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USA economy: Where to from here?

August 2010 - February 2012

Update February 2012: USA no longer an industrial-based society

The UK Guardian says that the USA is no longer an industrial-based society. But this is not just a USA experience, it's happening across all developed economies. The issues for government, politics and society are profound. It's why ICA campaigns for reform: fair contracts and easy, cheap dispute resolution processes and more.

Update January 2012: Economic Predictions for 2012

Demographic economist Harry Dent says that the USA is in a false recovery that will end in the coming months. Sell out of stocks now he says. His Youtube prediction is here.



Update August 2011: Taxpayers feed the Wall St aristocracy

Ken Phillips asks, provocatively, is the stock market a failed barometer of economic conditions to come? Read Ken here.

• Bloomberg reveals the Wall St aristocracy received $1.2 trillion from the US government.
• The US Congress estimates that the US disability social security system is on the verge of insolvency.
• It's no surprise that Japan's credit rating has been dropped.
• But it is a surprise to see the emergence of a Korean foreign debt issue.
• Somehow China has to manage an exit from US assets.

The London School of Economics debates Hayek vs Keynes (44 minutes).

Update July 2011: USA at a Crossroads

Congress has until this Tuesday to increase debt limits or cause a US government debt default. Even assuming a default is avoided, the US seems likely to lose its AAA credit rating. Rating agencies think that it's a case of 'when', not 'if'! This will add $US100 billion to US funding costs.

John Mauldin says:
    It was just last May that the consensus was that second-quarter GDP would be 3.3%. That had been revised down to 2.7%, but the number came in at 1.3%. Normally, at this time in a recovery we are growing at close to 3 times that number, or 3.6%.
Signs of US decay include:
• The number of underweight toddlers due to inadequate diets is on the rise.
• Local county councils are close to bankruptcy
• The US postal service is to close 3,700 stores.
• Despite immigration, the ageing US population will aggravate the problem.

Update June 2011: Death by Debt

$US14,293,975,000,000 = US federal government debt. So the government is dipping into pension funds to cover its spending. Which explains why one analyst concludes that the US is in the grip of 'Death by Debt'. Perhaps this is also why China has been rapidly reducing its US debt holdings!

The White House seems to be admitting that the promised US recovery is looking shaky. Here is a symbol of the problem. The United States Postal Service is about to collapse.

Prosecutors have issued subpoenas against Goldman Sachs, investigating alleged market manipulation.

Update April 2011: Sandy Springs, Georgia: The City that Outsourced Everything

Here's the story of the Georgian town of Sandy Springs. No debt, low taxes, but high quality services. They outsourced all city services to subcontractors. ALL services.

Update March 2011: Shaky foundations, USA

The US economy appears to have improved so far in 2011. Finally, small businesses have begun rehiring. But a sudden second wave downturn in the US housing market has been reported. The Dallas Federal Reserve Bank President has warned that the US risks insolvency if the central bank continues to issue debt. One of the world's largest fund managers, Pimco, says the same. Pimco has just dumped all of its US Treasury bond holdings!

Update February 2011: US weaker but still Number 1

The US might be weaker, but US consumer activity amounts to some $10 trillion which is still around half of the global consumer market.

Update 13 December 2010: He's 57 and controls the global economy

Ben Bernanke is Chairman of the US Federal Reserve. He's battling to control the US economy and stop the US (and the world) plunging into a 1930's-style depression. He says he's 100 per cent confident of his ability to do this. He explains all in this excellent USA 60 Minutes interview (14 minutes).

Here's a summary of his explanations:
  • The US unemployment rate is not going down.
  • The US recession is over but the recovery isn't happening.
  • Employment will take 4-5 years to recover and long-term unemployment is high.
  • Small business is not getting finance.
  • The recent $US600 billion stimulus is not the Fed printing money (see criticism below).
  • The US is close to deflation which would push the US economy back into recession, so the Fed has to stimulate to stop deflation.
  • Bernanke is 100 per cent confident in his ability to manage the economy.
  • The US is unlikely to have a double-dip recession but it's on a knife edge.
  • The US housing market cannot get weaker.
  • The budget deficit must be cut but not now.
  • The $US3.3 trillion financial rescue package saved the global economy.
  • He wished he'd seen the financial crisis coming. He missed this because the Fed's regulation reach wasn't wide enough.
  • Income disparity in US is severe, creating a two-tier economy and society.
  • Innovation and entrepreneurship will save the US economy in the long term.
But these commentators say Bernanke's a fool.
  • The Fed is printing money by way of magically creating 'fictional' money through computer entries. The EU is confronting their debt crisis. The US is pretending its debt crisis can be averted by printing money, but are simply pushing the crisis out further. When the debt crisis finally hits the US again it'll be a whooper. Read here.
  • This commentator says he predicted that Bernanke would panic and print money to debt stimulate the economy. But this credit/debt bubble will blow just as all bubbles do! A big bout of deflation will set in. The current stock market lift is just a debt-driven 'dead cat bounce'. The stock market will take another major downturn. Read here.

Update 18 November 2010: USA printing money

Here's a good analysis of what the USA 2nd wave stimulus means, and why China, Europe, Brazil and many other countries are furious with the USA. Most countries are trying to confront debt by cutting spending. The USA is printing money.

Update 17 October 2010: Crumbling US housing chaos

The US housing mortgage market is in chaos. Banks are seizing and selling up people's homes at an unprecedented rate. But many bank foreclosures have proven illegal. The system is in crisis.

Update 28 September 2010: The Great Recession is over!

Here's some good news. Stock markets are up! The US officially exited the Great Recession mid-last year which runs counter to declarations that the US is in a Depression. But US Federal Reserve Chairman Bernanke says that growth is way too slow.

Update 21 September 2010: November crash?

The European think-tank GEAB says that the long-anticipated second US crunch will lock in during November this year. By around April next year the full extent will be apparent.

GEAB's analysis is consistent with the "pessimists'" summary we did in January this year. The pessimists' consensus, then, was that all the negative economic indicators would merge in late 2010.

Update 16 September 2010: US self employed getting smaller

It's interesting how the self-employed segment of small business is considered a barometer of economic activity. A drop in self-employment in the US is taken as showing that a recovery is not happening. Read the Bloomberg article here.

Update 7 September 2010: Do you trust the stock market to predict the future?

If you have some money (say superannuation or other), where should you invest it? Gold, shares, bonds or property? Is the share market a reliable predictor of the future? Will you make money or blow it over the next 10 years? Before you make investment or debt-creating decisions, have a read of the following: After reading these, you might feel that you have a good grasp of at least one perspective of where the US economy is currently and its prospects for the future. The US may not determine the state of the total global economy, but it's certainly the biggest player!

But before you finish, consider the impact of massive new tax hikes about to be imposed on the US economy.

Update 29 August 2010: USA is in a depression

The US should accept that it is in a depression. This is the calm assessment of one respected US economic analyst. Watch this short video interview:




He is NOT being howled down. Many of the commentaries and information we've accumulated below since July have been pointing to this conclusion.

This has caused us to review a summary of economic pessimists we did in January this year. Broadly that summary has proven to be accurate, with some qualifications.

For the most part, the January pessimists were predicting mid-to-late 2010 as being the crunch time. We're now in that phase. The period from here until Christmas will be interesting.

Here are some additional reasons why the US crunch is unfolding.
  • When the government-owned debt of Freddie Mac and Fanny Mae are taken into account, the true US national debt is touching $US19 trillion. This is 130 per cent of GDP, not the 91 per cent that is commonly quoted. This blogger claims that this puts the US well beyond a crisis and collapse tipping point.
  • The same blogger says that US credit market debt as a percentage of GDP is way above the highs of the Great Depression.
  • This aligns with the comments emerging since May 2010 from the major global central bankers on debt.
  • The global investment manager PIMCO says that demographics are working against a recovery.
  • I first wrote about this in August 2009 when I explained the Dent demographic thesis. Put simply, the ageing of the post-War baby boomers means that this big demographic bulge of people have moved into a low consumption and debt reduction phase of their lives---that is, they are approaching or are already in retirement. This will depress economic growth in Europe, Japan and the USA for around the next 10 to 15 years. The USA's hopes for a resurgence in domestic consumption is not going to happen on this analysis. Deflation is probably locked in.

Update 20 August 2010: Ghosts of a burst financial bubble

Over the last few years I've visited Japan on several occasions. It a fabulous country but one thing is striking. In what were booming tourist areas some 15 years ago, it's now common to see huge, boarded up, empty hotels. Massive developments happened on the assumption of tourist visitor numbers that are now a fraction of earlier expectations. You literally walk past the ghosts of an investment bubble that burst.

This Youtube video shows a parallel example in America today:

The vid provides a useful visual background to some other pretty serious claims:

Update 15 August 2010: Injuries in subsidised housing rush

We reported last Friday on the grievous state of the US housing crisis. We've added another article that brings home the extent of the problem. Sixty-two people were injured when 30,000 turned up to apply for government subsidised housing. Good grief! What's happening to the land of prosperity?

An analysis of the US jobless figures probable explains a lot. The 'recovery' is not producing jobs.

Update 13 August 2010: Is US housing market on the brink?

We reported below (9 August) rumours that President Obama is contemplating a massive bailout of America's 'close to defaulting' home mortgage market ($US800 billion).

This article makes clear the human face of that looming crisis in the US.

It relates stories of some typical 'middle American' working families who are on the brink of falling into mortgage collapse. Their retirement dreams are blown. Their children's prospects are restricted. These are educated, hard-working people who contribute to society. Why has this happened?

The Dent group provides an important understanding as to why. I wrote about the demographic analysis by HS Dent a year ago.

Dent argues that demographic trends predetermine consumption patterns and the size and growth of developed economies. It pretty much predicted what is happening now.

The ageing US baby boomers have moved from consumption lifestyles to saving for retirement by cutting debt and consumption. As a result, the US is looking at a decade of deflation, stagnant growth, high unemployment and crippling government debt. This update by the Dent group is compelling for its balance, reason and common sense. It offers understandings that most of us can probably relate to.

If Dent is correct, the US scenarios are not good. This is the Japan scenario unfolding in the US and probably explains why the stockmarket is swinging wildly. This deflation scenario keeps kicking the teeth out of the consumption optimists.

Update 9 August 2010: Big New Obama Bailout?

Apparently Washington is a-buzz with rumours that President Obama is about to launch a massive new bailout. According to the report from a Reuters columnist, the bailout will target 15 million American families whose homes are worth less than their mortgages.

The White House is said to be concerned that the US recovery is faltering and it needs to move with a stimulus of some sort. There's concern that with one-in-five American home mortgages in danger of default, the $US800 billion negative equity could trigger a second downturn. Mortgage relief is needed to avert this.

We've also put together a selection of articles arguing the 'Austerity vs Deficit Stimulus' alternatives. In May this year, the Governor of the Bank of England ignited a debate by warning that 'the banking crisis has turned into a potential sovereign debt crisis'. Since then, the UK and Germany have 'gone austerity'. Many, including the White House, worry that this will trigger a second downturn.

1 August 2010: USA economy: Where to from here?

It's very difficult to judge where the global economy is going because the signals are so mixed. Stock markets reflect this in their enormous volatility.

Most volatility seems to be focused on the USA. It's now pretty settled that Europe and the UK are probably economically 'down' and likely to stay that way for some time. But hope springs eternal that the US is in recovery---even though it's being called a 'jobless' recovery. Here's a good video summary of the conflicting signals.

We've collated a range of information that might give you a sense of the situation. Here are some links which show that: US debt is at the heart of these concerns. Why then is business activity expanding?

Links from our July Report

Here are some further links from our US Economy Watch from July 2010:

The Rolling Stone articles: Watching Goldman Sachs

Article 1 [April 2010]
Article 2 [May 2010]