Economic Black Hole: 20 Reasons Why The U.S. Economy Is Dying And Is Simply Not Going To Recover

Economic Black Hole: 20 Reasons Why The U.S. Economy Is Dying And Is Simply Not Going To Recover

Even though the U.S. financial system nearly experienced a total meltdown in late 2008, the truth is that most Americans simply have no idea what is happening to the U.S. economy. Most people seem to think that the nasty little recession that we have just been through is almost over and that we will be experiencing another time of economic growth and prosperity very shortly. But this time around that is not the case. The reality is that we are being sucked into an economic black hole from which the U.S. economy will never fully recover.

The problem is debt. Collectively, the U.S. government, the state governments, corporate America and American consumers have accumulated the biggest mountain of debt in the history of the world. Our massive debt binge has financed our tremendous growth and prosperity over the last couple of decades, but now the day of reckoning is here.

And it is going to be painful.

The following are 20 reasons why the U.S. economy is dying and is simply not going to recover....

#1) Do you remember that massive wave of subprime mortgages that defaulted in 2007 and 2008 and caused the biggest financial crisis since the Great Depression? Well, the "second wave" of mortgage defaults in on the way and there is simply no way that we are going to be able to avoid it. A huge mountain of mortgages is going to reset starting in 2010, and once those mortgage payments go up there are once again going to be millons of people who simply cannot pay their mortgages. The chart below reveals just how bad the second wave of adjustable rate mortgages is likely to be over the next several years....



#2) The Federal Housing Administration has announced plans to increase the amount of up-front cash paid by new borrowers and to require higher down payments from those with the poorest credit. The Federal Housing Administration currently backs about 30 percent of all new home loans and about 20 percent of all new home refinancing loans. Tighter standards are going to mean that less people will qualify for loans. Less qualifiers means that there will be less buyers for homes. Less buyers means that home prices are going to drop even more.

#3) It is getting really hard to find a job in the United States. A total of 6,130,000 U.S. workers had been unemployed for 27 weeks or more in December 2009. That was the most ever since the U.S. government started keeping track of this statistic in 1948. In fact, it is more than double the 2,612,000 U.S. workers who were unemployed for a similar length of time in December 2008. The reality is that once Americans lose their jobs they are increasingly finding it difficult to find new ones. Just check out the chart below....



#4) In December, there were also 929,000 "discouraged" workers who are not counted as part of the labor force because they have "given up" looking for work. That is the most since the U.S. government first started keeping track of discouraged workers in 1949. Many Americans have simply given up and are now chronically unemployed.

#5) Some areas of the U.S. are already virtually in a state of depression. The mayor of Detroit estimates that the real unemployment rate in his city is now somewhere around 50 percent.

#6) For decades, our leaders in Washington pushed us towards "a global economy" and told us it would be so good for us. But there is a flip side. Now workers in the U.S. must compete with workers all over the world, and our greedy corporations are free to pursue the cheapest labor available anywhere on the globe. Millions of jobs have already been shipped out of the United States, and Princeton University economist Alan S. Blinder estimates that 22% to 29% of all current U.S. jobs will be offshorable within two decades. The days when blue collar workers could live the American Dream are gone and they are not going to come back.

#7) During the 2001 recession, the U.S. economy lost 2% of its jobs and it took four years to get them back. This time around the U.S. economy has lost more than 5% of its jobs and there is no sign that the bleeding of jobs is going to stop any time soon.

#8) All of this unemployment is putting severe stress on state unemployment funds. At this point, 25 state unemployment insurance funds have gone broke and the Department of Labor estimates that 15 more state unemployment funds will likely go broke within two years and will need massive loans from the federal government just to keep going.

#9) 37 million Americans now receive food stamps, and the program is expanding at a pace of about 20,000 people a day. The United States of America is very quickly becoming a socialist welfare state.

#10) The number of Americans who are going broke is staggering. 1.41 million Americans filed for personal bankruptcy in 2009 - a 32 percent increase over 2008.

#11) For decades, the fact that the U.S. dollar was the reserve currency of the world gave the U.S. financial system an unusual degree of stability. But all of that is changing. Foreign countries are increasingly turning away from the dollar to other currencies. For example, Russia’s central bank announced on Wednesday that it had started buying Canadian dollars in a bid to diversify its foreign exchange reserves.

#12) The recent economic downturn has left some localities totally bankrupt. For instance, Jefferson County, Alabama is on the brink of what would be the largest government bankruptcy in the history of the United States - surpassing the 1994 filing by Southern California's Orange County.

#13) The U.S. is facing a pension crisis of unprecedented magnitude. Virtually all pension funds in the United States, both private and public, are massively underfunded. With millions of Baby Boomers getting ready to retire, there is simply no way on earth that all of these obligations can be met. Robert Novy-Marx of the University of Chicago and Joshua D. Rauh of Northwestern's Kellogg School of Management recently calculated the collective unfunded pension liability for all 50 U.S. states for Forbes magazine. So what was the total? 3.2 trillion dollars.

#14) Social Security and Medicare expenses are wildly out of control. Once again, with millions of Baby Boomers now at retirement age there is simply going to be no way to pay all of these retirees what they are owed.

#15) So will the U.S. government come to the rescue? The U.S. has allowed the total federal debt to balloon by 50% since 2006 to $12.3 trillion. The chart below is a bit outdated, but it does show the reckless expansion of U.S. government debt over the past several decades. To get an idea of where we are now, just add at least 3 trillion dollars on to the top of the chart....



#16) So has the U.S. government learned anything from these mistakes? No. In fact, Senate Democrats on Wednesday proposed allowing the federal government to borrow an additional $2 trillion to pay its bills, a record increase that would allow the U.S. national debt to reach approximately $14.3 trillion.

#17) It is going to become even harder for the U.S. government to pay the bills now that tax receipts are falling through the floor. U.S. corporate income tax receipts were down 55% in the year that ended on September 30th, 2009.

#18) So where will the U.S. government get the money? From the Federal Reserve of course. The Federal Reserve bought approximately 80 percent of all U.S. Treasury securities issued in 2009. In other words, the U.S. government is now being financed by a massive Ponzi scheme.

#19) The reckless expansion of the money supply by the U.S. government and the Federal Reserve is going to end up destroying the U.S. dollar and the value of the remaining collective net worth of all Americans. The more dollars there are, the less each individual dollar is worth. In essence, inflation is like a hidden tax on each dollar that you own. When they flood the economy with money, the value of the money you have in your bank accounts goes down. The chart below shows the growth of the U.S. money supply. Pay particular attention to the very end of the chart which shows what has been happening lately. What do you think this is going to do to the value of the U.S. dollar?....



#20) When a nation practices evil, there is no way that it is going to be blessed in the long run. The truth is that we have become a nation that is dripping with corruption and wickedness from the top to the bottom. Unless this fundamentally changes, not even the most perfect economic policies in the world are going to do us any good. In the end, you always reap what you sow. The day of reckoning for the U.S. economy is here and it is not going to be pleasant.

Ron Paul Calling For Revolution? Great Speech!!

Dollar falls, sending gold to record high

Mon Nov 16, 7:05 am ET
LONDON (AFP) – The dollar fell on Monday as China accused the United States of increasing protectionism and following unexpectedly strong Japanese economic growth figures, pushing gold prices to a record high point.

US President Barack Obama is in China for a three-day mission aimed at convincing Beijing that Washington is its partner, not its rival.

As the dollar dropped against the euro and yen, gold struck an all-time peak of 1,133.20 dollars an ounce.

In late morning trading here, the euro climbed to 1.4969 dollars from 1.4918 dollars late in New York on Friday.

Against the Japanese currency, the dollar fell to 89.42 yen from 89.66 yen late on Friday.

"Far better than expected Japanese third-quarter GDP data...spurred risk appetite," said Jane Foley, an analyst for online trading firm Forex.com.

"This pushed the euro close to 1.50 dollars in early European hours."

Japan's gross domestic product (GDP) grew 1.2 percent in the third quarter of 2009 from the previous quarter -- the fastest pace in two-and-a-half years and much better than expected, the government reported.

The euro also gained as higher commodity prices, driven by hopes of a global economic recovery, spurred investor risk appetite, market watchers said.

"Gains in gold prices lifted demand for currencies of commodities-exporting nations like the Aussie against the US dollar," Osao Iizuka, chief foreign exchange trader at the Sumitomo Trust and Banking Co, told Dow Jones Newswires.

"Then the selling of the US dollar spread across other currencies, causing the euro to gain ground," he said.

Comments from a Chinese commerce ministry spokesman accusing the US of protectionism earned a quick rebuttal from senior US officials speaking in Beijing, who said a trade war was in neither country's best interests.

"We used to see that the United States was an innovation-driven US. But what we are seeing now is an increasingly protective US," commerce ministry spokesman Yao Jian told reporters at a regular monthly briefing.

"It is necessary to create for enterprises a stable and predictable environment, including (stable) economic and foreign exchange policies, to help the global economy grow steadily and China's exports recover," he said.

Yao added that the United States had "continued" to let the dollar drop "to improve its competitiveness" while pressing for the yuan's appreciation.

"It is detrimental to the global recovery and is unfair for (the US) to require other (currencies) to rise while allowing the dollar to keep slumping," Yao told reporters.

But US Commerce Secretary Gary Locke said Washington was not at fault.

"The United States is not engaged in increased protectionism," Locke told a luncheon in Beijing.

Obama is expected to raise trade tensions with his counterpart Hu Jintao and also urge China to reconsider the value of the yuan, which has been effectively pegged to the dollar since July 2008 and is deemed by Washington as being kept artificially low to boost Chinese exports.

In London on Monday, the euro was changing hands at 1.4969 dollars against 1.4918 dollars late on Friday, at 133.85 yen (133.57), 0.8966 pounds (0.8937) and 1.5096 Swiss francs (1.5093).

The dollar stood at 89.42 yen (89.66) and 1.0085 Swiss francs (1.0117).

The pound was at 1.6695 dollars (1.6693).

On the London Bullion Market, the price of gold jumped to 1,131.70 dollars an ounce from 1,104 dollars an ounce late on Friday.

China Signals That It May Allow Currency to Rise Against Dollar

China sent its clearest signal yet that it was ready to allow yuan appreciation after an 18-month hiatus, saying on Wednesday it would consider major currencies, not just the dollar, in guiding the exchange rate.

In its third-quarter monetary policy report, the People's Bank of China departed from well-worn language on keeping the yuan "basically stable at a reasonable and balanced level." It hinted instead at a shift from an effective dollar peg that has been in place since the middle of last year.

"Following the principles of initiative, controllability and gradualism, with reference to international capital flows and changes in major currencies, we will improve the yuan exchange-rate formation mechanism," the central bank said in a 46-page monetary policy report.

The comments, published just days before a visit to Shanghai and Beijing by U.S. President Barack Obama, set out the possibility of a return to exchange rate appreciation that began with a landmark July 2005 revaluation.

The yuan strengthened by nearly 20 percent against the dollar until concern over the impact of the global financial crisis prompted Beijing to hit the brakes in the middle of last year to protect exporters.

The yuan has been stuck at around 6.83 per dollar ever since, drawing increasing ire from other countries, especially as it has followed the dollar downwards against other currencies.

The dollar has dropped 13 percent against a basket of major currencies including the yen and euro since mid-February.

Back to a Basket?

Some analysts have called for the return to a genuine basket of currencies, which the central bank said in 2005 it would use as a reference for the yuan.



"I think the wording change ... shows that it is an irresistible trend for China to resume yuan appreciation," said Xing Ziqiang, an economist at China International Capital Corp (CICC) in Beijing.

"It is not sustainable for the yuan to always be pegged to the U.S. dollar; after all, the repegging since late 2008 was just part of China's measures to address the global financial crisis, and now the impact of the financial crisis is fading, so the yuan should resume appreciation sooner or later."

The central bank's report came just hours after data that showed the world's third-largest economy had firmly put the worst of the global financial crisis behind it. Factory output growth surged to a 19-month high of 16.2 percent in October.

While exports were still down in year-on-year terms, economists pointed to the likelihood that they would start growing again soon.

Some analysts said the statement could have been timed to send a signal ahead of Obama's Nov. 15-18 visit to China.

Obama told Reuters on Monday that he planned to raise the currency issue during his trip.

However, Beijing is increasingly facing complaints about its currency from other emerging economies, which see an undervalued yuan as undercutting them in global markets.

No Sudden Shift

Those concerns were evident in a draft statement from APEC finance ministers circulated on Wednesday, in which they call for flexible interest rates and exchange rates as a way of redressing economic balances.

"We agreed that flexible prices, including exchange rates and interest rates, play a critical role in allocating resources efficiently, and can facilitate the adjustments needed to support balanced and sustainable global growth," said the latest draft statement by the finance ministers dated Nov. 10.

While the statement could change in its final form, a deputy Chinese finance minister was present at discussions on it, suggesting some level of agreement by Beijing on the wording.



However, analysts were quick to caution against expecting any sudden shift in the yuan's actual value, given China's penchant for carrying out any reforms gradually.

"The central bank's worries about capital flows, liquidity, and inflation signal growing pressure for yuan appreciation," said Ben Simpfendorfer, strategist with the Royal Bank of Scotland in Hong Kong.

"But I'm not looking for gains in the currency until the second quarter as the export sector still faces large challenges and margin pressure." Markets priced in a slightly greater appreciation over the coming year.

Offshore one-year dollar/yuan non-deliverable forwards (NDFs) fell to 6.6075 bid late on Wednesday compared with Tuesday's close of 6.6320.

Yuan appreciation implied by NDFs, which moves inversely with the forwards, was around 3.3 percent in a year compared with 3.06 percent before the announcement.

Xing with CICC said he was expecting even greater appreciation, of 3 to 5 percent next year, in the face of growing external and internal pressure.

"For China's own sake of balancing its economic growth and reducing its large surplus in the trade account, it is also necessary for the government to make the yuan more flexible."

US Dollar in Major Decline

In today's fast market action, the U.S. dollar has continued its historic decline, falling still further on world markets.

That puts the dollar just an eyelash away from breaking through its all-time low!

Meanwhile, the prices we pay for gold, oil, food and many other critical natural resources are hopping:

Oil has jumped to over $79 per barrel, its highest level this year and nearly DOUBLE its March low.

Copper has just surged by a whopping 4% today.

And gold is back up to $1,061 per ounce, poised for ANOTHER major surge.

The demise of the dollar

In a graphic illustration of the new world order, Arab states have launched secret moves with China, Russia and France to stop using the US currency for oil trading.
Tuesday, 6 October 2009

In the most profound financial change in recent Middle East history, Gulf Arabs are planning – along with China, Russia, Japan and France – to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar.

Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars.

The plans, confirmed to The Independent by both Gulf Arab and Chinese banking sources in Hong Kong, may help to explain the sudden rise in gold prices, but it also augurs an extraordinary transition from dollar markets within nine years.

The Americans, who are aware the meetings have taken place – although they have not discovered the details – are sure to fight this international cabal which will include hitherto loyal allies Japan and the Gulf Arabs. Against the background to these currency meetings, Sun Bigan, China's former special envoy to the Middle East, has warned there is a risk of deepening divisions between China and the US over influence and oil in the Middle East. "Bilateral quarrels and clashes are unavoidable," he told the Asia and Africa Review. "We cannot lower vigilance against hostility in the Middle East over energy interests and security."

This sounds like a dangerous prediction of a future economic war between the US and China over Middle East oil – yet again turning the region's conflicts into a battle for great power supremacy. China uses more oil incrementally than the US because its growth is less energy efficient. The transitional currency in the move away from dollars, according to Chinese banking sources, may well be gold. An indication of the huge amounts involved can be gained from the wealth of Abu Dhabi, Saudi Arabia, Kuwait and Qatar who together hold an estimated $2.1 trillion in dollar reserves.

The decline of American economic power linked to the current global recession was implicitly acknowledged by the World Bank president Robert Zoellick. "One of the legacies of this crisis may be a recognition of changed economic power relations," he said in Istanbul ahead of meetings this week of the IMF and World Bank. But it is China's extraordinary new financial power – along with past anger among oil-producing and oil-consuming nations at America's power to interfere in the international financial system – which has prompted the latest discussions involving the Gulf states.

Brazil has shown interest in collaborating in non-dollar oil payments, along with India. Indeed, China appears to be the most enthusiastic of all the financial powers involved, not least because of its enormous trade with the Middle East.

China imports 60 per cent of its oil, much of it from the Middle East and Russia. The Chinese have oil production concessions in Iraq – blocked by the US until this year – and since 2008 have held an $8bn agreement with Iran to develop refining capacity and gas resources. China has oil deals in Sudan (where it has substituted for US interests) and has been negotiating for oil concessions with Libya, where all such contracts are joint ventures.

Furthermore, Chinese exports to the region now account for no fewer than 10 per cent of the imports of every country in the Middle East, including a huge range of products from cars to weapon systems, food, clothes, even dolls. In a clear sign of China's growing financial muscle, the president of the European Central Bank, Jean-Claude Trichet, yesterday pleaded with Beijing to let the yuan appreciate against a sliding dollar and, by extension, loosen China's reliance on US monetary policy, to help rebalance the world economy and ease upward pressure on the euro.

Ever since the Bretton Woods agreements – the accords after the Second World War which bequeathed the architecture for the modern international financial system – America's trading partners have been left to cope with the impact of Washington's control and, in more recent years, the hegemony of the dollar as the dominant global reserve currency.

The Chinese believe, for example, that the Americans persuaded Britain to stay out of the euro in order to prevent an earlier move away from the dollar. But Chinese banking sources say their discussions have gone too far to be blocked now. "The Russians will eventually bring in the rouble to the basket of currencies," a prominent Hong Kong broker told The Independent. "The Brits are stuck in the middle and will come into the euro. They have no choice because they won't be able to use the US dollar."

Chinese financial sources believe President Barack Obama is too busy fixing the US economy to concentrate on the extraordinary implications of the transition from the dollar in nine years' time. The current deadline for the currency transition is 2018.

The US discussed the trend briefly at the G20 summit in Pittsburgh; the Chinese Central Bank governor and other officials have been worrying aloud about the dollar for years. Their problem is that much of their national wealth is tied up in dollar assets.

"These plans will change the face of international financial transactions," one Chinese banker said. "America and Britain must be very worried. You will know how worried by the thunder of denials this news will generate."

Iran announced late last month that its foreign currency reserves would henceforth be held in euros rather than dollars. Bankers remember, of course, what happened to the last Middle East oil producer to sell its oil in euros rather than dollars. A few months after Saddam Hussein trumpeted his decision, the Americans and British invaded Iraq.