The price of oil is shaping up to be the number one economic story of 2011, and right now the eyes of the investing world are closely watching the developing situation in Saudi Arabia. All of the other recent Middle East revolutions have been organized on the Internet, and now all over Facebook and Twitter there are calls for a “Day of Rage” in Saudi Arabia on March 11. The Saudi monarchy is attempting to head off any protests by promising to give $37 billion in “benefits” to the people and by publicly proclaiming that all political demonstrations are specifically banned. In addition, the Saudi government is stationing thousands of security forces at various potential “hot spots” around the country. So far similar measures have not done much to quell unrest in other nations in the Middle East, but Saudi Arabia will be a true test of the revolutionary fervor that is sweeping the region. The Saudis have a long history of brutally repressing their own people. They simply do not mess around. So a revolution in Saudi Arabia will not be nearly as “easy” as it was in Tunisia, Egypt or Libya. However, if a revolution does sweep across Saudi Arabia, it is going to send the price of oil into unprecedented territory. Saudi Arabia is the number one exporter of oil in the world, and if their oil fields get shut down even for a little while it is going to have a dramatic effect on the global economy. With the world already on the verge of a major sovereign debt crisis, the last thing it needs is for the price of oil to start soaring into the stratosphere.
Right now the investing world is not sure what to think about all of this, and financial markets do not like uncertainty. One piece of really bad news could send markets all over the globe crashing down.
Speculation in oil futures is absolutely rampant. A recent report on CNN noted the following….
The speculative fervor is so remarkable that the big trading firms now have nearly twice as many long contracts open as they did in 2008, when oil spiked to $147 in the summer, a development that either foreshadowed or caused the global economic meltdown, depending on how you look at it.
In particular, the number of investors that are betting that a revolution in Saudi Arabia is going to send the price of oil up to $200 a barrel has exploded in recent days.
$200 a barrel?
Are people actually betting that is going to happen?
The all-time record is only $147 a barrel. Just a few months ago it was absolutely unthinkable to most economists that we could potentially see $200 oil in 2011.
But it would be a mistake to assume that a full-blown revolution is guaranteed to break out in Saudi Arabia. Remember, this is a nation that has a very, very long history of denying even the most basic freedoms to the people.
For example, in Saudi Arabia the practice of any religion other than Islam is strictly forbidden. By law, citizens of Saudi Arabia are not permitted to change religion. Even foreign visitors are forbidden to openly practice any other religion. It is a whole different world. You cannot go to the store and buy a Bible in Saudi Arabia. In fact, if you try to pass out Bibles in Saudi Arabia you will be thrown into prison.
So if you plan of being a revolutionary in Saudi Arabia you had better put your big boy pants on, because the Saudis play hardball.
Much of the rest of the globe is desperately hoping that a revolution does not happen in Saudi Arabia because the global economic situation is precarious at best.
In Europe, if the price of oil causes a significant economic slowdown right now it could have global implications. Moody’s Investors Service just slashed Greece’s debt rating three levels all the way down to B1. But Greece is far from alone. Several European governments are finding it much more expensive to finance their debts these days. We are right on the edge of a major European sovereign debt crisis and the chaos in the Middle East could potentially be just the thing to spark a panic.
The United States could feel a rise in the price of oil even more than Europe because the U.S. economy is so spread out and it is so dependent on products from overseas.
Did you know that in 1960 only 8 percent of the things Americans bought were made overseas but that today 60 percent of the things Americans buy are made overseas?
It’s true.
So what would happen if the cost of transporting all of those products suddenly doubled? All of the products we buy must be transported somehow, and a rise in transportation costs will be passed on to U.S. consumers.
But the truth is that the pain is already here. Already, millions of American families are starting to feel some very real financial pain from the chaos in the Middle East.
From February 18th to March 4th, the average price of gasoline in the United States rose 33 cents. That was the biggest two week increase ever recorded.
Ouch.
The rise in the price of oil has some broader economic implications as well.
The more the price of oil goes up the bigger our trade deficit is going become. As the trade deficit gets bigger, that means that more money is going out of the country and less money is going to support American businesses and American workers. When American workers lose jobs, that means that they aren’t producing wealth anymore and they aren’t paying taxes anymore. Instead, they become a drain on the system as they start receiving government handouts.
When millions of Americans go from being productive, taxpaying workers to unemployed welfare cases it causes our federal budget deficit to become even larger.
Most Americans do not understand how connected our trade deficit and our federal budget deficit really are. One feeds right into the other.
Unfortunately, the Federal Reserve seems to think that the solution to any economic problem these days is to print more money.
One of the reasons why the price of oil and other commodities has been going up over the last six months is because of all of this reckless money printing.
Now Lockhart is saying that because of the oil price increases they may have to do more money printing?
How bizarre is that?
Unfortunately, several other top Fed officials have dropped hints about a possible “QE3” lately. It just seems like the insanity never stops.
Let us hope that the Fed does not go there because the U.S. dollar is falling apart fast enough already.
In any event, the rest of 2011 is certainly going to be very interesting to watch.
Even if a revolution does not happen in Saudi Arabia, the price of oil will most likely continue to slowly move higher just as it has been doing for months.
But if a full-blown revolution does happen in Saudi Arabia, it could literally change the global economy almost overnight. The entire world financial system would be thrown into a state of chaos.
Oil is the lifeblood of the world economy. Without a continuous supply of very inexpensive oil, life as we know it would dramatically change. Most of us just assumed that we would always live in a world where we would always have an endless supply of very cheap oil.
Well, the times they are a changing.
You had better buckle up because it is going to be a bumpy ride.
Today global wealth is more highly concentrated in the hands of the elite than it ever has been at any other point in modern history. Once upon a time, the vast majority of the people in the world knew how to grow their own food, raise their own animals and take care of themselves. There weren’t many that were fabulously wealthy, but there was a quiet dignity in having land you could call your own or in having a skill that you could turn into a business. Sadly, over the past several decades an increasingly growing percentage of agricultural land has been gobbled up by big corporations and by corrupt governments. Hundreds of millions of people have been pushed off their land and into highly concentrated urban areas. Meanwhile, it has become increasingly difficult to start a business of your own as monolithic global corporations have come to dominate nearly every sector of the world economy. So more people than ever around the world are forced to work for “the system” just to make a living. At the same time, those at the very top of the food chain (the elite) have spent decades rigging the system to ensure that increasing amounts of wealth will continue to flow into their pockets. So now in 2010 we have a global system where a few elitists at the top are insanely wealthy while about half the people living on earth are wretchedly poor.
There are very few nations around the world that have not been almost entirely plundered by the global elite. When the elite speak of “investing” in poor countries, what they really mean is taking control of the land, water, oil and other natural resources. In dozens of nations around the world today, big global corporations are stripping fabulous amounts of wealth out of the ground even as the vast majority of the citizens of those nations continue to live in abject poverty. Meanwhile, the top politicians in those nations are given huge bribes to go along with the plundering.
So what we have in 2010 is a world that is dominated by a very small handful of ultra-wealthy elitists that own an almost unbelievable amount of real assets, a larger group of “middle managers” that run the system for the global elite (and are rewarded very handsomely for doing so), hundreds of millions of people who actually do the work required by the system, and several billion “useless eaters” that the global elite don’t really need and that they don’t really have much use for.
The system was not ever designed to lift up the poor. Nor was it ever designed to promote “free enterprise” and “competition”. Rather, the elite intend to funnel all wealth to themselves and to have the rest of us enslaved either to debt or to poverty.
The following are 20 statistics that prove that the wealth of the world is increasingly being funneled into the hands of the global elite, leaving most of the rest of the world wretchedly poor and miserable….
#1 According to the UN Conference on Trade and Development, the number of “least developed countries” has doubled over the past 40 years.
#2 “Least developed countries” spent 9 billion dollars on food imports in 2002. By 2008, that number had risen to 23 billion dollars.
#3 Average income per person in the poorest countries on the continent of Africa has fallen by one-fourth over the past twenty years.
#4 Bill Gates has a net worth of somewhere in the neighborhood of 50 billion dollars. That means that there are approximately 140 different nations that have a yearly GDP which is smaller than the amount of money Bill Gates has.
#5 A study by the World Institute for Development Economics Research discovered that the bottom half of the world population owns approximately 1 percent of all global wealth.
#6 Approximately 1 billion people throughout the world go to bed hungry each night.
#7 The wealthiest 2 percent own more than half of all global household assets.
#8 It is estimated that over 80 percent of the world’s population lives in countries where the income gap between the rich and the poor is widening.
#9 Every 3.6 seconds someone starves to death and three-quarters of them are children under the age of 5.
#10 According to Gallup, 33 percent of the people on the globe say that they do not have enough money for food.
#11 As you read this, there are 2.6 billion people around the world that lack basic sanitation.
#12 According to the most recent “Global Wealth Report” by Credit Suisse, the wealthiest 0.5% control over 35% of the wealth of the world.
#14 CNN founder Ted Turner is the largest private landowner in the United States. Today, Turner owns approximately two million acres. That is an amount greater than the land masses of the states of Delaware and Rhode Island combined. Turner also advocates restricting U.S. couples to 2 or fewer children to control population growth.
#15 There are 400 million children in the world today that have no access to safe water.
#16 Approximately 28 percent of all children in developing countries are considered to be underweight or have had their growth stunted as a result of malnutrition.
#17 It is estimated that the United States owns approximately 25 percent of the total wealth of the world.
#18 It is estimated that the entire continent of Africa owns approximately 1 percent of the total wealth of the world.
#19 In 2008, approximately 9 million children died before they reached their fifth birthdays. Approximately a third of all of these deaths was due either directly or indirectly to lack of food.
#20 The most famous banking family in the world, the Rothschilds, has accumulated mountains of wealth while much of the rest of the world has been trapped in poverty. The following is what Wikipedia has to say about Rothschild family wealth….
It has been argued that during the 19th century, the family possessed by far the largest private fortune in the world, and by far the largest fortune in modern history.
Nobody seems to know exactly how much the Rothschilds are worth today. They dominate the banking establishments of England, France, Germany, Austria, Switzerland and many other nations. It was estimated that they were worth billions back in the mid-1800s. What the total wealth of the family is today is surely an amount that is almost unimaginable, but nobody knows for sure.
Meanwhile, billions of people around the globe are wondering where their next meal is going to come from.
At this point, many readers will want to start arguing about how horrible capitalism is and about how wonderful socialism and communism are.
But capitalism is not the problem and as we have seen countless times over the past several decades, government ownership of business is not the solution to anything.
What we have in the world today is not capitalism. Rather, it more closely resembles “feudalism” than anything else. The elite are “monopoly men” who use their unbelievable wealth and power to dominate the rest of us. In fact, it was John D. Rockefeller who once said that “competition is sin”.
It would be great if we lived in a world where those living in poverty were encouraged to start owning land, to create businesses and to build better lives for themselves.
But instead, things are going the other way. Wealth is becoming more concentrated in the hands of the elite, and the middle class is starting to be wiped out even in prosperous nations such as the United States.
It turns out that the global elite have decided that they don’t really need so many expensive American “worker bees” after all and they have been moving thousands of factories and millions of jobs overseas. Meanwhile the American people are so distracted watching Dancing with the Stars, Lady Gaga and their favorite sports teams that they don’t even realize what is going on.
There is no guarantee that America will be prosperous forever. Today, a record number of Americans are already living in poverty. Today, a record number of Americans are on food stamps. The median household income went down last year and it went down the year before that too.
So wake up. America is being integrated into a world economic system that is dominated and controlled by the insanely wealthy elite. They don’t care that you have to pay the mortgage or that you intend to send your kids to college. Mostly what they care about is making as much money for themselves as they can.
Greed is running rampant around the globe, and the world is becoming a very cold place. Unfortunately, unless something really dramatic happens, the rich are just going to continue to get richer and the poor are just going to continue to get poorer.
This October, millions of Americans are going to watch horror movies and read horror stories because they enjoy being frightened. Well, if you really want to be scared, you should just check out the real horror story unfolding right before our eyes – the U.S. economic meltdown. It seems like more bad news for the U.S. economy comes out almost every single day now. Unfortunately, things are about to get a whole lot worse. The mainstream media has been treating “Foreclosuregate” as if it is a minor nuisance, but the truth is that the lid is about to be publicly lifted on years and years of massive fraud in the U.S. mortgage industry, and this thing has the potential to cause economic chaos that is absolutely unprecedented. Over the past several days, expert after expert has been coming forward and warning that this crisis could completely and totally paralyze the mortgage industry in the United States. If that happens, it will be essentially like pulling the plug on the U.S. economic recovery.
Not that there was going to be a recovery anyway. The truth is that economic statistic after economic statistic has been pointing to incredible trouble for the U.S. economy.
For example, the U.S. government just announced that the U.S. trade deficit went up again in August. According to the U.S. Census Bureau, the U.S. trade deficit was $46.3 billion during August, which was up significantly from $42.6 billion in July.
So how much coverage did this get in the mainstream media?
Well, just about none.
We have gotten so used to horrific trade deficits that it isn’t even news anymore.
But these trade deficits are absolutely killing our economy.
How long do you think that the U.S. economy can keep shelling out 40 or 50 billion more dollars than we take in every single month?
If you look at the countries around the world that have become very wealthy, almost all of them have gotten that way by trading with the United States.
Meanwhile, many of our once great manufacturing cities are turning into open sewers.
Every single politician in the United States should be talking about the trade deficit.
But hardly any of them are.
Is it because Americans have all become so dumbed-down that we don’t understand these things anymore, or is it because we are so distracted by the various forms of entertainment that we are addicted to that we just don’t care?
But the trade deficit is not the only economic statistic that is getting worse.
According to the Department of Labor, for the week ending October 9th the advance figure for seasonally adjusted initial jobless claims was 462,000, which represented an increase of 13,000 from the previous week.
We have an unemployment epidemic going on in this country, but what did the mainstream media do in response to this news?
They yawned. Instead, many of the “financial experts” were busy talking about how wonderful it is that the Stock Market is going up, up, up.
Well, as one reader recently reminded me, if you want to evaluate an economy by how much the stock market is going up, then the economy of Zimbabwe has had an absolutely wonderful decade!
The truth is that the stock market is not a good barometer for what is actually going on.
What is really happening is that the U.S. economic system is literally coming apart at the seams.
Yet another piece of really bad economic news that just came out is that the number of home repossessions by banks set a new all-time record during the month of September. The record total of 102,134 bank repossessions was the first time ever that bank repossessions climbed over the 100,000 mark for a single month.
The good news is that bank repossessions are about to come to a screeching halt.
The bad news is that it is because the U.S. mortgage industry is about to become completely and totally paralyzed by this foreclosure fraud crisis.
The following are three basic points to remember about this foreclosure mess….
A) Massive Fraud Was Committed At Every Stage By The Mortgage Industry
The truth is that there was fraud going on in every segment of the mortgage industry over the past decade. Predatory lending institutions were aggressively signing consumers up for mortgages that they knew they could never repay. Many consumers were also committing fraud because a lot of them also knew that they could never possibly repay the mortgages. These bad mortgages were fraudulently bundled up and securitized, and these securitized financial instruments were fraudulently marketed as solid investments. Those who certified that these junk securities were “AAA rated” also committed fraud. Then these securities were traded at lightning speed all over the globe and a ton of mortgage paperwork became “lost” or “missing”.
Finally, when it came time to foreclose on these bad mortgages, a whole lot more fraud was committed. Thousands upon thousands of foreclosure documents were “robo-signed”, but the truth is that investigators are starting to discover a lot of things about these mortgages that are a lot worse than that.
B) Nobody Really Knows Who Owns Or Who Has The Right To Foreclose On Millions Upon Millions Of Mortgages
The legal rights to millions of U.S. mortgages has been scrambled so badly that it might actually be impossible to fully sort this mess out. In particular, MERS (Mortgage Electronic Registration Systems) has created a paperwork nightmare that may never be able to be completely remediated.
On a previous article, a reader named William left a comment that did a great job of describing the very serious problem that we are now facing because of MERS….
MERS – potentially the most serious problem because it affects who really owns the loans. Securitization mandates that loans be transferred into REMIC trusts within a strict timeframe. Late transfers are not allowed. In spite of the supposed “ease” of transfer through MERS, it now appears that perhaps 60% of US loans were never properly transferred. Absent remedial legislation, it is impossible to do so now. And the former owners may be out of business or bankrupt. So how do we get these loans to the trust beneficiaries who were supposed to own them? This is no simple paperwork correction. The train has left the station, with no more to follow.
C) Unprecedented Chaos Is Going To Erupt As Faith In The Mortgage System Completely Dies
So what is going to happen as a result of all of this fraud and confusion in the mortgage industry? Well, basically everybody is going to sue everybody. It is going to be absolute mayhem.
Real estate attorneys can rejoice: everyone will get sued, in every court in the land. Banks will get sued, title insurance companies will get sued, realtors will get sued, foreclosure mills will get sued, MERS will get sued, and so on. The attorneys general of the states will all sue the banks and mortgage mills, claiming billions in damages.
Meanwhile, virtually nobody will want to buy any house that has been foreclosed on in the past ten years or so until this mess is sorted out (which could take years and years).
Meanwhile, title insurance companies are going to avoid foreclosures like the plague.
Meanwhile, all of the investors that have been propping up the housing market by buying foreclosures are going to be fleeing the market in droves.
Meanwhile, the financial world is going to be trying to figure out which U.S. lending institutions are still solvent. The value of most mortgage-based assets is now totally up in the air.
Meanwhile, millions more homeowners across the United States will be emboldened to quit making payments on their mortgages as they realize that those holding their mortgages may not have the legal right to foreclose on them.
And that is where the true horror of this entire situation may lie. What is going to happen if millions upon millions of Americans holding underwater mortgages look at this situation and decide that they really don’t have to be afraid of the threat of foreclosure any longer?
If a massive wave of homeowners suddenly decides to simply quit paying their mortgages, it would basically wipe out nearly the entire mortgage industry.
That would likely mean more government bailouts, more government control, much higher mortgage rates and eventually a serious crash in housing prices.
This crisis is incredibly complicated and it has a ton of moving parts, so it is extremely difficult to describe accurately. But the reality is that this mess has the potential to hurt the U.S. real estate market much more than “subprime mortgages” ever did.
Hopefully this crisis will not be “the straw that broke the camel’s back” for the U.S. economy, but with each passing day this thing looks even more horrifying.
One way or another, real estate law in the United State is going to be changed forever as a result of this crisis. It is going to be extremely interesting to see how all of this plays out.
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.
It seems like almost everywhere you turn these days there is bad economic news. Foreclosures are setting records, unemployment remains depressingly high, poverty is exploding, U.S. government debt is wildly out of control and Europe is on the verge of an economic collapse that could send the entire globe into a devastating financial panic. If all that wasn’t enough, the oil spill in the Gulf of Mexico has destroyed the seafood and tourism industries along the Gulf coast and threatens to push that entire region into a depression for years to come. The truth is that the more you look at the economic statistics coming in from around the globe the more it becomes obvious that we are headed for a complete and total economic nightmare.
Just consider some of the most recent economic news….
*The number of U.S. home foreclosures set a record for the second consecutive month in May. How can the U.S. housing industry be recovering when the number of Americans being foreclosed on continues to set all-time records?
*As of March, U.S. banks had an inventory of approximately 1.1 million foreclosed homes, up 20 percent from a year ago. Instead of working their way through the huge backlog of unsold homes, U.S. banks continue to pile up a massive inventory of foreclosed homes at a staggering pace.
*According to figures from the U.S. Commerce Department, housing starts in the United States fell 10 percent in May, the biggest decline since March 2009. The data also revealed that single-family home starts suffered the biggest drop since 1991. There is already a massive glut of unsold homes on the market, so builders simply do not think it is profitable to build many new homes right now.
*Officials now tell us that the cost of “fixing” Fannie Mae and Freddie Mac, the government-backed mortgage companies that last year bought or guaranteed the vast majority of all U.S. home loans, will be at least $160 billion and could grow as high as $1 trillion. The twin pillars of the U.S. mortgage industry have become financial black holes that the U.S. government endlessly pours massive amounts of cash into. That is not a good sign.
*Fannie Mae and Freddie Mac are to be delisted from the New York Stock Exchange because their stock prices have been trading under $1 per share for more than 30 trading days. The truth is that Fannie Mae and Freddie Mac would have completely imploded by now if the U.S. government had not decided to step in and bail them out.
*The average duration of unemployment in the United States has risen to an all-time high. Not only are a ton of Americans out of work, they can’t find work for a very, very long time once they are unemployed.
*For Americans younger than 25 years of age, the unemployment rate is 18.8%. But even those young Americans that can find employment often find themselves working in very low paying service jobs.
*Federal Reserve Chairman Ben Bernanke says that the U.S. unemployment rate is likely to stay “high for a while”. Considering how badly Bernanke has been doing his job, it would be really nice if we could add just one more person to the unemployment rolls.
*According to one new study, approximately 21 percent of children in the United States are living below the poverty line in 2010 – the highest rate in 20 years. There are hundreds of thousands of American children on the streets each night, and yet we continue to insist that we are the greatest country in the world.
*For the first time in U.S. history, more than 40 million Americans are on food stamps, and the U.S. Department of Agriculture projects that number will go up to 43 million Americans in 2011. How many tens of millions of Americans have to be on food stamps before we officially say that we are in a depression?
*According to the Wall Street Journal, the debates have begun inside the Fed about what it should do in the event of a “double dip” recession. If they are already debating what to do during the next economic downturn that means it is probably a foregone conclusion.
*If you were alive when Christ was born and spent one million dollars every single day from then until now, you still would not have spent one trillion dollars by now. But somehow the U.S. government is now over 13 trillion dollars in debt. According to a U.S. Treasury Department report to Congress, the U.S. national debt will top $13.6 trillion this year and climb to an estimated $19.6 trillion by 2015.
*It is being projected that the U.S. national debt will grow to surpass our gross domestic product in 2012. Needless to say, that is a really, really bad sign.
*The total of all government, corporate and consumer debt in the United States is now equal to 360 percent of GDP. At no point during the Great Depression did we ever even come close to such a figure.
But things may be even worse in Europe right now. Unfortunately for the U.S., when Europe experiences an economic collapse it will devastate the American economy as well.
The economic news coming out of Europe lately has been extremely alarming….
*George Soros says that a European recession next year is “almost inevitable”. Considering how much access George Soros has to inside information, the fact that he is so pessimistic about Europe is a very troubling thing indeed.
*A report by the Bank for International Settlements says that the debt crisis hitting southern Europe resembles the 2007 subprime mortgage crisis. Is history about to repeat itself?
*Moody’shas downgraded Greece government bond ratings into junk territory, citing the risks inherent in the rescue package that the rest of the eurozone has put together for them. Soon Spain, Portugal, Italy, Ireland, Romania and a number of other European nations could have their debt downgraded as well.
*The U.K.’s new Office for Budget Responsibility has announced that the U.K. economy was more damaged by the recent financial crisis than previously admitted, and that it may never fully recover. But the same could be said for many other nations across the world as well.
*21.5% of all working-age people in the U.K. do not have a job. It seems like almost every country has a shortage of jobs these days.
*Spanish banks are borrowing record amounts of money from the European Central Bank as Spain’s financial institutions are finding it increasingly difficult to acquire funds in international capital markets. But the truth is that it isn’t just Spanish banks that are facing a liquidity squeeze – the entire world is heading for a massive credit crunch.
But the biggest piece of bad economic news of all is the nightmare that is unfolding in the Gulf of Mexico. There is no way that the southeast United States is going to be the same after this. Hordes of businesses and entire industries have been literally destroyed over the past two months. The total economic damage from this unprecedented disaster will easily run into the hundreds of billions of dollars. This is an economic blow that the teetering U.S. economy simply could not afford right now. Once the oil finally stops flowing the crisis will not be over. In fact, the aftermath from this oil spill could end up echoing for decades.
So are things bad out there? Yes, things are incredibly bad and they are about to get a whole lot worse. In fact, there are so many cancers eating away at the U.S. economy that it would take an entire book to detail them all.
What we are dealing with is not “just another recession” or “just another economic downturn”. What we are witnessing is the fundamental unraveling of the monstrous debt spiral that our economy is based upon. Any economy that is built on a foundation of debt and paper money is inevitably doomed.
So yes, the bad economic news is going to continue. Things may get better for a while here and there, but the truth is that we are caught in a long-term spiral of economic decline from which there is no escape.
So what do you think? Do you believe that there is hope for the U.S. economy? Feel free to leave a comment with your opinion….
Now that the Greek debt crisis has been “fixed” by a gigantic pile of more debt, many are wondering which European nation will be next to experience a massive debt crisis. Increasingly, all eyes are turning to the U.K. and their public debt that is spiralling out of control. The U.K. government’s deficit is projected to be approximately 13 percent of GDP in 2010, which is even worse than Greece’s 12.5 percent figure. Right now the public debt of the U.K. is “only” at 68 percent of GDP, but three years ago it was sitting at about 40 percent, so as you can see the national debt of the U.K. is absolutely exploding in size. In fact, it is now being projected that the public debt of the U.K. will exceed 100 percent of GDP within the next three years. Considering the fact that citizens of the U.K. are some of the most highly taxed people in the world already, there just is not much room for raising more revenue.
So obviously there is a problem.
A massive, unchecked, out of control problem that threatens to blow out the entire U.K. economy.
And considering the fact that it took just about everything that Europe could muster to bail out poor little Greece, how in the world is Europe going to be able to bail out the U.K. when their debt crisis violently erupts?
If Greece almost brought down the euro and the financial system of Europe, then what would a financial implosion in the U.K. do?
Considering the fact that the Greek economy is approximately 16% the size of the U.K. economy, it is very sobering to think what a “Greek style” debt crisis in the U.K. would mean for the entire world.
But if something is not done rapidly it will happen.
Just consider the following charts….
Now how in the world do you go from a deficit that is between 2 and 3 percent of GDP in 2007 to one that is above 11 percent in 2009? That takes some serious financial mismanagement. Not only that, but as we mentioned earlier, this year the deficit is projected to be approximately 13 percent of GDP. That is a level that is catastrophic.
Kornelius Purps, the fixed income director of Europe’s second largest bank is very open about the fact that he believes that the U.K. is likely the next European nation that will face a very serious debt crisis….
“Britain’s AAA-rating is highly at risk. The budget deficit is huge at 13% of GDP and investors are not happy. The outgoing government is inactive due to the election. There will have to be absolute cuts in public salaries or pay, but nobody is talking about that.”
In fact, Morgan Stanley has already warned that there is a very strong probability that some of the rating agencies may remove the U.K.’s AAA status before 2010 is over.
If that happened, it would make the crisis that we just saw in Greece look like a Sunday picnic.
So what must be done?
Well, already world financial authorities are calling for “austerity measures” and deep budget cuts to be implemented in the U.K., but the reality is that those moves will cause deep economic pain.
In fact, Bank of England governor Mervyn King recently warned that public anger over the “austerity measures” that soon must be implemented in the U.K. will be so painful that whichever party is seen as responsible will be out of power for a generation.
The cold, hard reality is that the U.K. is in for economic pain in any event. Either they cut the budget and implement severe “austerity measures” which will hit people really hard economically, or they continue on the current course and risk a much worse version of what just happened in Greece.
Not that the rest of the world should be gloating about what is going on in the U.K. either.
The financial situation in Japan is even worse than what the U.K. is dealing with, and the United States is going to have the biggest economic downfall of them all one of these days.
As we wrote about yesterday, the sad truth is that the governments of the world are rapidly running out of money and are drowning in debt. It is a gigantic mess, and the term “sovereign debt crisis” is going to pop up in the news very regularly from now on.
You see, it is not just the financial systems of the U.S. and the U.K. that are broken. The entire world financial system is fundamentally flawed and is doomed to failure.
Right now the central banks of the world can do their best to try to hold things together with a tsunami of debt and paper money, but they are not going to be able to keep up this balancing act forever.
When it does all start coming apart and the dominoes do start falling, it is going to be a complete and total nightmare. Paper currencies around the globe will lose value at breathtaking speeds as central banks flood economies with cash in an attempt to stop the madness.
But more debt and more paper never solves anything. All it does is make the long-term problems even worse.
When the tipping point comes, things are going to move fast. Let’s just hope that we all have a good bit more time to prepare before that happens.
Most of us are aware of the very old fairly tale by Hans Christian Andersen in which two weavers promise an emperor the finest suit of clothes imaginable, but from a fabric invisible to anyone who is unfit for his position or “just hopelessly stupid”. Well, in the fairy tale it turns out that nobody wants to admit that they are “unfit” or “stupid”, so when the emperor parades before his subjects in his imaginary new suit of clothes, it takes a child to cry out: “But he isn’t wearing anything at all!” Well, many of us have been declaring that the world economy “has no clothes” for some time now, but when the anchor of NBC News declares it on national television it gets a bit more attention. During his recent appearance on The Late Show with David Letterman, NBC’s Brian Williams was asked about the world financial situation. His answer included this shocking statement: “The world has no money, and the Emperor has no clothes.”
During the interview, it was readily apparent that Williams was honestly shaken up by what had happened last Thursday in the stock market. But who can blame him? After all, most of us who watch the markets were totally stunned when the stock market dropped almost 1000 points exactly in less than an hour.
Normally a network news anchor is much more guarded and is much more careful about what is revealed to the public. But on Letterman’s show, Williams gave us a glimpse of what he really thinks about the world economic situation….
“If I wasn’t a tad too close to this, I’d probably not leave the house. But that’s how bad it is.”
A video clip that includes these jaw dropping comments by Williams is posted below….
So why did the U.S. stock market plunge so rapidly last Thursday?
Well, many have blamed the episode on a “bad trade” or a “computer glitch”. Others claim that the Greek debt crisis caused a brief panic. There are yet others who see something more insidious going on – such as Goldman Sachs seeking to remove their name from the financial headlines, or the Federal Reserve sending a message that S. 604 (the bill to audit the Federal Reserve) should not be passed.
The truth is that we will probably never know what actually caused the market to fall through the floor that afternoon.
But it did pave the way for more bailouts.
Over the weekend, European policy makers unveiled an unprecedented loan package worth almost $1 trillion and a program of bond purchases designed to stop the sovereign debt crisis that threatened to shatter confidence in the euro.
The Federal Reserve got into the act as well. Over the weekend the Fed promised to flood the international financial system with U.S. dollars. This was seen in the markets as a sign of “resolve” meant to keep doubt about the European economy from turning into a global crisis of confidence.
So on Monday, investors responded to these bailouts with exuberance. The Dow Jones industrial average gained 405 points that day, which was the average’s biggest one day point gain since March 23rd, 2009.
But are more bailouts, more debt and a flood of paper money really something to celebrate?
No.
The truth is that debt and paper money that continually declines in value are some of the chief causes of the financial mess that the world is now in.
In fact, Congressman Ron Paul is warning that the European bailout that was just announced will just lead to even larger financial problems in the future….
And Ron Paul is right – all of these bailouts and all of this debt will eventually cause all of the major paper currencies (including the U.S. dollar) to collapse.
The funny thing about these bailouts is that they never seem to help the average people on the street. Just take a look at the U.S. economy. We are told that Wall Street has recovered and that things are getting back to normal, and yet more Americans than ever find themselves dependent on the U.S. government for their survival.
The U.S. Department of Agriculture recently announced that 39.68 million people, or 1 out of every 8 Americans, were enrolled in the food stamp program during February, an increase of 260,000 from the previous month.
Nearly 40 million Americans on food stamps?
How in the world did that happen?
Once upon a time, the old timers would tell us that one day things would get so bad that we would all have to stand in bread lines.
Well, today food stamps are the new bread lines.
If you have to rely on the government for the very bread that you eat, what kind of a position does that put you in?
The truth is that the once great American middle class is allowing the system to slowly keep grinding them into oblivion.
Like never before in our lifetimes, wealth is being concentrated in the hands of the “lucky one percent”, while the rest of us are rapidly being marginalized.
Do you ever stop to wonder why it seems like almost everyone is either broke or up to their eyeballs in debt?
Everywhere you turn in the financial media right now you see some “expert” declaring that the Greek debt crisis has become a “contagion” which is going to spread all over the globe and which could potentially bring down the entire world economy. Now certainly Greece has badly mismanaged their finances for decades, and without a doubt they have gotten themselves into a huge mess. But could Greece bring down the entire world economy? Hardly. The truth is that you could remove Greece from the world economy tomorrow and most people would hardly notice. The economy of Greece is only about 2% the size of the United States economy, and it takes in less than 0.1% of U.S. exports. But we are being led to believe that Greece has suddenly become the epicenter of a financial crisis which is going to bring down everything. Could it be that this Greek debt crisis is purposely being hyped and manipulated? Could it be that this Greek debt crisis is yet another example of the “problem, reaction, solution” paradigm that the global elite have employed so many times before?
Right now almost all of the governments in the western world operate debt-based economies that rely on ever-inflating amounts of paper money in order to survive. The elite international bankers of the world have made a killing by creating money out of nothing and loaning it to the nations of the world. The interest on those loans is the primary method by which the wealth of the world is slowly transferred into the hands of the ultra-wealthy. When the interest on the loans starts to become too much for a particular nation, they borrow even more money so that they can stay afloat. It is a debt trap that is designed to continue indefinitely. Even the most powerful nations in the world are caught in this debt trap. In fact, most people are absolutely amazed when they learn that it is mathematically impossible to pay off the national debt of the United States. But the United States is far from alone in that respect. Almost all of the other major nations in the world are in the exact same boat.
So what normally happens when a nation like Greece gets into big trouble is that they just go out and borrow even more money from the international bankers.
But this time the big financial powers are insisting on big budget cuts and other “austerity measures”.
So what is the deal with that?
Well, there are a couple of possibilities.
The first alternative is that the IMF and the European Central Bank actually believe that the financial situation in Greece has gotten so desperate that they could actually be forced to default on their debt and so something dramatic needs to be done. You see, the truth is that the international bankers want the game to continue no matter what. They are a parasite, and they can’t keep draining a host if the host dies. So it does them no good for the economy of Greece to completely die. So maybe they are just trying to revive the host economy (Greece) so that they can continue slowly draining the wealth of that nation.
And perhaps that is all that is happening here. After Greece agreed to the required “austerity measures”, the EU and the IMF extended to Greece the bailout loans that they needed, and on Sunday European Union finance ministers agreed to create a 750 billion euro safety net for troubled eurozone countries. The EU’s monetary affairs commissioner, Olli Rehn, says that this safety net “proves that we shall defend the euro whatever it takes.”
There are even rumors that the ECB is prepared to engage in a new round of quantitative easing. That would entail very large loans to distressed governments in the eurozone in the form of buying up their bonds.
Of course all of this “help” is just more debt that continues to put Greece into an even bigger hole, but at least Greece will not be faced with immediate default.
The second alternative is that what is going on is the financial powers of the world are deliberately hyping and manipulating the Greek debt crisis because they actually want to crash the world economy.
At this point, the debt crisis in Greece has been hyped for weeks on end, and the kind of alarm being raised about the situation is Greece just seems massively out of proportion.
After reading some of the recent news reports coming out of Europe, you would think that the world is on the verge of a financial doomsday just because of what is happening in Greece. The following excerpt from the Guardian is representative of what we have been seeing in recent days….
“The growing crisis in the eurozone threatened to undermine the global economic recovery as markets plunged across the world on fears that European leaders may not be able to contain the debt contagion spreading from Greece.”
In fact, just about wherever you turn some financial expert is coming forward with predictions that the “contagion” of the Greek debt crisis is going to spread and cause economic chaos all over the world….
“We now see herd behavior in the markets that are really pack behavior, wolfpack behavior.”
The truth is that this Greek debt crisis could end up being the first domino in a sovereign debt crisis that will sweep the globe – if that is what the international bankers want.
If the international bankers decide to cut off the ever-expanding flow of debt to the nations around the world it would create a disastrous financial crisis. Without the loans that they desperately need, country after country would plunge into an economic nightmare that most people do not even think is possible.
So would the international bankers ever do that?
They have done it before.
Just study the causes of the Great Depression.
Now there are indications that it may be getting ready to happen again.
Suddenly everyone is starting to talk about the “austerity measures” that will not only have to be implemented in Greece but all over the world.
For example, check out this recent quote from an article in the Guardian….
“Riots and strikes in Greece could be repeated in other countries which have yet to adopt their own austerity packages.”
Other countries which have yet to adopt their own austerity packages?
And it just isn’t Greece, Italy, Spain and Portugal they are talking about.
Bank of England governor Mervyn King recently warned that public anger over the “austerity measures” that soon must be implemented in the U.K. will be so intense that whatever party wins this election will be out of power for a generation.
Austerity measures in the U.K.?
Not only that, but Federal Reserve Chairman Ben Bernanke is publicly saying that United States citizens will soon have to make difficult choices between higher taxes and reduced social spending.
Why all of a sudden do nations all over the world have to implement austerity measures? Why all of a sudden are we all being told that we are going to have to tighten our belts?
Well, unless all of this was planned of course.
And that is exactly what some out there are claiming is happening. There is a belief by many that the financial powers of the world are going to create a world economic crisis (the problem) so that when everyone cries out for help (the reaction) they will be there with the solution they wish to propose (perhaps a world currency or increased global governance).
In fact, Pastor Lindsey Williams even claims that an individual who is from these elite circles has told him exactly what is coming. If you have never heard of Lindsey Williams you should really check out the video posted below. He was the one (based on inside information from his source) who correctly predicted a couple years ago that oil would go down to 50 dollars a barrel when at the time it was pushing up into record territory. When oil did in fact plunge down to 50 dollars a barrel people were not laughing at him anymore. Now, the same source has told him that a massive economic downturn is planned over the next couple of years….
So is Lindsey Williams right?
As with so many things, time will tell.
But when top banking officials all over the world start talking about “austerity measures” and the need to tighten our belts, it is best to start paying attention.
We are moving into a time of extreme economic uncertainty. To the folks that play around with hundreds of billions of dollars, you are nothing more than a pawn on a chessboard. If you believe that “things are always going to be good” and that the people with real power in this world honestly care about you then you are going to end up in a whole lot of trouble.
Now is the time to prepare while there is still time. Someday when the U.S. economy does completely collapse and you have done nothing to prepare it will be far too late.
In one of the most dizzying half-hours in stock market history, the Dow plunged nearly 1,000 points on Thursday, May 6th before bouncing back to close down 347.80 points. This represented the biggest intraday decline since 1987. But what made this crash so absolutely shocking is that it happened in the course of less than an hour. Between 2 p.m. and 3 p.m. the Dow lost over 700 points before dramatically bouncing back about 600 points. Two of the 30 stocks in the Dow, Procter & Gamble and 3M, plunged more than 30% in just 15 minutes. Accenture went from trading at around 40 dollars a share all the way down to one cent before bouncing back. Traders and investors were left completely stunned and wondering what in the world had just happened.
So what did happen?
The following are some of the most common theories being put forward to explain what happened….
#1) A Bad Trade
It has been widely suggested that a “fat finger trade” was responsible for triggering the panic. According to CNBC, “sources” have told that network that a trader (possibly at Citigroup) entered a “b” for billion instead of an “m” for million in a trade involving Procter & Gamble.
However, Citigroup has already announced that it has found “no evidence” that it was involved in any erroneous trades. In fact, a statement was released in which Citigroup spokesman Stephen Cohen said this….
“At this point, we have no evidence that Citi was involved in any erroneous transaction.”
#2) A Computer Glitch
New York Stock Exchange spokesman Rich Adamonis says that “there were a number of erroneous trades” on May 6th, and that these could have been caused by computer error.
And the truth is that trading in the financial markets is more automated and more reliant on computers than it ever has been before. Trading literally moves at lightning speed now, and a number of analysts are warning that the pace of the market is so fast at this point that it is really easy for things to spin out of control very quickly.
But if this was really primarily caused by a “computer glitch”, how are investors supposed to have any confidence at all in the market? After all, if a computer error can wipe out half your account in less than an hour, why invest at all?
#3) Cascading Stop Losses
Once the market hits certain technical levels, it is going to automatically start triggering stop loss orders. Once those stop loss orders are triggered, it will push the market down further thus triggering more stop loss orders.
While there have been some protections implemented to guard against this kind of thing, the reality is that it does still happen.
#4) Hackers
Hackers have become more sophisticated and more cunning than ever before. In fact, the bigger a target is, the more enjoyment most hackers get out of taking them down. Is it a possible that someone could have hacked in to the New York Stock Exchange?
#5) Cyberterrorism
Rogue nations and terrorist organizations have been developing their “cyber warfare” capabilities for some time now. We have been repeatedly warned that someday we will see an “Internet 9/11″. Could this stock market plunge be a preview of that?
#6) Fear Of The European Debt Crisis Spreading
There are mounting concerns in the financial markets about Greece’s financial condition and that the European debt crisis could spread around the globe.
In fact, the Dow has lost 631 points, or more than 5%, in just the last three days amidst worries about the situation in Greece. This represents the biggest three day drop since March 2009.
#7) Stop Hunting
Anyone who has spent much time in the Forex market knows what this is all about. The truth is that some of the big financial sharks in the marketplace seem to really enjoy blowing out stop losses.
So could have this have been a situation where a stop loss hunting expedition spun wildly out of control?
#8) A Real Panic
There is also the possibility that this was a real financial panic. There are huge concerns about what is going on in Europe and the currency markets are fluctuating wildly. The Dow was already down several hundred points even before the massive plunge took place. The reality is that there is a lot of fear in the financial markets right now.
But if it was a real panic, then why did the Dow bounce back so quickly? Well, it is the job of the “plunge protection team” to keep the stock market from declining too rapidly. So did the “plunge protection team” swing into action today? Well, the truth is that we will probably never know because the general public is not supposed to know when they intervene.
In any event, the next couple of days should hopefully make all of this a lot clearer. The trading during the afternoon of May 6th at the big firms will be gone over with a fine-toothed comb, and the exchanges will be closely analyzing their systems for any glitches.
It has already been announced that some of the most erroneous trades will be cancelled. The Nasdaq and NYSE’s ARCA trading unit have both said that they will cancel trades executed between 2:40 p.m. and 3 p.m. on May 6th where a stock price rose or fell more than 60 percent from the last trade in that security at 2:40 p.m.
But this episode shows just how vulnerable our financial markets really are. After witnessing what we saw today, it is going to be really hard to have confidence in the system.
In fact, even if this was just one “bad trade” or a “simple computer glitch”, the reality is that this episode is going to inject even more fear into a marketplace that is already filled with tension.
When fear grips a market things can go south very, very quickly. The truth is that markets tend to fall more quickly than they rise, and if a wave of panic starts sweeping over the financial markets we could see things get quite messy in the coming days.
Today global wealth is more highly concentrated in the hands of the elite than it ever has been at any other point in modern history. Once upon a time, the vast majority of the people in the world knew how to grow their own food, raise their own animals and take care of themselves. There weren’t many that were fabulously wealthy, but there was a quiet dignity in having land you could call your own or in having a skill that you could turn into a business. Sadly, over the past several decades an increasingly growing percentage of agricultural land has been gobbled up by big corporations and by corrupt governments. Hundreds of millions of people have been pushed off their land and into highly concentrated urban areas. Meanwhile, it has become increasingly difficult to start a business of your own as monolithic global corporations have come to dominate nearly every sector of the world economy. So more people than ever around the world are forced to work for “the system” just to make a living. At the same time, those at the very top of the food chain (the elite) have spent decades rigging the system to ensure that increasing amounts of wealth will continue to flow into their pockets. So now in 2010 we have a global system where a few elitists at the top are insanely wealthy while about half the people living on earth are wretchedly poor.
Will The Day Of Rage In Saudi Arabia On March 11 Send The Price Of Oil Into Unprecedented Territory?
Right now the investing world is not sure what to think about all of this, and financial markets do not like uncertainty. One piece of really bad news could send markets all over the globe crashing down.
Speculation in oil futures is absolutely rampant. A recent report on CNN noted the following….
In particular, the number of investors that are betting that a revolution in Saudi Arabia is going to send the price of oil up to $200 a barrel has exploded in recent days.
$200 a barrel?
Are people actually betting that is going to happen?
The all-time record is only $147 a barrel. Just a few months ago it was absolutely unthinkable to most economists that we could potentially see $200 oil in 2011.
But it would be a mistake to assume that a full-blown revolution is guaranteed to break out in Saudi Arabia. Remember, this is a nation that has a very, very long history of denying even the most basic freedoms to the people.
For example, in Saudi Arabia the practice of any religion other than Islam is strictly forbidden. By law, citizens of Saudi Arabia are not permitted to change religion. Even foreign visitors are forbidden to openly practice any other religion. It is a whole different world. You cannot go to the store and buy a Bible in Saudi Arabia. In fact, if you try to pass out Bibles in Saudi Arabia you will be thrown into prison.
Beheadings and other brutal public executions still happen in Saudi Arabia to this day.
So if you plan of being a revolutionary in Saudi Arabia you had better put your big boy pants on, because the Saudis play hardball.
Much of the rest of the globe is desperately hoping that a revolution does not happen in Saudi Arabia because the global economic situation is precarious at best.
In Europe, if the price of oil causes a significant economic slowdown right now it could have global implications. Moody’s Investors Service just slashed Greece’s debt rating three levels all the way down to B1. But Greece is far from alone. Several European governments are finding it much more expensive to finance their debts these days. We are right on the edge of a major European sovereign debt crisis and the chaos in the Middle East could potentially be just the thing to spark a panic.
The United States could feel a rise in the price of oil even more than Europe because the U.S. economy is so spread out and it is so dependent on products from overseas.
Did you know that in 1960 only 8 percent of the things Americans bought were made overseas but that today 60 percent of the things Americans buy are made overseas?
It’s true.
So what would happen if the cost of transporting all of those products suddenly doubled? All of the products we buy must be transported somehow, and a rise in transportation costs will be passed on to U.S. consumers.
But the truth is that the pain is already here. Already, millions of American families are starting to feel some very real financial pain from the chaos in the Middle East.
From February 18th to March 4th, the average price of gasoline in the United States rose 33 cents. That was the biggest two week increase ever recorded.
Ouch.
The rise in the price of oil has some broader economic implications as well.
The more the price of oil goes up the bigger our trade deficit is going become. As the trade deficit gets bigger, that means that more money is going out of the country and less money is going to support American businesses and American workers. When American workers lose jobs, that means that they aren’t producing wealth anymore and they aren’t paying taxes anymore. Instead, they become a drain on the system as they start receiving government handouts.
When millions of Americans go from being productive, taxpaying workers to unemployed welfare cases it causes our federal budget deficit to become even larger.
Most Americans do not understand how connected our trade deficit and our federal budget deficit really are. One feeds right into the other.
Unfortunately, the Federal Reserve seems to think that the solution to any economic problem these days is to print more money.
According to Atlanta Fed President Dennis Lockhart, if the price of oil goes up high enough, it could force the Federal Reserve to do even more quantitative easing.
Really?
One of the reasons why the price of oil and other commodities has been going up over the last six months is because of all of this reckless money printing.
Now Lockhart is saying that because of the oil price increases they may have to do more money printing?
How bizarre is that?
Unfortunately, several other top Fed officials have dropped hints about a possible “QE3” lately. It just seems like the insanity never stops.
Let us hope that the Fed does not go there because the U.S. dollar is falling apart fast enough already.
In any event, the rest of 2011 is certainly going to be very interesting to watch.
Even if a revolution does not happen in Saudi Arabia, the price of oil will most likely continue to slowly move higher just as it has been doing for months.
But if a full-blown revolution does happen in Saudi Arabia, it could literally change the global economy almost overnight. The entire world financial system would be thrown into a state of chaos.
Oil is the lifeblood of the world economy. Without a continuous supply of very inexpensive oil, life as we know it would dramatically change. Most of us just assumed that we would always live in a world where we would always have an endless supply of very cheap oil.
Well, the times they are a changing.
You had better buckle up because it is going to be a bumpy ride.