Today most Americans are completely obsessed with the silliest of things. They wonder how Lindsay Lohan is going to fare in jail and they agonize over who LeBron James is going to play basketball for. But when it comes to the things that really matter, most Americans are completely clueless. For example, while most Americans would agree that we are experiencing difficult economic times right now, most of them would also argue that our economic system is in fundamentally good shape and that things will get back to "normal" at some point. Those of us who are trying to warn America of the impending economic nightmare are dismissed as "doom and gloomers" and "conspiracy theorists". But of course, as with so many things, the passage of time will tell who was right and who was wrong. Below there is a chart that I want all of you to burn into your memory. It is a chart of total U.S. debt as a percentage of GDP from 1870 until 2009. This chart clearly and succinctly communicates the horror of the debt bubble that we are currently dealing with. When this debt bubble pops, it is going to make the Great Depression look like a Sunday picnic.
As you can see from the chart below, the total of all debt (government, business and consumer) is now somewhere in the neighborhood of 360 percent of GDP. Never before has the United States faced a debt bubble of this magnitude....
Most of us were not alive during the Great Depression, but those who were remember how incredibly painful it was for America to deleverage and bring the economic system back into some type of balance.
So if our current debt bubble is far worse, what kind of economic horror is ahead for us?
But the truth is that we are facing some circumstances that even the folks back during the Great Depression did not have to deal with....
1 - Back in the 1930s, tens of millions of Americans lived on farms or knew how to grow their own food. Today the vast majority of Americans are totally dependent on the system for even their most basic needs.
2 - A vast horde of Baby Boomers is expecting to retire, and the "Social Security trust fund" has nothing but 2.5 trillion dollars of government IOUs in it. According to an official U.S. government report, rapidly growing interest costs on the U.S. national debt together with spending on major entitlement programs such as Social Security and Medicare will absorb approximately 92 cents of every dollar of federal revenue by the year 2019. This is a financial tsunami the likes of which Americans back in the 1930s could never have even dreamed of.
3 - American workers never had to compete for jobs with workers on the other side of the world back in the 1930s. But today, millions upon millions of our jobs have been "outsourced" to China, India and a vast array of third world nations where desperate workers are more than happy to slave away for big global corporations for less than a dollar an hour. How in the world are American workers supposed to compete with that?
4 - Back in the 1930s, there was nothing like the gigantic derivatives bubble that hangs over us today. The total value of all derivatives worldwide is estimated to be somewhere between 600 trillion and 1.5 quadrillion dollars. The danger that we face from derivatives is so great that Warren Buffet has called them "financial weapons of mass destruction". When this bubble pops there won't be enough money in the entire world to fix it.
5 - During the Great Depression, the United States economy was relatively self-contained. But today we truly do live in a global economy. Unfortunately that means that a severe economic crisis in one part of the world is going to affect us as well. Right now, the United States is far from alone in dealing with a massive debt crisis. Greece, Spain, Italy, Hungary, Portugal and a number of other European nations are in real danger of actually defaulting on their debts. Japan (the third biggest economy in the world) is on the verge of complete and total economic collapse. So what happens to the U.S. economy when the dominoes start to fall?
The truth is that by almost any measure, we are in worse economic condition than we were right before the beginning of the Great Depression. We have been living way beyond our means and the debts we have been piling up are clearly not anywhere close to sustainable.
Did you think that we could just continue to run deficits equal to 10 percent of GDP forever?
Of course not.
The U.S. economy is being driven off a cliff, but America's "ruling class" has insisted all along that they know better than we do.
But the truth is that in the final analysis it is not us that they care about.
What they do actually care about is getting more money and more power for themselves and for other members of the ruling class. Today, 10,000 people make 30% of the total income in the United States each year.
That leaves 70% of the pie for the remaining 99.99% of us to divide up.
The reality is that however you want to slice it, the U.S. economic system is broken. However, considering the fact that America's ruling class has a stranglehold on both major political parties, we are not likely to see any fundamental changes any time soon.
That is very unfortunate, because time is running out on the U.S. economy.
This article is squarely on the mark. America will turn into a feudal society very soon, if it hasn’t already. Leagues of unemployed and hungry will grow.
What is shocking, is the stupidity of some of these responses. Anyone clinging to the far right or the far left political positions, is missing the point. Corruption is not rooted in one political party. It is in both.
This article clearly is one-sided, but it is much needed. What we had before as an economy was something extraordinary and driven by a few innovations. So what we need now is not to bring back what we had, but to continue forward with new innovations. I believe in American creativity, ingenuity. Forcing people to “buy American” is counterproductive. An outdated and desperate idea, and hopefully most of us are against it.
Michael, you wrote (and I agree whole-heartedly)—”This article is squarely on the mark. America will turn into a feudal society very soon, if it hasn’t already. Leagues of unemployed and hungry will grow.
What is shocking, is the stupidity of some of these responses. Anyone clinging to the far right or the far left political positions, is missing the point. Corruption is not rooted in one political party. It is in both.”
I refer you to an extremely clear analysis by Hugo Salinas Price detailing the reasons for the de-industrialization of the West and the emerging neo-feudalism spawned by fractional-reserve banking of a paper currency. It has nothing to do with the cluelessness of the Right or Left, which is truly immense, but with the abandonment of the gold standard clearing function, leading to trade imbalances, and leveraged paper currencies ruling finance today.
http://www.plata.com.mx/mplata/articulos/articlesFilt.asp?fiidarticulo=161
I am in agreement with the article and would add that the inevitable American Great Depression would also be for the rest of the world. No continent or nation will be spared, only the severity of deleveraging and the degree of loss of standard of living relative to what each has now.
Some of my thoughts are:
Would an economic collapse end Capitalism as we know it? What would that do or mean to the human race?
Are we, together as a society (globally) setting and getting our priorities in the right order? The world’s resources are not unlimited and nor is time. The later, a hugely borrowed one, we are living in.
How much more folly can our economic system stretch and extend itself till the inevitable? So would it best if every man/woman is for him/her only? Or every nation is for itself only? Then, for how long before the next shoe fall?
Is the “Reset” button (to bring about the complete deleveraging required) via a World War or a global pandemic or a naturally occurring catastrophe?
Or do we live the Moment now and accept that an economic collapse is as “death follows life”?
Reply 2 zane,
the chart is NOT misleading. Your post is misleading.
EVERYONE knows the great depression began on Black Tuesday in 1929.
Please read the article (again).
1)Debt of all kinds has broken historical records.
2)Compound interest on excessive debt means hard choices will need to be made on Soc. Sec. (Et Al)
3)The debt will crash our consumerist economic system. The article doesn’t predict when?
4)The elites don’t care about you. (They’ve got theirs and it’s safe.)
The theme of the article is depressing, but neither the article nor the picture are misleading.
Thanks for sharing.
One reason America is in decline is the vast number of illegals, which drain resources, this is discussed at http://WWW.AMERICANPATROL.COM
I disagree with the sentiment that this administration and its minions in Congress are oblivious to the probabilities of a total collapse of the dollar, and possibly its abandonement, already being talked about in financial circles, which will amount to a final, total confiscation of middle-class wealth in this country, first through deflation of hard asset prices and then through runaway inflation. As Mark Skousen pointed out, the articles in the Washington Post about our vast intelligence network, directly employing something like 845,000 people in and out of government, is tantamount to a Gestapo, but with ultra-high-tech means of surveillance and control. Recent articles have identified high-tech and absolutely horrific weapons of crowd control being developed by DHS under the malevolent eye of Janet Napolitano, the blank, soulless face of an apparatchik ready to mow down her fellow citizens with glee. The very idea that the DHS is there to protect us from offshore terrorist threats is laughable. No one knows this graph better than Administration apparatchiks and Congressional staffers, and this group rightly fears an inevitable backlash for bringing us to ruin. Of course this vast intelligence network is being developed to enslave us.
The best thing to happen to the USA and the Western World has been the inclusion of BILLIONS of people into the Division of Labor. This has driven down prices and made Westerners HUNDREDS of times wealthier. Milton Friedman in the 1990s estimated that world trade had made the USA 20 times wealthier than it would have been otherwise.
Corporations are shedding debt and unfortunately employees as they adjust. It is federal, state and local government along with their educational, law enforcement and military complexes that have not shed anything. Well their time is coming and coming fast. These giant tax increases have yet to hit but will hit and really anger lots of Americans.
This is the email I sent out to friends/family many months back (some data is dated):
As I am the one recently harping on being “prepared”,
I thought I would explicitly state why I consider this so critical at this time:
The following is what I predict will soon befall our nation.
But this is just my humble opinion, and I’m hardly an expert on such things !
So if you find fault in my facts or logic, then please let me know.
1) The federal debt now exceeds $10 trillion.
Adding unfunded Medicaid, Social Security, Medicare, veteran’s pensions, and similar obligations,
the total is $59 trillion, or $516,000 per household (http://en.wikipedia.org/wiki/United_States_public_debt).
2) The USG will continue to spend on wars, empire, “stimulus packages”, “new deals”,
and industry bailouts without limit (thus adding even MORE to the debt).
3) As our foreign creditors come to realize that such a debt can never be paid, they will cease lending to the U.S.:
http://www.speroforum.com/a/17305/US-debt-approaches-insolvency,
http://www.atimes.com/atimes/Global_Economy/KA09Dj02.html
http://www.washingtonpost.com/wp-dyn/content/article/2009/01/09/AR2009010902325.html
4) Unable to obtain funds by any other means, the USG will drastically increase the money
supply to finance it’s debts and spending (thus triggering hyperinflation).
5) Imports are greatly curtailed, as few are willing to accept payment in a teetering currency which loses value daily.
6) The people will rush to purchase hard assets before the dollar is rendered completely worthless,
first emptying/closing the banks, and then the stores.
7) Without access to banks, most businesses will be unable to make payroll and be forced to close
(including food distributors and trucking companies).
The people will seek food from local sources, but will find that very few such sources still exist today.
This will lead to a massive disaster far worse than the last Great Depression:
In the 1930′s, there were family farms everywhere (many of which were near self-sufficiency).
Today, the few farms that do exist are extremely dependent on technology and supplies from outside sources.
If a critical part breaks that can no longer be replaced (see below), or fuel and/or grain supplies are disrupted, the
farm shuts down.
In the 1930′s, technology was relatively simple.
Most machines were composed of basic parts of limited number (the great majority of which were manufactured in the US).
Today’s machines are very complex and are composed of a huge number of parts from all over the world.
Thus, the failure of one part manufacturer (or the cutoff of their imports) can easily trigger the failure of all who depend on that part
(example: http://www.sfgate.com/cgi-bin/article.cgi?f=/n/a/2008/12/26/financial/f113411S39.DTL&feed=rss.business).
And this problem extends to power plants (which is why I stress the importance of a water filter).
In the 1930′s, the US population was around 125 million.
Today, it is 300 million.
So even if we all knew how to live off the land, it is questionable as to whether the land could
sustain so many without the super-efficiency of today’s modern/highly-technological farms.
In the 1930′s, we had a strong manufacturing base (and thus were not dependent on imports for our very survival).
Today, we make virtually nothing (and have largely forgotten how to do so).
Hence, it will be extremely difficult to “boot-strap” our way back to prosperity.
In the 1930′s, people possessed incredible know-how:
They knew how to build and repair things.
They knew how to farm.
They knew how to hunt and dress game.
They knew how to preserve food.
How many of us posses such skills today ?
In the 1930′s, we were generally a moral people.
Few resorted to violence or theft to get food.
How will today’s Americans (many of whom feel “entitled” to everything) will respond when hungry ?
Our money used to be based on gold and silver. Now it is based on ignorance. And we have plenty of that to go around. An unstable dollar is great for speculators. Volatility. the more prices move around, the more they can trade. Sell corn when it’s up and buy oil cause it’s down. If our money was stable, prices would be stable too! No more boom and bust. We need a sound currency. Audit the FED.
Two things about foreign manufactured goods. What is the price of shipping? Can it be done cheaper here with automated robots? When the currency devalues(not if) these two questions become important. Japan is already finding it cheaper to assemble cars in the USA.
Every product produced overseas has to double or triple in price if the currency devalues. That makes local manufacturing cheaper than overseas manufacturing. We get the jobs back. They starve. I recently observed this in action. A locally produced bubble bath was at 3.50 a 24 ounce bottle. An imported one was also at that level. The dollar went down in value. The imported product went to 5.60 a bottle. The local product went off the shelf as demand increased. This will happen for all overseas products if our dollar devalues.
The solution is very SIMPLE!
These Int’l shylocks that have taken over every major nations banking and money issue one by one have been bleeding us thru the stealth tax of inflation (the more money units created from thin air – the less each one will buy), and as well, the compounding annual interest expense on the total debt.
100yrs these banksters have been fleecing the world’s peoples, controlling their economies and corrupting their politicians with “credit card” fiat payable by who knows ho wmany generations now yet to be born.
Thay have MADE (stolen) ENOUGH already, and have amassed powers over and through our govt never contemplated as representing anything but debt slavery to our founding fathers who put the specie (gold/silver) clause in the Const for what they already witnessed the MO of the shylocks to be.
SOLUTION? Stiff ALL the banksters their sovereign debts and let them piss up a rope for a change.
Reconfiscate our nation’s stolen gold, let gold and silver trade alongside the FRN until the FRNs are all gone, then try and hang the shylock traitors for what they are and always were – robbers with unconst’l govt sanction.
The people at Moodys are probably scared to lower the debt rating too much on the US since they are headquartered in New York…LOL. Seems like a conflict of interest. They should be on another planet. That way they can provide honest ratings and not feel the consequences. LOL
I agree with the author overall that our debt is unsustainable. Our pool of real savings bequeathed to us by the Industrial Revolution–the single greatest leap of material prosperity in human history–may very well be fully depleted by now.
But to blame the “exporting” of jobs to other countries as a cause of delaying recovery is just plain bad economic analysis. This assumes that the quantity of jobs is somehow fixed, so they can either stay in a country or be “shipped” to other countries, like wood, steel or any other commodity. The reality is that jobs are services performed in exchange for income; they are not commodities.
As another commenter noted, forcing companies to keep the jobs they offer here in the US will only impose additional costs on everyone, and we’ll all then be even worse off than we already are. If anything, the relatively cheaper labor being hired abroad is most likely softening some of the harsher edges of the current recession by giving us relatively lower prices on certain goods.
Instead, people should ask themselves: How is it even possible that the government can wrack up this much debt in the first place?
The answer is that they have this nifty little custom-made central bank, the Federal Reserve System, which can buy up any U.S. gov’t debt not sold to other central banks or private investors by simply printing new money–money that is not backed by any scarce commodity, such as gold, which was historically the voluntarily chosen money for centuries prior to our modern age of centralized banking and fiat money systems.
It is this constant inflation of the money supply for the past century or so that has gradually driven up prices and thus has driven U.S. companies to hire cheaper labor abroad and has prevented other companies from hiring more labor here. (Additionally there’s gov’t favoritism of unions, which also contributes to unemployment, though unionism is most likely a reaction to inflationary pressures as workers see the real value of their wages decline over time.)
Fiat, debt-based money issued by a central bank enables government to wastefully deplete scarce resources over time and eventually burn through real savings. THAT is the ROOT of the problem. Only a return to 100% commodity-backed money–which naturally disallows monetary inflation–will enable scarce resources to be used for purposes actually valued by the people and thus result in a long term and sustainable economic recovery.
One of the problems is that self-sufficiency has been bred out of the last couple of generations of people. At one time, people could learn how to read, write and do basic math and move on to apprenticing in some trade in which they could one day ply their own wares.
Today, everything about our social and educational system renders people dependent to the point of being infantile. School prepares your for…more school. More school prepares you for more of the same. Along the way, you’re led to believe that “experts” or others in authority know better than you do. That, I believe is how it’s possible for people to buy things of which they have no understanding (e.g., derivatives) from people who know only a little about them but who were “assured” by some number-cruncher that the risk was minimal.
ZANE…
Actually, only the Crash happened in 1929, it didn’t even make headline news, it took three years for that even to filter through the economy. The Great Depression was not a single event, but a number of missteps, particularly by the government’s own interventions.
All you commenting dip-shits need a crash course in economics. Yes, the collapse is coming, but many of you have no idea why or how to fix it. For your own good, please visit mises.org and end your ignorance.
TY
The essay at the link below describes very well how no one will lose anymore than they owe. You cannot lose more than what exists without arbitrarily giving it away. Regardless of inflation or deflation, the amount owed between any two individuals remains constant. No amount of government economic fluctuation can change factual debt of resources.
http://www.trueliberty.us/Money.html
It is time for everyone to educate themselves about ethical economics. A good place to start is the series of books: MORE THAN LAISSEZ FAIRE, The Human Essence of Economics, and ETHICAL ECONOMICS For Today And Tomorrow . . .
I thinks it’s funny all the buy American bs and why do companies ship jobs overseas. Why do you think? It’s too many taxes, rules, regulations and no rule of law. Companies go where they can make the most money and not get shaken down for the profits they make. USA used to be the free market now other places are much more business friendly. So stop blaming companies it is your perverted old Uncle Sam who is to blame.
Central banks, welfare programs, bailouts for failed companies, interventionist foreign policy and a tax code thousands of pages long. Regulations to fill rooms with all the pages they take up and someone actually has the gall to say that is capitalism? We haven’t tried free markets for a hundred years central government planning is responsible for the global disaster and if you are still a democrat or a republican you are actually a sheep.
Zane,
It was debt expansion during the 1920′s that caused the initial depression. It was the continued resistance to deleveraging through more debt creation during the 1930′s that caused it to last so long.
Increased borrowing and debt only serve to move future purchases into the present. There is only so much of the future that can be forced into the present. This ultimately gets corrected by a future contraction.
@Zane
Black Tuesday was merely a stock market crash and the symtom of Fed monetary pumping. It was not the cause of the Great Depression. The cause of the Great Depression were the government policies of Hoover and Roosevelt that made what would have been a short sharp recession last for more than a decade. The high debts were a result of these policies.
In any event, massive debts are never a good thing for any country, individual or company. Too much debt will cause bankruptcy and economic disaster. On this, the article is dead right.
A good piece – at least on the overall economic picture. The author has hit the target, Americans stumble through their lives in distraction by meanlingless, brainless, events. They all need to be fitted for drool cups.
The author is quick to point out what a drain “baby boomers” are on the economy. Most of the parents of boomers did not pay SS taxes their whole life, while their children did. So they have earned their benefits ten times over.
The quickest “fix” to the economy is to rid the country of illegal squatters from Mexico, who are costly the U.S. BILLIONS every year. California is THE canary in the coal mine. The only taxes the invaders pay are for PURCHASES. Add THESE tax payments and subtract entitlements (EIC tax refunds, food stamps, health care, etc) and you will see a NEGATIVE tax flow of about $40k per year for the AVERAGE Hispanic family with five children.
Of course of the two “drains”, Obama and his suicidal ilk would rather set up “death panels” than find, arrest, and deport the freeloading invaders.
The author here should be concentrating his attention on the other “HORDE”.
“If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them (around the banks), will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered.” – Thomas Jefferson. The real problem is the public-private partnerships between central banks (such as the Federal Reserve System), and government. Why? “Government is not reason; it is not eloquent; it is force. Like fire, it is a dangerous servant and a fearful master.” – George Washington Understand principles first, people, then study out the influence of the elite private interests upon our public “servants”. Capitalism has NOT failed, the morality of the nation and our leaders HAS!
Maybe this will help make the danger of fiat money clear.
Imagine you and me are setting across from each other. We create enough money to represent all of the world’s wealth. Each one of us has one SUPER Dollar in front of him.
You own half of everything and so do I.
I’m the government though. I get bribed into creating a Central Bank.
You’re not doing what I want you to be doing so I print up myself eight more SUPER Dollars to manipulate you with.
All of a sudden your SUPER Dollar only represents one tenth of the wealth of the world!
That isn’t the only thing though. You need to get busy and get to work because YOU’VE BEEN STIFFED with the bill for the money I PRINTED UP to get YOU TO DO what I WANTED.
That to me represents what has been happening to the economy, and us, and why so many of our occupations just can’t keep up with the fake money presses.
They have been beating us with our own stick!!!!1
TAMCA, I sympathize with your cause but disagree with you about automation. Automation is the reason we have a high standard of living. What is bad is wealth unbalance.
Maybe this site could offer a suggestion of what we should do. Perhaps suggest a different country to live and how to get there. I hear the Irish are moving to Australia to get work.
i for one could give a **** less what the state of the american economy is like at the present time, i live my life one day at a time and pay no attention to anything political or economical. i listen to russian and german music more then american and come right down to it as soon as i can i am leaving this rediculous ****ing excuse for a country. if i had to choose where i would move to it would be 1 of 3 places, cananda (for healthcare benefits), russia (for language), or england just because i like it there and i have a few friends tht live there)