I believe people are becoming aware of what our current situation really is and what the next few years is going to bring. In the last month
we have been bombarded daily by statements from various sources that the risk of a double dip recession appears to be behind us. I've contended that
in fact we have never stopped being in recession and are actually just treading water due to massive government spending on stimulus, bail outs and
Economists are now talking about a double dip being very much a reality. As temporary incentives expire the industries are falling off to levels well
below what experts had predicted. For example: U.S. housing starts down 10% in May, return to December levels; building permits fall 5.9%. This
should not surprise anyone considering that the home buyers tax credit expired at the end of April. The argument that is always made is that these
types of tax credits will kick start the market so after the credit expires the industry will continue to grow.
In reality this just never pans out. What you wind up with is the original problem still exists and may actually be worse and you have now
put yourself even deeper in debt.
The American people get it even if the people in Washington do not. People know that we cannot continue to spend money we don't have.
From a Yahoo Marketwatch article: Commentary: Retail data put double-dip recession back on table
"The unexpected decline in May's retail sales has many economists questioning the strength and durability of the nascent recovery.
This was the first month-to-month retreat for retail sales since last autumn. What is more, it was pretty much across the board ? even if you exclude autos.
Lower- and middle-income families are worried about jobs, their mortgage, and the rising cost of food and health care. The rich are less worried about jobs, but they have taken a beating in the stock market, second homes, art and other investments.
There's less eating out than there used to be. The only restaurants that seem to be doing well are fast-food stores and new, trendy upscale establishments.
Since retail sales make up over half of all consumer spending, it is safe to say that at least one-third of the gross domestic product is now falling. It is also not a stretch to conclude that the rest of consumer spending, which is services, is soft as well.
Add to this the ongoing weakness in housing sales and new home construction, the slowing in exports as the dollar rises in world financial markets and the sharp cutback's by states and local government, and most of the economy ? except for inventories ? appears to have stopped growing and may well be contracting.
In plain English, double-dip is back on the table.
If that's not enough there's this from the Wall Street Journal: Eye of the financial storm
"We often discuss our current crossroads; government drugs that mask the symptoms after years of societal largesse versus medicine that cures the disease in the form of asset class deflation and debt destruction or restructuring. We repeat this analogy for good reason: it's true."
"Therein lies the fatal flaw of our current conundrum. We've been pushing risk further out on the time continuum for such a long time that it's become an accepted -- dare I say normalized."
"While the recent price action has been docile, I believe we're in the eye of the storm, a relative calm between the first phase of the financial crisis and the cumulative comeuppance that'll flush -- and perhaps reset -- the system. "
If you've been following this blog for the last few months you'll notice that I've made many of these same analogies long before these so called
experts. Debt as a drug, eye of the storm, metaphors that will be new to many but now seem like old news to you.
Let's take our situation and apply a bit of forward looking logic.
- We owe over 13 trillion dollars and are borrowing about 100 billion a month
- The reason we are still able to borrow so much is we are considered a safe bet
- America's enemies have not gone away, in fact we have become dependent on them
- Without investment from foreign countries we could not finance our government spending
China is going through a transition right now. They have been an economy built upon cheap manufacturing fueled by complete disregard for
the environment and the conditions and pay of workers. They have nearly no national debt and are currently the largest holder of American
debt in the world. The have played a large part in financing our over spending on housing and our addiction to the cheap goods they produce.
Our economy has become dependent upon our ability to borrow money to spend and on low interest rates on our existing debt.
The transition that is occurring in China is one of self consumption. Wages in China have been rising at incredible rates. There are two very
serious consequences we need to be aware of. The first is that the cost of manufacturing products in China is rising quickly. American companies
that sell these products are reluctant to pass those price increases on to consumers and are in fact just reducing their profits. The second
issue we need to be aware of is that these wage increases are giving Chinese consumers more purchasing power. Given the tremendous number of
people we are talking about it will only be a matter of time before China doesn't need the American or European consumer to purchase as much
of what they make. If they don't need us to buy their goods then they also no longer need to lend us money.
Once the Chinese are free from needing the US consumer they will then be able to do something that will essentially bring us to our knees.
What happens when China, who currently has practically no national debt begins selling bonds to build their infrastructure and fuel their economy?
How will we be able to compete with China when they sell bonds that pay high rates of return?
The money that is currently flowing into America from all over the world will come to a screeching halt and shift to the safer and higher yielding
bonds of China. Not only will China no longer be a consumer of our debt they will most likely sell off whatever US bonds they currently own and
become our main competitor in the bond market.
With our debt set to blow past 20 trillion dollars in the next decade how in the world will we be able to pay the interest on our bonds
once China forces us to pay interest rates that will be more than double what they are now. In essence, China will be able to defeat the
United States without ever having to fire a shot. We will be the losers of the next cold war, the USSR of the next century. Instead of the
wall being torn down we will have to fall to our knees before the great wall.
If you think this all sounds like a crazy conspiracy theory just take a look at the debt clock and explain how this could be wrong.
Debt to GDP Ratio(Sum of everything produced in that country that year)
US 94%, UK 418+%, Portugal 243%, Germany 144%, Italy 104% and then there is China at 8%
They own us, they own Europe and at some point soon they will be able to bring us to our knees. We've all heard the phrase, "Beggars can't be choosers". Once we become the beggars China will become the chooser of how we live. Do your homework, understand what it would mean to live under the control of a
government like China. I don't believe many Americans are going to be very happy when this become a reality. The question is what are we going to do about it and will it be do late to stop it once enough people have figured out what has happened.