has the highest poverty rate in the industrialized world. Also, over five million U.S. families have already lost their homes, in total 13 million U.S. families are expected to lose their home by 2014, with 25 percent of current mortgages underwater. Deutsche Bank has an even grimmer prediction: "The percentage of 'underwater' loans may rise to 48 percent, or 25 million homes."
4. Americans have lost $5 trillion from their pensions and savings since the economic crisis began and $13 trillion in the value of their homes. During the first full year of the crisis, workers between the age of 55 - 60, who have worked for 20 - 29 years, have lost an average of 25 percent off their 401k.
5. Personal debt has risen from 65 percent of income in 1980 to 125 percent today.
6. Policies that rely on a Keynesian Model of increased deficit spending are doomed to fail. The Daily Bell succinctly states that:
Obesity can hardly be overcome by increasing your daily dose of calories. Similarly, it would appear that increasing the monetary dose of paper money -- adding yet more debt -- will hardly fix a severe debt crisis. But I of course forgot that governments can print money! They can create liquidity at discretion. So, why should deficits and debt matter?!?! Let´s just keep spending and pumping because at some point, the economy will find traction again. The truth is that this kind of thinking and doing has worked for a long time. But, it is not that simple either. Whether it will continue to work again depends primarily on one thing: TRUST. For decades now, the thought that the government of an industrialized nation -- certainly one as large as those of the UK, Germany, France or the US -- could go bankrupt has been scoffed at. However, over the past few weeks, in the wake of the Greek debt crisis, the potential of SOVEREIGN DEFAULT is increasingly being discussed, even in the mainstream press…In a fiat-currency system, where the notes issued by a country's government are not redeemable in any real commodity -- in gold or silver -- the entire system relies on the TRUST the participants in that system have in the issuer of these notes and their purpose of facilitating the exchange of goods AND store of value. When that trust is lost, the system fails."According the Moody's, five biggest AAA-rated states (US, UK, Germany, France, and Spain) are all at risk of soaring debt costs and will have to implement austerity plans... to bring public finances under control without nipping recovery in the bud.
On March 11, at the annual Austrian Scholars Conference, sponsored by the Ludwig von Mises Institute, Gary North spoke on the topic of "Keynes and His Influence." Refuting the premise of Keynes' General Theory of Employment, Interest, and Money (1936), Mr. North made four main points:
1. Keynes' influence has been indirect (mediated).
2. His legacy will soon be uniquely vulnerable.
3. Only the Austrians [Austrian School of Economics] called the 2008 recession.
4. It is time for a comprehensive refutation of Keynes
He noted that, "Keynes' primary idea,... that government budget deficits are the means of overcoming economic slumps,... [still] dominates the thinking of economists," as well as, policymakers. If only we could waste our time and resources to bury boxes of money, and then later to dig them out, all in the pursuit to stimulate the economy. Recessions, or depressions, are a direct result of mis-allocation of time, money and resources. Bubbles in the economy are common. But busts must follow. Can you say the DotCom, Real Estate / Mortgage, and Banking bubbles?
7. Excessive printing of US Dollars (Federal Reserve Note) brings about "lawful" counterfeiting and inflation, devastating savings. Loss of savings especially affects future retirees - the Baby Boom generation. Can we return to a time when It Was A Wonderful Life?
From The Daily Bell's article, More Sovereign Defaults Loom?, we see that:
Governments must cut costs, pay down debts and raise revenue to survive. But from a larger economic standpoint, there is likely only one way to deal with tomorrow's challenges. And that is to do what Federal Reserve chairman Paul Volcker did in the late 1970s in the United States – drain the swamp of excess money by printing less of it and raising interest rates to double digits.
The trouble with this solution is that the business cycle this time around has been so excessive and so obviously destructive that it might take much HIGHER interest rates to do the trick. Rates of thirty or forty percent, anyone? A truly drastic reduction in the money supply driving the US and the larger Western world into depression? This is a most grave scenario. People may not stand for an economic environment that is two or three times more punitive than it was the in the late 1970s and early 1980s.
The other problem is that Paul Volcker worked his magic in a pre-Internet era. People didn't really understand what was going on and Volcker was presented as a hero in America for "saving" the system. He didn't save it, of course, he merely SALVAGED it for the same crowd of power elite players that have driven it into the ground once more.
8. The de-regulation of unique investment vehicles, such as NINJA mortgage loans and derivatives, created cheap borrowing, irregardless of credit rating. Loose lending standards, extremely low interest rates (set by Federal Reserve), and Congressional incentives to banks to lend to risky borrowers also contributed to the housing depression. Home values will continue to fall once ARMs hit this summer (2010) and next. Also, because of the near defaults of Fannie Mae and Freddie Mac, the Federal Government has taken over these institutions, as well as bearing the risk of default.
Daniel Amerman, a financial consultant and mortgage derivative expert, provides us with an unique perspective on the federalization of Freddie and Fannie:
A more important form of governmental support for the housing market is both more obscure than the homebuyer tax credits [up to $8,000 for first time homebuyers and $6,500 for previous homebuyers] and potentially much more costly to the nation as a whole. As previously discussed, it was the relaxation of loan underwriting standards that drove the expansion of the housing bubble as much or more than the reduction in interest rates. The popping of the housing bubble effectively destroyed the use of private mortgage underwriting standards. Private investors no longer want to take mortgage credit risks, at least not without payments of substantially higher fees and severe restrictions on who qualifies for loans. Which would be politically unacceptable.
Therefore, the overwhelming majority of mortgage financings these days have to meet the underwriting standards of FHA, Fannie Mae or Freddie Mac. These entities now effectively bear the credit risk – the chance the homeowner won't make payments and the losses that then need to be taken – for nearly the entire mortgage market. Since the failure of Fannie Mae and Freddie Mac and their takeover by the federal government, this means that the federal government directly controls virtually all aspects of the mortgage credit process, determining who gets mortgage loans, how large of a mortgage loan they get, and under what conditions. The federal government determines the standards for loan to home value, for payments to income, for what constitutes income for underwriting purposes, for credit scores, and far more. This is terribly dry and obscure stuff, and not at all suitable for headlines or passing coverage by TV news anchors, despite being more important than the far more public homebuyer tax credit programs in determining how many people can afford how much house in the real world.
Along with the federalization – that is, the straight up politicization – of mortgage underwriting comes the complete socialization of mortgage credit risk. The federal government sets the standards because it is willing to bear the cost of all the mistakes, for all the loans that go bad, for the entire housing market. Except that, of course, the federal government doesn’t really take any losses. It’s you and I [through taxation and inflation, by way of debt monetization] who take the losses and bear all the risk.
9. Extended military action overseas, primarily in Iraq and in Afghanistan, taxes an already over-burdened deficit, incites animosity among other nations, kills innocents, and overextends our military defenses (note, not "offenses").
The Daily Bell blog believes that there's no winning in Afghanistan, and that:
The Taliban simply needs to wait. The US won't make war in Afghanistan forever, no matter how many bases it builds. By pre-announcing a willingness to negotiate with the Taliban, it seems to us that the US and allied troops have undercut the larger military enterprise. Why negotiate with an enemy that has announced its intention eventually to quit?
But there is also Iraq to consider:
Three distinct cultures vie for primacy in Iraq, and that is probably two too many. The Sunnis are the minority in Iraq but make up the majority of Muslims in the world. The Shiites are the majority in Iraq and the base of this religious element is in Iran. Then there are the Kurds, mostly Sunni, but also more ecumenical than the Shia and Sunni factions in Iraq. Additionally, the Kurds straddle three countries. There is Iraq of course, and then Turkey (10 million Kurds) and Iran. The Kurdish population has a history of confrontation with all three states, and since the Kurds are a tribal entity with more than a thousand years of history, we don't see tensions falling anytime soon. In fact, in Iraq, there really are three separate nations from what we can tell.
So, the question remains - how can all three of these groups live together in harmony. The answer of course (from the American/allied standpoint) is a participatory democracy that gives each faction a say in the larger unitary political environment. But Iraq is not like the United States or even Britain. The fissures run deep and one begins to believe that the same optimism that has supported the European Union experiment is at work in Iraq as well - perhaps unrealistically. Just because a political union is declared, doesn't make it so. Just because electoral politics are implemented doesn't mean broad participation is imminent.
It seems fairly clear the US and allies have a difficult task ahead. Iraq is actually subject to divisive Iranian influence. Afghanistan has not been fully pacified for a thousand years or more. And the enemies that the US are fighting are in some ways undifferentiated from the larger Pashtun population. But leaving aside the tremendous challenges faced in winding down these wars successfully, there is the home front to consider. At home, the US is faced with many challenges as well. Employment is down, the national debt is up and the US government itself is gridlocked and facing a populist electoral uprising from the Tea Party movement.
10. The US is saber-rattling countries in the Middle East. Iran, especially, is feeling the heat over nuclear energy/weapons development. Strong pressure from the US Government only incites Iranians to hate America. A 1953 US-sponsored coup and trade sanctions since 1995 have seriously injured the citizens of Iran, especially the highly-educated, young adults working menial jobs.
11. The US Government has provided hypocritical support toward Israel. Of course, the US possesses and has used nuclear weapons, and Israel is also thought to have possession of nuclear weapons. Israel now desires formal nuclear energy development, outside of international monitoring. This desire for nuclear energy is being supported by the US Government, in spite of the pressure put to bear against Iran, over the very same issue of nuclear development.
12. There is political uprising from the Tea Party Movement. Banker bailouts have awoken a sleeping giant, a heterogeneous group, ready to fight against rising deficits - and future taxation on our children, and on our children's children. Irregardless of its attempts by Neo-Conservatives to hijack the movement, further Big Government policies and Crony Capitalism will continue to feed this monster.
13. Global Quantitative Easing, a.k.a. inflating, by central banks is testing the "trust" of fiat currency. True and honest money lies in commodities, such as gold and silver; it's been that way for millennia. Like the currencies of the world, such as the British Pound, the Euro, the Japanese Yen, and the Chinese Yuan, the US Dollar is "a broken promise of a dishonest weight". All currencies are founded on a lie; they go bankrupt and will eventually fail. Failure and death is the history of fiat currency: it has and will always die to gold and silver.
14. Britain, with the British Pound, is teetering on the verge of bankruptcy. The Euro is in the same boat. The "PIIGS" countries - Portugal, Ireland, Iceland, Greece, and Spain - borrowed and leveraged too heavily without the productive capacity to support it. Now these PIIGS are looking for a bailout from the EuroZone. The European Central Bank may sidestep the current Greek catastrophe and beg the IMF to come to the rescue.
15. A nearly seamless structure of think-tanks, government agencies, non-profits, external research authorities, educational establishments, and media structures promote fear-based themes that centralize control and generate wealth for a small group of people.
16. The cloak of regulatory agencies have given investors a false sense of security. The very agencies that promote a solution of "regulation", are typically the ones that oversaw the problem in the first place.
Comments from The Daily Bell explain it succinctly:
Comments from The Daily Bell explain it succinctly:
The tragedy of the 1930s was that the Federal government pushed through, over time, many regulatory fixes to make sure that a comprehensive regulatory environment would protect Americans. These fixes included specifically the Securities and Exchange Commission, the NASD and the formation of stock exchanges as self-regulatory organizations. Were they effective? In our opinion, they did little or nothing to stop the various continual market breaks of the 1970s, 1980s and 2000s. Americans seemingly lost trillions in these market downturns. One thing, the creation of more government regulatory agencies did do is create the impression that the Great Depression was a failure of private markets when it was evidently a failure of central banking monetary policy. The root cause of the poisonous problem was obscured. And the serpent [The Federal Reserve] continues machinating its way through productive economies draining the wealth of unknowing citizens in the process.
17. There's a sense of elitism among the large corporations, especially bankers, and the US government, called the "American Economic Elite". They are from Wall Street in New York, and from K Street in Washington, D.C. They are armed and extremely dangerous. In fact, “Goldman Sachs Are Scum!”
18. Every problem that exists for mankind ("global warming", recessions, "peak oil", "over-population", bird flu, swine flu) must come with a global solution. Typically, the people promoting the solution are the very people causing the problem (we see a trend here). The "Powers That Be", or the "Elites", such as the Fed, UN, European Union, and the IMF, have created a network of Dominant Social Themes. The Daily Bell notes that a, "dominant social theme is a belief system (usually concerning a purported social or natural problem) launched by the monetary elite that grows into an archetype or meme." They continue:
Dominant social themes often are launched from the centers of the power elite's global architecture, including the United Nations, World Bank, World Trade Organization and World Health Organization, where the related problems are declared to be such. The themes are then rebroadcast by the mainstream media.
The hallmarks of a problem that drives a dominant social theme are:
• The problem is presented as one that can be solved only by those in authority.
• The prescribed solution requires action by, and greater authority for, social and political institutions that are distant from the societies they pretend to benefit.
• Reminders of the problem persist no matter how much evidence appears that the problem is fictitious, trivial or irremediable.
• The problem may co-exist in the public's mind with other purported problems with which it is inconsistent.
Only the internet has played a vital role as a neutralizer to these Themes:
19. "Crony Capitalism" has given a bad name to "Capitalism". As Walter Block states:The creation and exploitation of dominant social themes has been aided by the growth of modern, centralized mass media. The Internet, which decentralizes the power for mass communication, threatens the ability to invent and control dominant social themes.
Every word we use to describe ourselves is precious. We must keep them all, jettison none of them. And this includes (classical) liberals, free enterprisers, libertarians, Austro-libertarians, anarchists, anarcho-capitalists, laissez faire capitalists, and, yes, plain old unadorned "capitalists".
20. Cities like Detroit, Michigan, are dying. "Two factors tell us that Detroit is dying", says Gary North. "The first is the departure of 900,000 people – over half the city's population – since 1950. It peaked at 1.8 million in 1950. It is down to about 900,000 today. In 1994, the median sales price of a house in Detroit was about $41,000. The housing bubble pushed it up to about $98,000 in 2003. In March 2009, the price was $13,600. Today, the price is $7,000. Check the price chart. There has never been a collapse of residential real estate values of this magnitude in peacetime history, anywhere. Detroit is dying."
Of course, we hear nothing from the Mainstream Media about this. "The Powers That Be are not interested in reporting on this, because readers might ask the obvious question: "How did this happen?" Obvious questions tend to lead to obvious answers." This is an example of central planning.
Mr. North continues:
The city planners, the Federal government's subsidy defenders, and the welfare state aficionados are all discreetly silent about Detroit.21. The newly passed Federal Health Care Plan, aka Obamacare, will further bankrupt the US Government. It will surely cause "cost overruns, fraud, additional coverage extended to groups, rising deficits in the program, lower payments to physicians, lower payments to hospitals, delays in payments, rising taxes on the rich, rationing by doctors/hospitals/government, delays in treatment, more HMO care (assembly line medicine), and a search for scapegoats".
The city funds its schools with property taxes. Property taxes have collapsed as sources of revenue... [while] the school board announced the closing of one-quarter of Detroit's schools. The city is out of money. The central agency of propaganda by the government is in the process of closing up shop. This is not "anti-business as usual." This is collapse. The American public does not perceive what is happening in Detroit.
When a city simply shuts down from the effects of government mismanagement, the media say nothing. Detroit has become the poster child of government regulation, welfare systems, and a population that has given up hope.
The media say nothing because they are caught in a dilemma. If they say that the local government's welfare programs are not really to blame, what does that leave? The unmentionable issue: 82% of the city is Black. So, that means blaming white employers, who discriminate, despite 40 years of Federal anti-discrimination laws. But the main non-employers today are the region's auto companies, and two of the three are partially owned by the U.S. government. One – GM – is mainly owned by the retirement fund of the United Auto Workers. So, the media are not about to blame the auto companies – not now.
That leaves that other politically incorrect issue: the rate of illegitimacy, which is in the 80% range. That social phenomenon represents a moral collapse, but the participants were all educated by the tax-funded schools.
The lesson of Detroit is this: the experts do not see a collapse coming. They assume that next year will be like today, give or take 3%. They do not believe that anything as complex as a city can collapse. So, they believe that things will continue, as they always have. Taxes need not be cut. Spending need not be cut. Schools should be allowed to educate. Tax-funded welfare programs should be increased. When it comes to tax revenues, "there's always more where that came from."
And then, overnight, the system collapses. The assumptions were wrong. Real estate prices collapse, indicating an irreversible flight of capital from the city. The ability of the government to collect taxes collapses.
Today, health care cost account for about 15% of the GDP. That figure will surely rise. But other aspects of health care will surely come about. Gary North states seems to think that:
Obamacare will lead to an expansion of these forms of medicine:
1. Concierge. Here the rich and the very rich will hire their own physicians. They will pay top dollar. The physicians do not take third-party payments, either from the government or insurance companies. They are independent practitioners. They make house calls.
2. Wal-Mart. These are the walk-in clinics. They are price competitive. They treat minor ailments. They sell services on a one-time basis. They take credit cards. They may or may not cater to the Medicare crowd. They are assembly-line clinics. There are no major surgeries or other high-cost, high-risk services.
3. ER. Large hospital emergency rooms are mandated by law. The poor get treated there. In a life-and-death emergency, they work. People who would otherwise die in a couple of hours are saved. For walk-in patients, the ERs ration by time. Patients demonstrate their patience.
4. HMO. This style of medicine is efficient. It cuts costs by cutting services and cutting time. You see the physician on duty. You may not have seen him before. His job is to get you in and out as fast as possible. Time is monitored by the company. Computers make this easy.
5. Mexican. This is off-shore medicine. In Canada, when you can't get treated for months or years, you come to the United States and pay. This will not be possible for Canadians much longer, except for rich ones. Mexico will serve upper middle-class Americans as the USA has served Canadians. It is possible to get very good surgical care in Asia and Latin America. You have to know who the good practitioners are. Asian hospitals sell for 25% the same level of services. There is less regulation there. Plane fares are cheap. A stay in a hotel is cheap. There will be entrepreneurs who set up Websites off-shore that direct Americans to practitioners abroad. The Web allows this sort of advertising.
Physicians who practice alone or in small limited liability corporations will find that they cannot compete under the new payment system. Assembly-line medicine will replace the traditional doctor-patient relationship.
CONCLUSION:
The economic outlook looks bleak. Massive debt and continued governmental spending are like concrete blocks weighing down and drowning the US economy and its citizens, as well as the rest of the world. It will take a frugal spender and savvy investor to weather this storm. Whenever governments get in the way of free markets, there will be malinvestment. Recessions and depressions are direct results of investor malinvestment. Consumption must be replaced with savings.
The economic outlook looks bleak. Massive debt and continued governmental spending are like concrete blocks weighing down and drowning the US economy and its citizens, as well as the rest of the world. It will take a frugal spender and savvy investor to weather this storm. Whenever governments get in the way of free markets, there will be malinvestment. Recessions and depressions are direct results of investor malinvestment. Consumption must be replaced with savings.
