Is the U.S. Economy Teetering On the Brink of Collapse? | ||
AlkalizeForHealth
"In the 1930s, it was not obvious to people living through debt deflation that their world was coming apart. The crisis came in pulses, each followed by months of apparent normality – like today." - Ambrose Evans-Pritchard Film "Inside Job" wins academy award, exposes "shocking truth behind the economic crisis of 2008." Oscar Winner Calls Out Criminal Bankers
| This page was first published in 2002 and is updated regularly.
If you are interested, a more detailed National Debt Clock can be seen at http://www.usdebtclock.org.
Debt came down during the depression in the 1930's due to defaults. It was not repaid. The lenders lost the money. Banks and businesses closed. Unemployment soared. Real estate values plummeted as people lost their homes. Alkalize For Health notes that interest on debt is not a cost of doing business. Rather, it is a cost of financing. A business without debt may succeed where an identical business with debt may fail, due to the burden of interest charges. Debt destabilizes the economy. Debt accelerates growth during good times and accelerates bankruptcy during recessions. Therefore, for a more stable economy, Alkalize For Health recommends that interest expense on all forms of debt no longer be tax deductible when calculating income taxes. (Total U.S. Debt chart courtesy of Gabelli Funds.) The liability/debt side of a balance sheet is always reliable. The asset side of the balance sheet is often unreliable. Those who feel today's high debt levels are not a problem because they are backed by mortgages and other assets are standing on a quicksand of unstable valuations. |
AlkalizeForHealth The American kleptocracy. Bush administration prevented states from fighting predatory lending. 1. The FBI is presently investigating "all levels of the mortgage systems" for fraud. Fraud and greed of trusted rating agencies helped spread credit crisis. 1, 2. Iceland hunts down criminal bankers. 1, 2
The alternative may be brutal, involving high unemployment, falling tax revenues, devaluation of the currency, and foreclosures. Great Depression of 1873. The center of global finance moved west. Now it is happening again, though this time "west" means China. $70 billion pay and bonuses to Wall Street staff in 2008. Compensation for a job well done? The Great American Bubble Machine
This may be the end of the US dollar as world reserve currency. A consequence of the loss of the U.S. dollar's status as world reserve currency is that the trillions of U.S. dollars held around the world would return home. A result of this would be hyperinflation in the United States. National currencies should stay within national borders. For international trade there needs to be an international unit of exchange. Modeled after Special Drawing Rights of the International Monetary Fund, we would suggest starting with a trade-weighted average of all currencies in the world. Due to the importance to every nation of the value of the International Currency Unit (ICU), the calculation needs to be transparent. The only way to accomplish this is to have the ICU traded in the markets like any other currency. Internationally traded commodities such as oil and gold would be priced in ICUs. The ICU and national currencies would be fully interchangeable in the foreign currency markets. The ICU would not be printed money and would have no physical existence. It would simply be a unit of account designed to facilitate international trade and flows of wealth. National currencies need to continue so that each nation can control the monetary and fiscal policy appropriate for its needs. Look at the problems the Euro is causing Spain. This is typical and cannot continue. The UK is a member of the European Union, yet kept its own currency. Nations might consider the creation of coupons or special / restricted currencies so that monetary and fiscal policy can be more tightly focused to the needs of particular regions or industries. North Dakota's economic "miracle" A strong military requires a strong economy to support it. As the American economy implodes a power vacuum will be created in the world. When the U.S.S.R. went bankrupt their fleet was tied to the wharf and left to rust. The U.S. surface fleet is obsolete anyway. Obama is engaged in political theatre, designed to distract the masses until the real estate debacle ends in 2012. Interest expense is 10% of the federal budget and rising. Moody's warns it may downgrade U.S. Treasury debt by 2013 because by then interest payments on the national debt may exceed 20% of federal revenue. NEW YORK (Dec. 15, 2008) - The sum of America's liabilities and other financial commitments now exceeds the collective net worth of its citizens. -Peter G. Peterson Foundation
Proper regulation of Wall Street "I sincerely believe that banking
establishments are more dangerous than standing armies, and that the
principle of spending money to be paid by posterity under the name of
funding is but swindling futurity on a large scale." U.S. economy shrinks as IMF warns of Great Depression.
|
Neither a borrower nor a lender be; (Shakespeare's observation regarding "borrowing dulls the edge of husbandry" is one of two reasons why Keynesian economics does not work. Both reasons have to do with human nature and the wise husbandry of money. Keynesian economics promotes borrowing money as a means of stimulating the economy, yet borrowed money is never spent as carefully as saved money. The result of borrowing is a tendency toward mal-investment and slower economic growth over time. The second reason Keynesian economics does not work is that when investing/spending other people's money, one is never as careful as when investing/spending one's own money. An economy dominated by big corporations and big government, both run by managers investing/spending other people's money, will never be as efficient and productive as an economy dominated by owner-operators and people investing/spending their own money.)
There are a number of factors threatening the U.S. economy at this time: 1. Massive Debt According to the Federal Reserve Bank's Flow of Funds Report for the first quarter of 2008, total American debt is $50 trillion which is 350% of GDP. This is far above the 1933 level shown in the Total U.S. Debt chart near the top of this page. As shown in the chart, in 1929 total US debt was about 150% of GDP. It rose to its peak of 264% in 1933 largely due to contraction of GDP. The enormous pile of debt presently owed by Americans has the potential to cause an economic implosion greater than the 1930's when GDP contracted by nearly 30% and unemployment rose to 25% of the workforce. Here is an updated chart from Weiss Research:
The U.S. Gross Domestic Product (GDP) in 2008 is estimated to be $14 trillion. GDP growth has stalled and may even be declining. The total U.S. $50 trillion debt is growing at an annual rate of about 9%. Interest rates are rising, and will rise much more quickly if global investors begin to doubt the ability of the United States to pay. Interest rates will also rise if money that formerly flowed to the U.S.A. is invested elsewhere. There is a growing tendency for international investors to use their US dollars to buy commodities rather than hold currency. Faith in fiat currencies depends on the financial strength of the governments that issue them.
Look at this chart showing the Credit Default Swap rates on U.S. 10 year treasury bonds. "The cost of insuring against a U.S. government default is soaring. And similar trends exist in the bond markets of Germany and Britain." - Sean Brodrick, November 2008. Judging by credit default swap rates, bonds issued by the state of California are riskier than those issued by Kazaksthan (April 2010). 48 states face budget shortfalls. Since the end of September 2008 the Credit Default Swap rate on McDonald's debt has been lower than that on U.S. treasury debt, suggesting that "flight to safety" money would do better by purchasing high quality corporate debt. Update April 2010 - Yields on many corporate bonds (Lowe's, Johnson & Johnson, Procter & Gamble, Berkshire Hathaway,...) are now lower than on comparable U.S. government debt. Moody's is warning that it may downgrade the credit rating of the U.S. federal government unless conditions improve 1, 2, 3. Banks will generally limit the size of a loan to a customer so that loan payments do not exceed about a third of the customer's income. Using this rule of thumb, the $14 trillion American annual GDP could finance at most about $5 trillion in loan payments (principal and interest). With $50 trillion of total debt, this $5 trillion payment will be entirely consumed by interest payments at a 10% interest rate. If the economy shrinks, then the ability to pay is reduced proportionately. However, given that interest rates are still relatively low and the total debt is increasing by 9% annually, it seems the United States is already unable to pay even the interest on its debt. Thus, the key question is not inflation or deflation, but solvency. U.S. stripped of AAA credit rating by Chinese rating agency July 2010, and further downgraded August 2011 (1, 2). Weiss Ratings gives U.S. sovereign debt "C" rating. In our opinion, a government deserves a AAA credit rating only when: 1. The government has budget surpluses 2. The government has a small debt that can be repaid without printing money 3. The nation has a low level of inflation. By these measures, the United States federal government does not qualify for a AAA credit rating. Not even close. There are three modes of default: 1. Outright default on debts 2. Money printing to pay off debt with inflated/devalued dollars 3. Higher taxes plus reducing or eliminating promised benefits. Look at the Total U.S. Debt chart at the top of this page. Imagine it to be a volcano. Government borrowing, pledging and money printing is the "blow off top". Soon we may start down the other side. It took about 30 years (1980-2010) to reach the top of the debt volcano, suggesting that it may take about 30 more years to get back down. Microeconomic incentives that motivate behaviors by individuals and companies need to be consistent with the macroeconomic situation that is most beneficial for society as a whole. Banks have lobbied for tax incentives that encourage debt. This has generated more business for banks, but the end result has been to place the entire economy in a perilous situation. These tax incentives need to be changed to encourage saving instead. 2. Rising Interest Rates Interest rates tend to move in long cycles of about 60 years (30 years of declining interest rates followed by 30 years of rising interest rates). Interest rates are now at historic lows. Rising interest rates affect stock prices two ways: 1) bonds compete with stocks for funds and can take money away from the stock market, and 2) rising interest rates increase borrowing costs and reduce earnings, putting downward pressure on stock prices. Interest rates go up as default rates rise. Fear of loss makes lenders reluctant to lend, reducing the supply of loans. Interest and principal payments on debt increase the demand for money, which places further upward pressure on interest rates. How high interest rates go in each cycle depends on the amount of debt owed at the beginning of the cycle. This is one reason why interest rates may spike very high before this cycle is over. Government borrowing (to finance huge bailouts and its own annual deficit, plus refinancing old debt as it matures) will drive up interest rates for everyone. In fact, U.S. federal government borrowing requirements are so excessive that they may reach a point where they are impossible for the market to fund. (Update November 2010 - Could this be the real reason for the Fed's QE2? What happens when the Federal Reserve Bank goes bankrupt?) There is an epic battle being waged between the ideas of Milton Friedman (increase the money supply to inflate prices and prevent deflation), and Irving Fisher (defaults and asset liquidation will drive down prices until people decide to buy again and then the economy will recover). Politicians are generally in the Milton Friedman camp, because it allows them to "do something". We maintain that their doing something generally amounts to political theatre and adds to the total debt. In the end, the debt problem must be resolved and Irving Fisher will prevail. This will probably begin to happen after 2012 when the mortgage crisis has largely passed and the government puts an end to quantitative easing and huge deficits. The best way to cure an economic slump is to go through it. Governments should limit themselves to damage control, and take measures to prevent this from happening again. First, interest rates rose for sub-prime borrowers, then for prime borrowers. Eventually interest rates will rise for the government, too. The trend of rising interest rates may continue for decades. Bonds fall in value as interest rates rise. Update December 2010 - U.S. municipal bonds are collapsing, causing rising interest rates for local governments. This collapse could easily spread to other bond markets including borrowing by state governments and long-term U.S. treasuries. Update January 2011 - Congress is considering changing the law so that states can declare bankruptcy. This will allow them to default on their pension obligations, bonds, and other debts.
3. Decades of Deleveraging (paying off debt) Ahead By collectively investing retirement funds into the stock market, stock prices have been bid up to incredible levels. When baby boomers retire and try to remove this money from the stock market, prices will plummet to unbelievably low levels. The "baby boom" is anyone born during the years 1946 to 1964. They will begin to reach age 66 starting in 2012. There is no way all investors can successfully remove their money from the stock market. If you want to buy stocks, we suggest investing globally. Emerging markets such as China, India and Latin America have younger populations and their stock markets will be less influenced by population patterns in developed countries. Using a measure called "comprehensive income" which is less manipulated than "net income", during 2008 the S&P 500 companies collectively lost about $200 billion. In other words, there was no price/earnings ratio because there were no earnings. However, reported earnings are a lagging indicator both when the economy is growing and shrinking. This means the stock market could start going up at any time, reflecting nothing more than the general level of confidence that things are getting better. What we are seeing today is not a typical bear market. The business cycle has its ups and downs. The economy overheats so the Fed raises interest rates and we have a bear market until things cool down. This is not what is happening today. Today's bear market is caused by too much debt. We have not seen a bear market like this since 1929, and debt at the beginning of the Great Depression was proportionately much less than it is today. With a regular bear market, when the economy cools down the Fed can lower interest rates, which increases borrowing and stimulates the economy. Lower interest rates will not help an economic collapse caused by too much debt. Increasing borrowing just makes the problem worse. Debt by its very nature cannibalizes future spending. In the short run debt acts as a stimulant, but in the long run debt is a drag on the economy due to interest expense and loss of future sales. The level of debt in the U.S. economy has been increasing since 1980, to the point where it is difficult to take on any more debt. The time has come for people and corporations to face the accumulated mountain of debt. Consumption is going down, which will cause employment to go down in a vicious cycle until we reach a bottom. There is no knowing how long this will take or how far down is the bottom.
We seem to be entering what is known as a "secular bear market". A secular bear market can last for a very long time. However, even in a bear market there are rallies. Pressure is building for one now (December 19, 2008). The average dividend yield on the S&P 500 is 3.48%. This compares to a yield of 2.54% on a 30 year treasury bond and 2.1% on a 10 year treasury bond. The last time this happened was 1958. Short term treasury bills are paying 0% to .25%. These low interest rates make stocks attractive. Plus, the low interest rates also make certificates of deposit offered by banks at around 3% very attractive, helping to recapitalize the banks. One investment strategy that worked through the depression of the 1930's is dollar cost averaging. Regularly putting a small amount of money into your retirement account buys more shares when prices are down. When you come out the other end of the depression and prices are back up, then you are far ahead. This assumes two things. First, the companies whose shares you buy do not go bankrupt. Companies that should survive include the ones whose services you use every day, such as telephone, cable, electricity, gas, etc. This type of company often pays good dividends, which can be a source of income in hard times. Second, you can afford to hold on for the long term and will not be forced to sell at a loss due to unemployment, retirement or other reason. The dollar cost averaging strategy assumes the bear market does come to an end one day. This has not been the Japanese experience. After many ups and downs, their stock market today (November 2008) is at the same level as it was in 1982. So once again we come back to investing in emerging market economies that have the best chance of growing, or you might find sectors of the North American market that have the best chance of growth such as alternative energy. We discuss the coming decline of global oil production and the need for alternative sources of energy further down this page. Food may be another good investment, as global food supplies such as grains are at the lowest levels in decades. Fresh water is also increasingly scarce as underground aquifers become depleted and glaciers disappear. All the reasons we heard in 2008 for high oil prices and high food prices are still valid. Commodities in general have fallen in price so far that they are starting to look cheap again, plus commodities are becoming a hedge against increasingly worthless currencies due to excessive money printing by governments. If you invest in gold and silver, we strongly suggest that you purchase either the physical metals or mining stocks. Stay away from exchange traded funds (ETFs) that claim to be backed by physical bullion. If these claims turn out to be fraudulent (1, 2, 3) then your ETF investment will be worthless, while the value of physical metals and mining stocks skyrocket. If you are an institutional investor, consider purchasing the metals on the futures exchanges and take physical delivery (and test what you receive to ensure the bars are not gold plated tungsten). Silver could bring down one of Wall Street's manipulative mega banks 1, 2. Fake silver is now on the market.
4. Unfunded Government Promises Social Security had
its beginnings during the depression of the 1930's as part of President
Now there are less than 2 workers per retiree. Social security covers nearly everyone, and the average person lives much longer. More than 80% of the population lives past age 65. Yet the age of retirement has been increased only to age 66 (soon to be 67). All of this has created a massive unfunded liability. We say the liability is unfunded because the reality is that the Social Security trust funds have been spent. Social Security is as it was originally designed to be - a "pay as you go" system. The large size of the "baby boom" retirement population living for so much longer may create an intolerable burden for the next generation. People should be encouraged to work past age 66 if their physical and mental health are adequate. In fact, it may become necessary to raise the retirement age to 75 or even higher. Older people should not feel slighted if they are asked to step down from positions of responsibility, and to continue working at more junior positions. This will give younger people a chance to move up.
Falling property values result in lower property taxes to cities. As a result, cities are beginning to declare bankruptcy (1), as they find themselves unable to pay fixed costs such as pensions promised to retired police, fire fighters and other municipal employees. States are slashing their budgets and asking the federal government for help as tax revenues decline. However, tax revenues are declining for the federal government as well, with a big hit coming with the 2008 tax year when capital gains are replaced by capital losses, plus declining income taxes due to business losses and rising unemployment. U.S. corporations are being manipulated into bankruptcy so they can dump their pension plan obligations onto the taxpayer. Upon emerging from bankruptcy, these companies are better able to compete with other companies around the world that do not carry these burdens. However, it is unlikely that the coming generation of taxpayers will be able to pay all the obligations that it will inherit. The Pension Benefit Guarantee Corporation (PBGC) has had a deficit each year since 2002. Revenues to all levels of government are declining, and the costs of the unfunded social safety nets are just beginning to soar. There will be no option but to find ways to increase revenues (getting rid of the home mortgage interest deduction would be a good place to start) and decrease payments for Social Security, Medicare and the PBGC. In the years ahead Social Security and Medicare are projected to be underfunded by many trillions of dollars. These numbers assume the economy continues growing at the same rate as it did in the debt-stimulated past. How likely is this? Insurance companies and private pension plans expect a certain return on their equity, bonds and real estate investments in order to fund annuities and pensions. If expected investment returns do not materialize, these companies will be unable to meet their obligations. Defined benefit pension plans may soon be unavailable. In their place will be defined contribution pension plans. You put your money in, but there is no way of knowing what you will receive. With this type of pension plan there is a great incentive to supplement your pension with additional savings. The $2 trillion social security trust funds were "invested" in U.S. government treasury bonds and spent by the government. When we say that the social security program is unfunded, this is another way of saying it is likely the coming generation will be unable pay the many trillions of dollars of debt and other liabilities that are presently being accumulated by the U.S. government. A great danger of massive borrowing by the U.S. government in order to bail out the economy is that the credit worthiness of the government itself is declining. The end result of continuing on this path could be a massive default of government debt. Before this happens, however, you can expect the government to confiscate any assets it can get its hands on (Roosevelt confiscated all gold held by Americans, Argentina recently confiscated the assets of private pension funds), plus hyperinflation and restrictions on the movement of money out of the country. Anyone who says the U.S. government debt is not a problem because it is within historical norms as a percentage of Gross Domestic Product (GDP) is ignoring the additional debt owed by households and corporations. It is the credit worthiness of the entire U.S. economy that is being called into question. Plus, what happens if GDP begins to shrink as it did in the 1930's? Update November 2008 - The U.S. government may be planning a stealth takeover of $10 trillion in U.S. IRAs, 401Ks and private pension plans. To "protect" you from fluctuations in the stock market, the government will offer to make an inflation-adjusted annual contribution and guarantee a 3% interest rate in your "Guaranteed Retirement Account". In return, you will be giving your retirement savings to the government (so the money can be spent) rather than owning shares in productive assets. The tax laws will be amended to make this revised system attractive. If the government "monetizes the debt" (uses printing presses to make money and spends the money to pay off all or some of its debt), it is a stealth default. The lenders will have lost because the money is worth less. If all G20 countries do this simultaneously, then all their currencies will be worth less simultaneously. It would be a collective devaluation of paper currencies. This would be a good reason to buy gold and other hard assets. At this time, China is loading up on gold, oil, copper, aluminum and other materials, plus buying low cost shares and debt of companies that produce the raw materials that China needs. China and other countries with surplus funds are also buying farmland around the world rather than putting their money into U.S. debt. President Roosevelt devalued the dollar 41% by changing its value from $20.67 to $35 per ounce of gold. The dollar is no longer pegged to gold, but monetizing much of the debt can accomplish the same thing. However, the strength of the currency must be maintained because without it the economy cannot recover. Hyperinflation is not an option, so there is a limit to printing money. "Helicopter Ben" seems to be trying to prevent price deflation by printing money and inflating the currency.
Some writers predict hyperinflation for the United States due to extensive money creation. However, money can be destroyed also. Bad debt such as mortgage foreclosures destroys wealth and the money supply shrinks. We maintain that the Fed's money creation is designed to balance this money destruction and thereby prevent deflation. There should not be hyperinflation unless the Fed lacks the political strength to end excessive money creation in 2012 when the foreclosure crisis has passed. "A strong currency — the nation's social and political anchor. It gives workers a reason to work and be team players; families a reason to save and come together; entrepreneurs a motive for innovating." - Dr. Martin Weiss. Let's hope the Fed gets it right and we do not end up with the "Bernanke peso". "The fate of a country is inseparable from the fate of its currency." - Milton Friedman 5. Bankrupt Banks The Federal Deposit Insurance Corporation (FDIC) "watch list" has grown to 775 problem banks (May 2010). However, in an independent review of the US banking system, Weiss Research identifies more than 5,291 banks and credit unions that are vulnerable. The FDIC has $45 billion to cover more than $5 trillion of deposits. The closing of just one large bank could consume all of the FDIC's $45 billion. Can taxpayers afford to pick up the tab for the remainder? The FDIC insures deposits up to $250,000. What happens to business accounts when a bank closes? How many businesses could afford to lose their payroll if the bank closes just before payday? To find the financial condition of your bank, go to http://www.weissratings.com. Banks are rated on a scale from A to E, with A being strong, C is middling, and E means the bank is very weak. Slight variations in strength are reflected by + and - signs. Look for a rating of B- or better. Since September 2007 the Federal Funds target rate has been cut 11 times, falling from 5.5% down to about 0%. If the Federal Reserve keeps short term interest rates very low, and banks lend this money long term, the interest rate spread could do wonders to recapitalize the banks. This way, banks must lend in order to recapitalize themselves. Combined with delaying market pricing of their bad debt (which exposes their lack of capital), in time they can work their way out of the hole they find themselves in. This has worked in the past. However, it takes time. Banks are lending. The problem is not so much with the banks as with the disappearance of customers for securitized debt. It used to be that banks would originate loans and sell them to Wall Street for securitization. This market is gone and will not soon be coming back. There is much discussion of the government (taxpayers) purchasing toxic assets from banks. When subprime debt qualifies for "AAA" ratings, it is because some of the default risk has been transferred to another tranche. The tranches to which the default risk is transferred cannot be sold and are worthless to anyone, including the taxpayer. We suspect that banksters planned from the beginning to sell this worthless toxic debt to the government, and intentionally created a crisis to accomplish this. At present, corporate management nominates members of the board of directors for shareholders to ratify. This makes the board subservient to management and leads to management being paid like royalty while shareholders and the public are abused. Board members should be nominated by shareholders, with no management involvement. Project Censored analyzes the interlocking corporate directorships that give corporations control of U.S. news media. 118 people sit on the boards of directors of 288 American and International corporations. There has been a coup in corporate America, and shareholders have lost control of their businesses. A tiny group of non-owners has covertly seized control of corporate America. They use their control of the news media and a small portion of shareholder money to fund and control who gets nominated and elected to government office and what they do there. In this way, the group has extended its influence to a coup of government as well. Taxpayer money then gets funneled back to the corporations they control. "They frankly own the place." - Senator Richard Durbin State and federal supreme courts tainted by corporate money. Questions raised about the composition and competence of the New York Fed. Supreme Court opens door to corporate funding of candidates 1, 2, 3, 4, 5. This is how a small group of men exercise disproportionate influence in society: "a structured pattern based on concentration of control, interlocking directorates, financial services, joint ventures, professional reciprocal favors, commonality of interests...long term friendships, and, at its worst, greed and arrogance."- Moss, page 431.
"What seems to spook people now is the possibility
"Behind every
great fortune lies a great crime."
"The domination of business by government is called Communism.
Update October 2008 - There once was a time when stock options could only be purchased "over the counter". Now there are regulated exchanges where stock options are bought and sold. Credit default swaps and other derivatives can only be purchased "over the counter" at this time. There are about $600 trillion of these unregulated derivatives on the books of large banks, creating a huge "systemic risk" or risk of causing a chain reaction of defaults when a major bank goes broke. It is the threat of total economic collapse that banks have used to force government bailouts. It is time for new exchanges to be created to remove the "systemic risk" and so that everyone can trade these new products. If the systemic risk is not dealt with, there will be periodic panics forever into the future whenever a large issuer of over the counter derivatives gets into difficulty. Update February 2011 - Five banks in the United States have 95% of the total $223 trillion U.S. bank exposure to derivatives. These banks are JP Morgan, Bank of America, Citybank, Goldman Sachs, and HSBC. $188 trillion of these derivatives are related to interest rates. This is the real reason that the Fed is trying to keep interest rates down. 6. Falling Dollar The value of the U.S. dollar has declined dramatically relative to other major currencies. A few years ago the US dollar could buy a Euro for 88 cents. Now a Euro costs more than $1.50. When the dollar goes down, internationally traded commodities (oil, copper, etc) go up in price. This means inflation of prices. It also means that Americans are less wealthy relative to the rest of the world. By global standards, Americans have taken a 50% cut in pay, plus all American assets (including the US stock markets) have fallen in price by half simply due to the loss of purchasing power of the dollar compared to other currencies. Update August 2008 - Due to the falling value of the US dollar American manufacturers are more competitive globally. As a result exports of US manufactured goods are increasing. On the other hand, with rising oil prices and the incredible quantity of oil the US imports, the trade deficit remains virtually unchanged. To improve the balance of payments, it is necessary to reduce and eliminate American dependence on foreign oil. Update November 2009 - The U.S. government is financing itself largely by printing money. Paper money is losing its perceived value. People, corporations and governments all over the world are trying to minimize their holdings of U.S. dollars. There is a danger that this growing rejection of the dollar could accelerate. Update January 2011 - China is about to revalue its currency relative to the U.S. Dollar. This will increase China's purchasing power in world markets, further driving up the prices of the commodities it needs (oil, coal, foods, metals, cotton, etc.). For Americans the consequences include less purchasing power and higher prices for everything. 7. Distorted Economy Will Need Time to Sort Itself Out The U.S. Federal Reserve Bank has worked to dampen the business cycle. All of life is cyclical, and the business cycle serves many useful purposes. For example, recessions cause debts to get paid off, marginal businesses close freeing up resources for stronger businesses, all businesses are forced to consolidate and become more efficient, the threat of unemployment causes people to save for a rainy day and become more self-sufficient, and so on. A mild business cycle is healthy for the economy.
"Stability breeds instability." Stability leads to excessive risk taking and too much debt. Instability leads to more conservative investing and less debt. The cycle is natural and self-correcting. By interfering with the business cycle, the Federal Reserve Bank has allowed the build-up of extreme imbalances. “Time’s glory is to calm contending kings, Update August 2008 - Recently the Fed has been bailing out banks, investment banks and brokers by means of its Term Auction Facility (TAF), Term Securities Lending Facility (TSLF), and Primary Dealer Credit Facility (PDCF). The Fed now holds more than $500 billion in low quality debt instruments that the banks and brokers were unable to sell in the open market. Update October 2008 - The global credit crunch is about to enter a new and more dangerous phase. One of the factors that made the depression in the 1930's so bad was the Smoot-Hawley bill of 1930 which tried to protect American jobs by increasing tariffs on imports. Retaliatory action by other nations against American exports resulted in a significant reduction in global trade and increased unemployment everywhere. A similar situation is being created today as the credit crunch spreads to include the letters of credit that finance international trade. Letters of credit require international banks to trust each other. When banks do not accept a foreign letter of credit then the shipment is not shipped. This is starting to happen now. Unshipped goods are beginning to pile up in ports. If it gets worse, international trade will grind to a halt. The one growing sector in the U.S. economy at this time is the export sector. Over 90% of the world's trade goes by ship. The collapse of international trade is clearly seen in the Baltic Dry Index which is an index of what it costs to send non-liquid exports by ship. The Baltic Dry Index has fallen more than 90% since May 2008. Update January 2013 - The Baltic Dry Index is as low now as it was in 2008. See chart. Central banks must guarantee LIBOR (interbank) lending worldwide until the credit crisis has worked itself out and international banks can once again trust each other's solvency. Without this, the world risks sliding into a global depression similar to the 1930's.
“The wicked leader is he who the people despise. The good leader is he who the people revere. The great leader is he who the people say, ‘We did it ourselves.'” - Lao-Tzu
8. Keynesian Economics Abused and Ineffective Keynesian economics calls for governments to stabilize the economy by borrowing and spending during recessions in order to stimulate the economy, and paying off the resulting debt during good times. However, the debt never seems to get paid off. All levels of governments in the United States are now saddled with such a pile of debt that added borrowing during bad times may soon not be possible. Plus, there is another factor. Look at the chart to the right (courtesy of Weiss Research). So much U.S. consumption is foreign goods that economic stimulus paid for by U.S. taxpayers will probably do more to stimulate the Chinese and oil exporting economies than the American economy. The "Marginal Productivity of Debt (MPD)" is negative. However, there is no evidence that Keynesian economics works. It did not end the depression in the 1930's and it has not helped Japan since its real estate and stock market bubbles popped in 1990. At best, government spending during times of high unemployment can reduce suffering. Watch this 7 minute video. The real reason World War II ended the Great Depression is because rationing during the war forced people to save, and after the war people invested/spent their savings in a manner that created a productive economy. 9.
Energy Crisis Looming The world petrochemical
supply and demand balance is becoming precarious. Starting 2008,
world petrochemical supply is expected to begin its terminal decline.
What
this means is zero or negative economic growth going forward. Every time the
economy attempts to grow and oil consumption increases, the price of oil
will rise to a level high enough to reduce demand (this is called "demand
destruction") to the level of dwindling
global supply. Petrochemical prices will continue to rise, perhaps dramatically, as the world competes for a declining supply of petrochemicals. The 1970's oil price shock caused stagflation in the U.S. economy. The coming oil crisis will be much worse than the world experienced in the 1970's and will be permanent, unless the world learns how to live without petrochemicals. In the coming years as the petrochemical supply begins to decline more rapidly, people, companies and countries around the world will start to hoard. When this happens, gas pumps may often be empty. Criminals will hijack gasoline tanker trucks to sell the gasoline on the black market. Nations will go to war for oil. Oil supplies will be rationed, with priority going to food production and the military. (The chart to the right was produced by ExxonMobil in February 2004.)
“We should leave oil before oil leaves us. That
should be our motto.”
"The IEA performed a comprehensive study of 800 of the world’s largest oil
fields. And it concluded that depletion in conventional oil fields is
occurring at a rate in excess of 9% per year. (That’s an average. We see
depletion rates in excess of 15% in Mexico’s Cantarell field, for example.)
This means that absent large amounts of new drilling, new investment in
enhanced recovery and new discoveries, the current worldwide oil output will
decline by over 9% per year. And if it keeps going along this trend (there’s
no reason why it won’t), the base of world oil output could conceivably dry
up within seven-10 years."
"Every $1 rise in oil decreases U.S. GDP by
$100 billion per year." Summary The total debt in the United States rose slowly from the Second World War to about 1980. After 1980 the total debt rose at a rapid rate, creating an illusion of prosperity. The total debt has now reached a level where it is has become unbearable and the economy is entering a debt collapse. Instead of allowing a quick collapse, the United States government is borrowing and spending trillions of dollars to stabilize the situation. However, there is a limit to what the government can do. Banks will be weakened by millions of home mortgages entering foreclosure during 2010 and 2011. The overall trend is toward rising interest rates, shrinking tax revenues, aging population, and declining global oil production. The financial weakness of the federal and state governments may make it impossible for them to pay for many of the promises and commitments they have made. Financial strength comes from saving and investing, not from borrowing and spending. It took 30 years to create the mountain of debt, and will probably take 30 years to pay it off. Rather than a "consumer economy" Americans face a hard work economy for at least a generation. The torch of economic growth will pass to those nations who are debt free. How can you protect yourself? Here are some suggestions: 1. Pay Off Debt Your best investment is to pay off debt. One third of all homes in America have NO mortgage. Debt is best avoided. Interest rates go up and down in response to changes in the supply and demand for money. If lenders start to feel that the money they lend is not going to be repaid, then they will stop lending. Plus, losses from the mortgage crisis reduce the ability of banks to lend. (As a result, total lending in the United States is declining.) These will cause interest rates to spike upwards. Adjustable Rate Mortgages and renewals of conventional mortgages may carry interest charges that are unaffordable. Many corporations are already experiencing soaring interest costs and difficulty in gaining access to new debt. (See 1, 2.) To protect yourself from an interest rate spike, you need to become debt free as soon as possible. You may choose to ignore this suggestion, however there are plenty of wealthy people around the world with lots of cash willing to purchase American assets for pennies on the dollar. In fact, the current "debt trap" economic collapse may have been engineered with just this thought in mind. A "debt trap" is when you borrow to the limit of your ability, and then something happens to reduce your ability to pay. Lenders respond by increasing the interest rate on your debt which further reduces your ability to pay. The result is generally catastrophic. Individuals, companies and even countries can fall into a debt trap. If you are depending on credit cards to get by, you should know that many people are about to lose their credit cards and lines of credit as banks try to reduce their risk. As much as $2 trillion of consumer credit may be chopped. If necessary, you might consider credit counseling and debt consolidation. If you have savings to invest, remember that the main principle to getting rich is compounding. You do not need to earn a lot. Just a little each year, reinvested over time will bring great rewards. Read Rich Man, Poor Man by Richard Russell. With interest rates so low, dividend paying stocks offer a better return. The best dividend paying stocks are those that have a track record of regular payments and regular payment increases as the years go by. A list of the best dividend stocks that is updated regularly is called Mergent's Dividend Achievers. There are 212 companies on the list at this time (March 2010) with dividends ranging from 3% to 10% per year. You compound your dividends by reinvesting them in more shares. Many companies automate this process with an optional Dividend Reinvestment Program (DRIP). DRIPS sometimes offer benefits such as no commissions on the new shares, discounts from the market price, etc. Diversify your portfolio with some shares in emerging markets, Japan (the Japanese stock market is now at a 25 year low - March 2010), precious metals, energy and agriculture. Large companies with global revenue offer protection from currency fluctuations. There are two ways to make money - work makes money, and money makes money. When you can live on the income from your savings, many new possibilities in life open up for you. 2. Protect Your Money Move your personal and business bank accounts to a bank with a rating of A or B. Avoid banks with ratings of C, D, or E. To find the financial condition of your bank, go to http://www.weissratings.com/. Keep some cash in a safe place so that you can survive in the event of a "bank holiday" (the government closes all the banks for an indefinite period). Open a bank account in another country and keep some of your savings there. 3. Invest in yourself Look after your health. Without health, your life has no foundation. Improve your job skills. Develop a skill you can barter. Learn a trade. Take an apprenticeship. Learn how to farm. Do something practical. However, do not borrow money for education. In 2009, more than 70% of high school graduates enrolled in colleges or universities. When college education becomes so common, it ceases to have much value. Since 1992, 60% college graduates have been accepting jobs that do not require a college degree. Chances are you will never be able to pay off your student loans. College education is the new bubble, designed to keep young unemployed people off the streets. Unless you have a spare $150,000 for six years of tuition, you are better off doing something else. Lifetime low cost internet based education is the way of the future. Encourage your community or a local charity to start a barter currency such as "Calgary Dollars" to make bartering easier. This alternative currency will allow the local economy to continue even if the official U.S. dollar becomes worthless due to hyperinflation. To learn more, search the Internet for "alternative currency". Stores and businesses also have the option to accept other currencies such as Euros, Canadian dollars and Mexican Pesos as well as gold, silver and copper or anything else that is convenient. Many stores in Texas accept Mexican Pesos. Stores in the northern states often accept Canadian dollars. Stores in New York and Washington, D.C. may accept Euros. There is no legal obligation for a business to accept U.S. dollars for any transaction other than payment for a debt. Learn how to live on $36 per month for food. Look at the traditional diets of less developed countries. They manage to live on a dollar a day. Economical food combinations that will help keep you healthy include corn and beans (Mexico), wheat and chick peas (falafel sandwich Middle East), and rice and lentils (India). Fresh fruits and vegetables in season are healthy to eat and are often much less expensive than canned/frozen foods.
4. Become Self-Sufficient How can you live if you are unemployed? Reduce your living expenses as low as possible (downsize). Look for ways to diversify your income or live on less income. If you have a choice between retiring at this time and continuing to work for a few more years, unless you have a lot of money saved up you might be wise to continue working. Create a do-it-yourself economic recovery. Don't expect help from the government. Here are some self-employment suggestions 1, 2, 3, 4, 5, 6, 7. There are a number of online networks such as www.elance.com that allow you to freelance in your profession. Watch the DVD "Capitalism: A Love Story" by Michael Moore. In particular, watch the 10 Special Features on this DVD, and learn how worker co-ops can provide a beneficial alternative form of workplace organization. ANY kind of business can be organized as a worker co-op, and a worker co-op should be able to compete very effectively in the marketplace. A worker co-op is owned by the workers who work there. Every worker owns one share. 5. Prepare for Expensive Oil and Gas Live in a location that has public transit so that you can get around without a car. (This assumes that cities can afford to continue their mass transit systems. Apparently this is in doubt, so a bicycle to peddle around town might be a good backup.) Unless a solution is found for declining global oil supplies, gasoline will be increasingly unaffordable in the years ahead. 6. Your Car May Become Your Home If you buy a car, make sure the seats fold down so that you can sleep in it. Parking lots in Santa Barbara, California become homeless shelters at night, with people allowed to sleep in their cars. After having lost their employment, their homes are foreclosed, and their car becomes a shelter of last resort. The New Beginnings Counseling Centre utilizes 23 Santa Barbara parking lots provided by churches, non-profit organizations and the county. In Eugene, Oregon the St. Vincent de Paul Society offers a similar overnight parking program. Do an Internet search "living in my car" for more information. There is also a book available. Like it or not, tent cities are springing up in urban centers across North America and Japan. Similar to the shanty towns of the 1930's, tent cities in city parks have become the last resort of the homeless. Entire families with nowhere else to turn are swelling the population of this new urban phenomenon. City leaders should understand that tent cities may be the lowest cost way to deal with this growing problem and take steps to make it humane. Toilets, showers, laundry and a soup kitchen should be provided. Pay telephones, message center and mail service will help make it possible for residents to look for work and eventually lift themselves out. If you have money, please make regular donations to your local food bank. (Note: Millions of American homes may be foreclosure-proof. The reason for this is that the original mortgage documents have been destroyed, and exist now only in electronic form in MERS - Mortgage Electronic Registration System. However, courts have ruled that electronic documents are not good enough, and the originals are required. So if someone tries to foreclose on you, demand proof that they have the right to do this. If they cannot produce your original mortgage documents and a paper-trail showing that they own your mortgage, then your home may be foreclosure-proof. Read more However, if you are presently making your mortgage payments, do not use this as an excuse to stop. The government MUST intervene to fix this situation or the banks will collapse.) 7. Victory Gardens Everyone needs to eat. Plant a garden so at least you have food. If you do not have a yard, why not make some window boxes, create a container garden on your balcony, grow vegetables in hanging baskets, plant something indoors, or grow sprouts in your kitchen? Each square food of garden is precious. Divide your small garden into square feet and plant something different in each. Lettuce is a good plant to grow. It is highly nutritious and matures faster than most other vegetables. Practice vertical gardening so you can use your wall space. Vines such as squash, zucchini, cucumber, melons, grapes, etc., will climb a trellis or hedge. Use a dehydrator to preserve food for the winter (eg. "sun-dried tomatoes"). Trees on your boulevard should produce nuts (chestnuts, walnuts, heart nuts, hazel nuts, etc.) or other edibles. All vegetation around your home should serve multiple purposes (food, wind break, shade, fuel, mulch, compost, etc.). Learn to maximize the nutritional value of food that you purchase. Back to Eden Film By means of rotary hydroponic systems and vertical gardening, cities could grow much of the fresh vegetables they need. Learn about urban agriculture 1, 2, 3, 4. Would you like to be an urban farmer? Winter garden.
8. Store enough dried and canned food in your home to keep you going for several years. (Remember the story in the Bible about seven good years followed by seven bad years? Well, the United States has had more than 60 good years and the bad times may be just beginning. Begin preparing now, "just in case".) It is amazing the feeling of security that comes from having a cupboard filled with preserved foods, and they are not expensive. Given the rate of inflation in food prices, a cupboard full of food is a smart investment. Money spent on nutritionless edible substances is money wasted. 9. Super-insulate your home (R-40 walls, R-60 roof). A super-insulated home will not allow you to freeze to death in winter even with no supplemental heat. The best insulation may be sprayed-in-place polyurethane foam. 10. Move On from Petrochemicals Actively support and implement measures that will move the economy and your personal situation away from dependence on petrochemicals. Make your home and community self-sufficient for as many of its needs as possible. Also, you might vote in support of candidates who are willing to change the tax system. In addition to "progressive taxation" where the rich pay proportionately more, we need a tax system that taxes "bads" and does not tax "goods". For example, a carbon tax on coal, oil and natural gas would help reduce global warming and encourage the development of alternatives. The carbon tax could be made revenue neutral by removing taxes on employment. Most new employment is created by entrepreneurs, but it is too complicated and expensive to hire someone. The red tape and costs involved with hiring an employee need to be reduced to the absolute minimum. Similarly, the present tax system encourages debt by allowing interest payments to be tax deductable, while discouraging savings by taxing interest earnings, dividends and capital gains. This situation needs to be reversed. Interest paid on debt should not be tax deductable, and this change can be made revenue neutral with offsetting changes to taxes on proceeds from savings and investment. Ideally, earnings from savings and investment should be tax free. Thirdly, there should be a national sales tax. The effect of this tax would be to discourage consumption. The sales tax can be made revenue neutral by reducing income taxes. This revised tax system will help lay the foundation for future prosperity. Through a national sales tax, the 47% of Americans who pay no income tax can make a contribution.
The chart to the left shows federal, state and local government spending. As a percentage of the total economy, the portion of the economy represented by American governments is not much different from Canada. This is surprising since Canadian governments pay for the national health care plan that covers ALL Canadian citizens. If you do all these things, you can rise above the turmoil of the world and live a life free from fear. Avoiding stress is important for the prevention of disease and maintenance of health. When a person gets sick what they need is rest, not stimulants. The economy needs a rest, and has reached a point where stimulants have less and less effect. The basic problem with the economy is too much debt, and the ONLY way to fix this situation is to get rid of the debt through repayments or defaults. Either way, the economy will get smaller. With defaults it gets smaller quickly (as lenders lose the money), with repayments it gets smaller more slowly (as payments of interest and principal consume money that could otherwise be used productively). If the slow road of repayment is chosen, it is possible for the economy to still grow but the growth faces stiff headwinds. The growth will not take place in declining industries. Out of the ashes of the old economy is springing a new economy, the economy of the future. Only this can grow quickly. Government "stimulus" must be focused on the areas of the economy that are growing if it is to have a lasting effect. Nearly all new jobs are created by start-up companies. 1, 2, 3. Creativity is the basis of economic success. Look at Japan, a small island nation with few resources. Theirs has grown to be the third largest economy in the world (China is now the second largest). The only resource they have, and ultimately the only resource that is needed to make an economy prosper is people. It is the creativity and intelligence of the people that makes an economy grow. Scientific research on the Transcendental Meditation (TM) technique clearly shows that practice of TM increases creativity and intelligence. Social and economic applications of TM and its related programs can uplift the mental functioning of an entire population virtually overnight as evidenced by lower unemployment and other measures. We cannot afford to ignore a program like this that has good evidence of its effectiveness and costs a fraction of what is being wasted on bailouts. Here is a way to promote growth in the economy that does not depend on monetary and fiscal policy. The present economic collapse has already cost trillions of dollars in stock market losses and real estate losses. The entire mess was not inevitable and could have been prevented. Many observers have been commenting for years on rising debt levels, bubbles in stock markets and real estate, faulty ratings from rating agencies, and so on. In a sense, the present situation is a reflection of our collective lack of intelligence. It is said that those who do not learn from the past are doomed to repeat it. Our inability to recognize the value of technologies that could increase our individual and collective intelligence is symptomatic of our lack of intelligence. Scientific evidence that individual and collective intelligence can be raised first began appearing in the 1970's, yet we are still not applying these technologies widely. So the collective dullness will continue and more economic accidents can be expected in the future, continuing ad nauseum. Greatness requires a measure of self-sufficiency. The interdependence fostered by trade is fine up to a point, but to stake one's life on it and to give up self-sufficiency for the essentials of life makes one vulnerable and is a sign of weakness. This principle applies to all levels of society from individuals to nations. The modern economy is neither capitalist nor socialist. History shows that unfettered capitalism leads to all kinds of abuses, and unfettered socialism leads to total corruption. To control the abuses of capitalism while retaining the efficiencies and dynamism of a market economy a certain amount of government regulation and participation is necessary. This is called a "mixed economy". The challenge is to find the right balance between the efficiency of the market and regulation by government. Finding this balance is an ongoing organic evolutionary process that requires constant oversight by the consciousness of the population. Corruption breeds in the hidden corners of the economy and government, out of public awareness. In self defense, the public needs full disclosure of what is going on and why.
The American Society of Civil Engineers' (ASCE) 2001 report on the state of America's infrastructure:
|
AlkalizeForHealth Wind, water and sun beat other energy alternatives, study
says. Thorium fueled nuclear reactors are less expensive, will not melt down, produce less radioactive waste, and do not produce weapons grade material. Polywell fusion technology is also worth trying. The cost to set up a demonstration reactor is minimal. Biodiesel from algae, 328 page government report. Large-Scale Offshore Wind Power in the United States 240 page report National Renewable Energy Laboratory The U.S. federal government passed the $1 trillion debt level in 1981. In the following 28 years it added $11 trillion to its debt. In the next 10 years the debt is forecast to pass $25 trillion. These numbers do not include future unfunded liabilities such as Social Security and Medicare. Social Security will pay out more than it earns starting 2010. (People are applying earlier, and revenues are down due to unemployment). "Shirtsleeves to shirtsleeves in three generations." The Fed is not a public institution. It is owned by the banks. Despite attempts by Congress, the Fed has never been audited. The U.S. dollar has lost 98% of its value since 1913 when the Fed was established. The depression of the 1930's was caused by the Fed's expansionary monetary policies of the roaring 1920's. The situation is very similar today. You can buy a home in Detroit for a dollar. Investors are buying them by the city block for use as rental units. This chart shows the average 87% decline in Detroit housing prices since 2003. "No man is good enough to govern another man without that other's consent." - Abraham Lincoln Know your enemy
1,
2,
3,
4
| Since 2001, the wars in Iraq and Afghanistan have cost two trillion dollars. The cost of these wars doubles when hidden costs are included. These hidden costs are interest on debt incurred to pay for the wars, the cost of treating wounded veterans, and the higher cost of oil. If the purpose of the Iraq war was to get cheap oil, it has been an enormous failure. If the purpose of the Iraq war was to give control of Iraqi oil to American oil companies, this has also failed. In October 2008 Iraq signed a 22 year agreement with China National Petroleum Company involving "$55 billion, or 87% of Iraq's total revenue". "So I came back to see him a few weeks
later and by that time we were bombing in Afghanistan. I said "Are we still
going to war with Iraq?" and he said, "Oh it's worse than that", he reached
over on his desk, picked a piece of paper and he said "I just got this down
from upstairs (meaning the secretary of defense office) today. This is a
memo that describes how we're going to take out 7 countries in 5 years,
starting with Iraq and then Syria, Lebanon, Libya, Somalia, Sudan and
finishing off Iran." The real purpose of the wars is to protect the "petrodollar". Search the Internet and YouTube to learn why the economic survival of the United States depends on the petrodollar. It is a losing proposition, however. Nations all over the world are making bilateral agreements to conduct trade in their local currencies, reducing or removing the need to hold US dollars in their central bank reserves. For the "petrodollar" or the US dollar as "reserve currency", it is death by a thousand cuts.
Is the ongoing collapse of the U.S. economy just an unfortunate accident? "In politics, nothing happens by accident. If it happens, you can bet it was planned that way." The president who told the truth. "Our problem-ridden world has been guided by ... hooligans."
Alan Greenspan was a student of the Great Depression. Therefore, he knew how to prevent a depression and how to cause one. Since the ongoing economic collapse was created on his watch (1987 - 2006), we can only assume that it was done intentionally. The question is "why"? Who are the puppet masters and what are their intentions?
If somebody wanted to weaken the United States, the policies in place starting 1980 have accomplished that goal.
"Our goal is to grow the deficit as much as possible in order to create political space to eliminate government-funded programming. Until then, we want high deficits while lobbying for a balanced budget - and promoting social program cuts as the only solution." - unofficial Republican Party policy since 1980
The Japanese real estate and stock market bubbles of the 1980's popped in 1990 and sent that country into a tailspin from which it has still not recovered. Japanese real estate values dropped each year for 13 years, ultimately declining 50% to 80% from the peak. In 2008, the Japanese stock market is still down about 80% from its peak.
"There is no means of avoiding the
final collapse of a boom brought about by credit expansion. The alternative
is only whether the crisis should come sooner as a result of the voluntary
abandonment of further credit expansion, or later as a final and total
catastrophe of the currency system involved."
********************
The most benign way out of America's predicament is for there to be such a surge of creativity and growth in the U.S. economy that the ability to pay off its debts is vastly increased.
The airline industry is under extreme pressure due to high fuel costs. Jet fuel can be made from algae at reasonable cost. If necessary, airlines should make their own fuel by starting algae farm subsidiaries. Protected from oil price increases, the airlines will feel that they do indeed have a future. Read more about biofuel from algae. Oil from algae is carbon neutral and does not contribute to global warming. The auto industry is collapsing. High fuel prices are driving down the value of American-made vehicles. At the end of a two year lease, an SUV that was supposed to be worth $22,000 is actually selling wholesale for as little as $11,000 to the used car market. American car manufacturers are getting out of the auto leasing business, but it is too late. As existing leases expire, the car manufacturers find themselves taking massive losses on used vehicles. Biodiesel, and to a lesser extent cellulosic ethanol can be manufactured from algae at reasonable cost. Vehicle purchasers must have confidence that low cost fuel will be available for the life of their vehicle. The flow of money to oil exporting nations is the greatest transfer of wealth the world has ever seen. By making fuel at home, these many hundreds of billions of dollars each year will remain in the hands of tax-paying Americans, and much of it will be spent in ways that further add to the local economy. The U.S. government's "Energy Independence and Security Act of 2007" requires the utilization of at least 36 billion gallons of biofuel in 2022. Biodiesel and cellulosic ethanol from algae are the best way to meet this biofuel requirement. If the major oil companies want to have a future, they would be better off developing algae farms that can provide unlimited oil forever, rather than expending great effort to find small quantities of oil within the earth that will soon be depleted. However, even small-scale algae farms should be very profitable and there is room in this emerging industry for companies of all sizes. From the Gulf of Mexico northward through the central United States there is a wind corridor that could be used to generate a huge amount of wind power (See USA wind energy maps 1, 2). Across the southern United States there are deserts that could be used to generate electricity via solar thermal towers 1. In the western states there is a huge area where the earth's heat comes close to the surface that could generate massive amounts of geothermal electricity (See USA geothermal energy map). A modern high voltage direct current transmission system could link these areas and branch out to everywhere in the United States that requires electricity. Large facilities containing vanadium redox batteries can stabilize wind generated electricity and shift wind and solar power to peak times. In this manner there is enough reliable electricity available to provide all the electrical energy the United States requires many times over from sustainable sources. Most of the investment required can come from private enterprise. What is needed from government is leadership. Rising unemployment and under-employment is adding to the housing collapse and undermining Social Security, Medicare and other government programs. A massive program to make biodiesel from algae, plus develop other alternative energy sources such as wind, solar and geothermal, would create a great number of jobs for Americans. These would be good paying, high skilled jobs that cannot be outsourced to other countries. Add to this the employment that this program would restore to the airline and auto industries and you begin to firm up demand for housing. A study by Greenpeace finds "At an equal investment, wind power generates 5 times more jobs and 2.3 times more electricity than nuclear." - Wind Vs. Nuclear 2003 The American economy is in for a tough time until 2012 when the mortgage debacle largely comes to an end. This cannot be helped. But unless steps are taken now to solve the problem of peak oil, the situation will get progressively worse. Peak oil and the ensuing decline of global oil production is a problem that will not come to an end unless an alternative source of fuel is found. By taking appropriate initiatives now, the oncoming economic collapse can be cut short and America will emerge stronger than ever, with wealth to pay off its debts, self-sufficient for fuel and with an abundance of energy to be used by all its citizens to build for themselves a better life.
"When the economic logjam breaks up, among the first
things that will happen is that worldwide energy supplies will tighten. And
eventually, the world will confront its long-term lack of investment in the
energy industries.” U.S. fossil-fuel related emissions were 5.88 billion metric tons in 2006.
*** Signs of Hope We would like to end this page with signs of hope indicating that the economic collapse may not be so bad, or that recovery is on the way. 1. The collapse of oil prices from a high of $147 dollars a barrel to about $47 dollars a barrel (January 2009) is acting as a huge $100 a barrel subsidy to the global economy. With global oil consumption of about 86 million barrels of oil daily, this subsidy is worth about $3 trillion annually. The reduced cost of oil imports is dramatically improving the U.S. balance of payments. More money is staying within the United States. The same applies to many other raw materials for the global economy. Prices are down and supply is up. 2. The Baltic Dry Index is starting to recover (January 2009). Port shipping volume may be rising. (April 2009) This is a positive indication for world trade. Global exports are rising, and U.S. rail traffic is increasing (April 2010). 3. The London Interbank Offered Rate (LIBOR) has fallen, indicating that banks are beginning to lend to each other again. The high spread between treasuries and corporate bonds is attracting money to corporate bonds and the spread is slowly decreasing. The 30 year fixed mortgage rate is presently between 5% - 6%, which is lower than it has been for a long time. (January 2009) 4. In the past three years the median house price has fallen 23%, while the median income has risen 10%. This has restored the relationship between house prices and income to a level not much different from that during the housing boom of the 1980's. Combined with low mortgage interest rates, housing is becoming affordable once again. The prices of copper and lumber are going up (April 2009). The real estate market is picking up in Detroit 1, 2. Real Estate is once again a good investment 1, 2, 3, 4. If inflation comes along, owning a house could be a very good investment. The Case-Shiller index has risen four straight months (Sept 2011). 5. New housing is changing. Instead of McMansions, people are looking more carefully for the "right size" of home, and want "green" features such as energy-efficient heating and cooling. 6. Car prices are down, and the quality of cars is better than ever. This is a good time to buy a car. The same applies to many other consumer items. 7. The volatility index (VIX) that measures the volatility of stock markets has fallen from a high of 96 to the mid 40's. A normal range is 10 to 20, with 30 indicating high volatility. The VIX seems to be slowly returning to its normal range (January 2009). 8. The stock markets are going neither up nor down. The markets are in a trading range going sideways. In the recent past, nearly every share price was going down. Now, each company is being judged on its merits (January 2009). 9. The value of the Japanese yen has peaked and is beginning to fall. This suggests the carry trade has finished unwinding and the amount of leverage in the global economy is reduced. Plus, individual Americans are starting to save and pay off their debts. (April 2009) 10. The Financial Accounting Standards Board (FASB) has relaxed its "mark to market" rule. This change recognizes that assets may have long term value greater than is reflected in short term market fluctuations. Allowing companies with a long term investment horizon to value their assets from a long term perspective is valid, and in one stroke this accounting change has removed a huge deflationary pressure from American assets. (April 2009) Now we need banks to permanently reduce their leverage to a tolerable 10:1 from a fool hardy 40:1, and we need a proper exchange set up for credit default swaps and interest rate derivatives. 11. The velocity of money, an indicator of the pace of economic activity, has turned up. This indicates that the economy as a whole may have turned a corner. (June 2009) 12. The flow of jobs to developing countries is no longer a one way street. Businesses are finding value in local production: lower transportation cost, better communication, superior quality control, smaller inventories, security of intellectual property, and more.
***
|
|
| ||||||||||
Copyright © 2000 - 2013 AlkalizeForHealth |
The Japanese economy entered a debt recession in
1990 and low interest rates since then have not helped. Borrowing and
spending by the Japanese government has not restarted economic growth. The
Japanese stock market has had its ups and downs since 1990. However, the
economy cannot grow until the excess of debt is gone, and the Japanese
people and companies are still paying off this debt. Had the Japanese
government allowed the economy to collapse and the debt to be liquidated
through bankruptcies and defaults, the recovery would have begun much
sooner. However, this drastic alternative is not politically popular.
Roosevelt's
"New Deal". At the time it was passed, retirement was at age 65 and the average person died at 60.
Less than 10% of the population lived past age 65.
Furthermore, only about half of the population qualified to receive Social
Security. There were 40 workers for each retired person.
Medical costs are greatest at birth and in old age.
(More than 25% of government paid medical costs are incurred in the last
year of life). Here
is another unfunded liability that the next generation cannot be expected to
pay. Part of the answer will be increased home care, which is far less
expensive than hospitals and nursing homes. Medical tourism is part of the
answer. Medical, dental and nursing care are all more affordable in Mexico,
India and other developing countries, and the quality of care is often as
good as or better than in the U.S.A. Plus, people need to learn how
to take better care of their health. A study of Canadians who learned
Transcendental Meditation showed a
"...without
home equity withdrawals the economy would have been so bad it would have
been almost impossible for Bush to have won a second term." - John
Mauldin
And lastly, here is a hard one. Government employees
should not have the right to strike. Furthermore, if they enjoy superior job
security compared to the private sector, then they should be paid 25% less
than a comparable job in the private sector. All levels of government must
control their costs or the entire nation will be bankrupted.
