Economic Black Hole: 20 Reasons Why The U.S.
Economy Is Dying And Is Simply Not Going To Recover
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.
Tags: U.S. Economy | Category: Commentary, Economic Despair, Housing Crash, The Next Great Depression, Unemployment