I am not going to say that I told you so, but at least 2 years ago I started warning people about a severe decline or crash in the economy, as well as, the concept of “Peak Oil” and how gas prices would rise. People who are familiar with my opinion pieces knows that I have been sounding the alarm for sometime only to be ignored as some anti-capitalist anti-American doomsayers who actually wants to see the fall of capitalism and America. They dismissed me as a socialist/communist and retorted with historical examples of the failures of those systems and how our system was so much more superior and impervious to a similar fate. Well, our system is now on the edges of something tragic and could fall over from a certain combination of events or proceed in more orderly decline.
I am not going to get into the “why”, as I have been there and done that before. Suffice it to say however, it is not the result of the sub prime crisis, which is simply a symptom. Let’s just say that rise and fall is the natural order of life cycles and the life of our system cannot regenerate new cells, to replace the dying ones, at the rate we did when we were younger and vibrant. Moreover, the competition for the resources that we must consume for substance and growth has gotten so fierce that it will only compound our decline. China, India, Brazil and a hose of developing nations are the next generation, while the US and Western Europe is entering economic old age under globalization and the free market, which will continue to produce diminishing returns for the West until a price point wage equilibrium is reached globally between the West and the developing world.
Currently the mindset of the consumer is what is keeping the economy out of recession and depression. The economy is dependent upon consumers going into deeper and deeper debt in order to keep the economy out of recession. The reason that many were willing to do this is because of two assets, their home and their investment portfolio (stocks). Working age people over 30 looked at their home and their stocks, 401Ks, mutual funds and other investments as funding their retirement, due to strong growth in home appreciation and stock prices. Well the bottom has fallen out of the former and when it falls out of the later, the over 30 consumers will radically reduce consumption in order to save more for retirement and to be more responsible during declining economic times. This will create the collapse, deep recession and or depression.
This psychological threshold will be breached when the DOW falls below the psychological 10,000 mark. There will not be a stock market crash, like during the last Depression, however. There have been safe guards built into the system of trading to prevent that. What will happen though, however, is a long term cycle of ups and downs with the downs being much stronger than the ups, thus overtime will produce the same loss of wealth as a stock market one week crash. In the mean time, the monetary policy of lowering the cost of money (borrowing) is the strategy to keep consumers spending and providing stimulus for Wall Street, which has the effect of creating such a large amount of personal debt, which citizens will essentially become indentured servants to their debts. Not only that, such monetary policy will result in the collapsing of our currency and a hyperinflationary period that will send millions into abject poverty, government rationing and a radical change of America as we now know it.
There is nothing that can be done at this point but attempt to control our fall. Standing tall is no longer a viable option. The reason being is that the fiscal and monetary policy that is used to control the economy will make matters worse. Generally cutting taxes and lowering interest rates and the fiscal and monetary policy set up by the system to accelerate or decelerate economic activity. The problem is that we almost have the pedal to the metal, in regards to these policies, and the economy is decelerating. If we press harder on the accelerator the engine might blow. Cutting taxes in with during war time and record levels of government debt will debase the currency. Lowering interest rates will also debase the currency. The debasing of the currency will lead to rampant inflation that destroys the purchasing power of income that because it does not keep pace with the rise in prices. Millions of people then become the working poor as their income which once afforded middle class comfort can only provide basic substance.
Meanwhile, the basic loss of comparative advantage under globalization and the free market continues to send American jobs and production oversees. The catch-22 for America and Americans is that we want to have their cake and eat it too, which is impossibility. More precisely, we covet cheap prices. However, cheap prices come by virtue of cheap wages, as a general rule. A nation cannot sustain high wages and low prices as an economic model, due to how heavily wages and benefits weigh in on price. That said, a high wage nation in transition to a low wage nation will manifest both high wages and low prices until the transition is complete to being a lower or median wage nation, whatever the global price point of labor will produce. That is what is happening in America today as manufacturing, engineering, software design; call centers and a hose of other employment sectors are being off shored, while we are importing cheap labor from Mexico to drive down wages domestically as well.
If all that is not enough, I have yet to even integrate the effects of peak-oil (declining oil reserves growth/supplies married with increasing demand), the retirement of the baby boomers, war and the like. These things, even during good economic times, would hurt our economy, but that are manifesting at the same time as a host of other negative factors are hurting us. There are things that you can do to prepare yourself; however, very few can escape this. Traditionally, it is under such times that governments embark on wars to relive the population of angry males who could or would turn their wrath against the system and its elite. That way they can be sent off to war and die on the battlefields instead of filling the unemployment lines, jails or becoming radical militants attempting to overthrow the government, like the many anti-government militia groups that exist throughout America. War will help to create patriotism and get disenfranchised people feeling patriotic against an external enemy. Its not hard to guess what nation that will be, if it happens.