The economic scenario that lies ahead of us is going to make Black Friday (and I’m not referring to the Friday after Thanksgiving) look like a picnic. And the speculation of a pending crash always leads to different causes or reasons to point fingers at.
So what causes or reasons are the attributes of the coming crash? Here’s the current list that has seen a considerable amount of media focus:
Changes made in the economic and political infrastructures of other countries.
Local and national politicians that have either failed to see or ignored the signs that a crash is inevitable, and then failed to take any action to nip it in the bud.
Opinions of economists and other so-called “financial experts”.
Unfortunately, these are the least likely reasons of the bunch and should be considered as nothing more than scapegoats for blame and/or the standard “excuses” which always winds up being media fodder.
First and foremost, since the 1970’s, the US has lived excessively beyond its natural means. Furthermore, after a brief period following World War II wherein the federal government was actually investing in the country’s infrastructure, deficit spending and increased militarization once again became the economic norm.
There have been several foreign adventures and wars that followed the Second World War. These provided us with the false appearance of an economic upswing because massive amounts of money were borrowed in order to finance these military endeavors. The need for purchasing war materials has always been a boost for those manufacturers who have been in a financial decline. Additionally, unemployment rates have been kept to a dull roar with the increased induction of younger people into the US Military.
In the past, the activities mentioned above were usually funded internally by borrowing from the government’s reserves. However, those funds have come more from external rather than internal sources for about the past decade. The situation has now reached what I feel are perilous proportions based on three coincidental factors that have been building since the turn of the century:
The financial needs of the infrastructure and society are being sacrificed in order to fund the law enforcement and military segments of the economy.
Our society has become militarized in the sense that it has become an independent source of power rather than being an aspect of government policy.
With other countries developing their own power centers, they have become strong enough to manage their own interests. This has resulted in the US no longer being able to benefit from managing foreign affairs.
Consequently, these three factors have now manifested themselves in the following 7 economic trends:
A decrease in the working classes quality of life and standard of living
Relative to its foreign trade partners, the US Dollar is steadily declining in value
Inflation is once again on the rise
Real estate values are declining
Luxury items are losing their value
Poverty and unemployment is once again on the rise
The United States is currently experiencing a loss of civil liberties, and growing social unrest is becoming more prevalent
The daily plummeting of the stock market in early October of this year (2008) was the clincher for me and left no doubt in my mind that we will be in serious economic trouble in 2009. When you look at the entire domestic economic scenario, we are experiencing a “credit bubble” and that bubble is already beyond the bursting point. Or as these economic whiz-kids (as I refer to them) are claiming, we are moving into a long-term “bear” market with the domestic and the international stock markets.
Now take the following critical factors about the US Economy into consideration, and our financial plight becomes even more apparent:
More and more homeowners are applying for home equity lines of credit because real estate prices have climbed into the “nosebleed seats” – suffice it to say, credit lines granted by virtue of home equity literally turn your home into an ATM machine with a roof on it. It has also proven to be a consumer catalyst for maxing out one’s credit cards as well as spending to excessive limits on items such as big screen TV’s, large SUV’s, and budget-busting vacations. The sad part is that in most cases, this money came from a lending source and has to be repaid.
Current statistics show that the National debt is sitting at $32 trillion – this figure is based on money that has been borrowed by businesses, the government, and US households. (Between 1990 and 2001, the debt figure had grown to $13 trillion.) The scary part about this issue is that this carries with it extremely high financial risk. What’s worse is that those people that we have elected into federal office do not have a clue when it comes to paying all that money back. Add to this a very significant change in the highest political office, and we have succeeded in adding fuel to a fire that is already burning out of control.
As of November (2008), the Federal debt was sitting at $10.6 trillion – and with the most recent economic bailout, the debt ceiling in the US is now at $11.3 trillion. Current figures show that this Federal debt is growing at the rate of $1.71 billion every 24 hours. And as was mentioned about, the norm of deficit spending is the culprit for this staggering amount of debt.
The glut of US spending (i.e. credit card purchases) has severely affected the stock market – interest rates climbed higher in order to protect banks, lenders, and other financial institutions from the increasing prevalence of bankruptcies and foreclosures. Another blow to the economy was the fact that individuals in all levels of government could no longer repay their debts. The long-term result is that businesses and consumers alike will curtail their spending, while at the same time, certain players in the lending industry will start shutting their doors due to the funding of bad loans.