The U.S. is headed inexorably toward a systemic failure, a complete and utter collapse of the financial system. TARP and all the other machinations have not improved the underlying insolvency of the banking system. They have, however, deferred a collapse and ensured that it will ultimately be worse. [Let me explain.] Words: 1385
So says Monty Pelerin (www.economicnoise.com) in edited excerpts from an article which Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), has further edited ([ ]), abridged (…) and reformatted below for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.
Pelerin goes on to say, in part:
Our collapse will likely be preceded and triggered by a collapse in the financial and economic systems of several European countries. The U.S. collapse will create economic paralysis, marked by lack of liquidity or an unwillingness to accept paper dollars. The Ponzi scheme that has been the Federal government will also collapse.
Slowly more people recognize the problems and understand their future. Day by day their condition worsens:
- additional citizens lose jobs, houses and hope.
- people are squeezed by higher food and energy prices.
- people pay more local and state taxes and fees while services are reduced.
- more people understand government is bankrupt.
- businessmen freeze plans in light of uncertainty and economic malaise.
- more people understand that retirement and medical care promises were empty promises that cannot be honored.
- dependents become nervous as they sense threats to their benefits and what they perceive as entitlements.
- more people find it attractive to go on the dole rather than deal with the hassles of finding a job and keeping one.
- retirees return to work as their 401ks fall in value and they fear outliving their decreasing wealth.
All of these factors fuel unrest and distrust. The shrinking pie is viewed nervously by two competing sides:
- The entitlements class doesn’t believe they are getting enough. This segment includes welfare recipients and overpaid government employees. They sense their way of life is about to change, and they are correct.
- The producing class is tired of supporting those they increasingly view as free-loaders. Support was tolerable when producers believed their own standard of living was increasing. That is no longer the case, at least for the foreseeable future. Now they see their living standards being decreased so as to support or increase that of the unproductive. Welfare state beneficiaries are increasingly viewed as opportunists. This view creates class conflict which political opportunists are only too happy to exploit.
If you have money, there is no need to put it at risk in such uncertain and unfriendly times. The U.S. may or may not return to sanity. Those who can invest, wisely choose not to. For them, it is better to wait until the madness represented by the Obama Administration is over. They will keep their powder dry until after 2012 and then assess matters. In the meantime, they will invest outside the country.
Declining Living Standards
The simple fact is that the U.S. was never as rich as it thought. The standard of living from 1990 forward was artificially inflated. Apparent prosperity was not achieved via rising incomes and wealth but through borrowing. Few lived within their means; most lived at levels that could not be sustained from current income. Eventually the debt levels became so extreme that new debt was not forthcoming. That was when the music stopped.
Now the standard of living is falling. Capital and jobs are leaving the US. Consumption is shrinking as de-leveraging is required to make up for the madness of the past two decades:
- long-term, consumption must be cut back to levels sustainable by income.
- short-term, consumption must be cut back below that sustainable by income in order to pay down debt to manageable levels.
For a time many must live below their long-term living standard. When you have been getting by as a result of credit cards, major adjustments are required.
Government Believes It Is An Exception
No one is a bigger violator of living beyond their means than government. Despite the obvious, they continue to spend rather than cut. The Obama Administration has taken spending to obscene levels. The Republicans are not much better. Bush ran deficits consistently, the largest of any President in history until Obama. The last deficit under George Bush was $160 Billion. Under Obama deficits average close to $1,500 Billion or $1.5 Trillion per year.
Government spending is greater than what can be sustained via tax revenues. Politicians ask others to sacrifice but never themselves. They still try to live the myth that you can forever spend more than you make. The rules of arithmetic and economics are applicable to government as well as individuals. Regardless of what government believes, its ability to sustain itself via continued borrowing is near an end. Credit markets are unwilling to fund ongoing US debt. The US government is becoming a pariah in the world because of its excesses.
- The “living standard” of government is about to diminish, greatly.
- The private sector and individuals have cut; government continues to grow.
- We know where this ends. We see it playing out in riots in other countries.
Those who understand American exceptionalism understand that our people are exceptional in many things, including rioting. Newark, Detroit, Watts and dozens of other areas are evidence of such abilities. These were pretty dramatic but they were over nothing compared to what is coming. What do you suppose will happen when the means of survival for generations of dependents suddenly dries up?
Desperation is expanding. Anger is brewing even among the productive class. People looking out for their families are without jobs and angry. We are a spark away from massive protests and riots. Those who believe they will be unaffected by what is coming are fools. Every sector of society and community will be affected. Those who believe they are well-off will learn otherwise.
The inevitability of the collapse of the welfare state scares both the beneficiaries and the contributors. Everyone understands that the cessation of the goodies from Santa will mean unrest in the streets. That is the fear that drives the “extend and pretend” political behavior. For years welfare was little more than buying votes. Then it became protection money to keep the unruly in line. Now this “right” is going away and so is the peace and tranquility it purchased.
Washington has put us in a death spiral from which there is no exit. Before this ends, much of the population will be broke. Folks who believed they were well off may end up living in their BMWs.
Mac Slavo opines [see here] on how he believes the disaster will unfold:
What’s coming next will be complete and utter panic in European debt markets, the result of which will likely be a shift of capital from Europe to areas of the globe deemed “safer,” leaving, ironically, US Treasury instruments as one of the few bastions of safety as investors look to save themselves from financial annihilation. This means that money will flow back into the U.S. dollar, and we would not be at all surprised to see a strong move up against other currencies. On the flip side, this means we could potentially see a massive crash in stocks on Western exchanges. The panic may lead to unprecedented selling of stocks, commodities and even precious metals as individual investors rush for the exits.
All of that is just the first phase of the next leg down. After Europe goes, we in the U.S. will likely be next, with events perhaps playing out over several months or years, eventually leading to similar circumstances – collapse of our financial institutions, destruction of our currency, a complete wiping out of the U.S. middle class, political instability, riots, and the historically traditional outcome in such cases of collapsing nations – war.
The reality of the situation has now gone mainstream.
Prepare for the worst and hope for the best.
It is widely accepted that Greece is insolvent even though the higher echelons of euro-zone politics still hesitate to use the term, and default swap prices…give virtually 100% odds that Greece will default. The handling of the issue has heightened the perception of risk for other problem countries of the euro zone…such that investors now give 60% odds of default by Portugal…and 30%-plus odds for default by Italy… Even France, with its S&P AAA rating, is now rated more likely to default than Brazil! [In addition, the U.S. is facing the liklihood of a fiscal policy impasse in Congress that could well lead to a recession. As such, as we see it, the risk of contagion in the financial system around the world has risen dramatically. We substantiate our contentions below.] Words: 1612
Europe is on the verge of a collapse, and unless something gets done relatively soon, (perhaps as soon as the next few weeks), Europe is likely to experience their own 2008 scenario. The U.S. and Chinese economies are heavily dependent on exporting goods to Europe, and with Eurozone growth slowing as a result of the potential default in Greece, and then on to the rest of the PIIGS, a “Great Depression-like scenario” could very well play out. [In fact,] George Soros thinks we are headed towards another Great Depression and, you know what, he’s right! What do you think? Is George Soros right? Are we headed for another depression? Words: 530
The latest economic data suggests that recession is returning to most advanced economies, with financial markets now reaching levels of stress unseen since the collapse of Lehman Brothers in 2008. The risks of an economic and financial crisis even worse than the previous one – now involving not just the private sector, but also near-insolvent sovereigns – are significant. So, what can be done to minimize the fallout of another economic contraction and prevent a deeper depression and financial meltdown? [Below I recommend 8 ways that would do just that.] Words: 1641
The debt crisis in the United States is unsustainable, and the debt crisis in Europe is unsustainable. As such, we are facing a global debt meltdown and are heading for an economic collapse. You aren’t going to hear that truth from the media or from our politicians, however, because keeping people calm is much more of a priority to them than is telling the truth – and right now we are in the calm before the storm. Nobody knows exactly when the storm is going to strike (i.e. when the collapse is going to happen) – but it is definitely on the way — and now even Goldman Sachs is admitting [that that is most likely the outcome of the present situation. Here is what they had to say recently in a “secret” document that has just now been made public.] Words: 1147
You think the problems are bad now? You wait until we don’t have any more credit. You wait until the currency is collapsing. You wait until interest rates are going through the roof and inflation is going through the roof. It’s not going to be a pretty picture. There will be social unrest. [See below for the link to the interview.] Words: 477
James Turk, Director of The GoldMoney Foundation, interviewed Jim Sinclair recently at the GATA conference in London about his successful gold price predictions, the U.S. debt problems, how to ride the second phase of the gold bull and the gear change from arithmetic to exponential growth as public perceptions about the safety of the US dollar changes. Below is a heavily edited and paraphrased version of the interview to provide you with a fast and easy understanding of its contents. Words: 1318
Over the past two months stock markets have crashed around the world and gold prices have soared as global investors decided that the U.S. has lost its race against time. A new recession is upon us before we even half-closed the output gap left open from the last recession. It means even larger deficits and an even weaker dollar. The price of gold and Treasury bonds is telling us that a full-blown international bond and currency crisis is approaching. There is no international policy mechanism available to stop the panic short of re-opening the gold window that the U.S. closed unilaterally and “temporarily” in 1971. [Let me explain.] Words: 3025
Michael Spence, professor at New York University’s Stern School of Business and winner of the 2001 Nobel Prize in economics, believes there’s “probably a 50%” chance of the global economy slipping into recession. Noriel Roubini disagrees and says flatly that a recession is coming and that it is a mission impossible now to stop it. The Philadelphia Federal Reserve Bank places the odds at 85% of a recession. David Rosenberg, another very savvy economist, says that by 2012, the chance of a second recession is 99%. Peter Schiff, who with Roubini, correctly and accurately predicted the collapse on Wall Street and ensuing recession, thinks one is 100% certain. [Let’s take a look at why they hold such views.] Words: 829
The United States and most of Europe…risk an eruption and collapse of the mountain of unsustainable sovereign debt built up over the last two decades. Frankly, the U.S. dollar and national debt situation is so dire – and our means to contain a sovereign debt crisis so limited by multiple wars and Washington’s debt and political incompetence at home – that anything could happen, almost overnight. [The best] America and most European governments and the central banking elites, which created the criminal sovereign debt fiasco, [appear able to do is] try to buy more time and delay the inevitable. This inaction means the threat of an immediate US debt and dollar collapse cannot be ruled out. Therefore, readers who have not protected themselves certainly have cause to worry because now could be too late. [Let me explain further.] Words: 1689