The Beginning Of The End
The Beginning Of The End By Michael T. Snyder - Kindle Version

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One Economic Chart That You Should Permanently Burn Into Your Memory

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.

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  • shawn

    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.

  • Xorop

    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.

  • englishbob

    @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.

  • ZOO

    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”.

  • Kurt

    “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!

  • StokeyBob

    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

  • Flyer1

    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.

  • Flyer1

    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.

  • http://www.gothador.com/index.php?ref=225279 mike

    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)

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