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The Coming Economic Collapse Revisited

Phoenix Capital Research's picture





 

 

I
first published this essay in the Summer of 2009. At that time the whole
world believed Obama’s Stimulus Program was working at that the stupid
greenshoot recovery was underway. Today I’d like to reprint this essay because
the same structural issues that plagued the US in 2009 are still valid and
because this piece proved, two years ahead of time, that the US would suffer a
massive economic collapse.

 

The seeds of today’s
crisis were first sown in 1971 when the US formally opened up trade with China.
In an effort to boost profits, large scale US manufacturers and other
multinational firms began outsourcing their manufacturing jobs to the People’s
Republic soon after.

 

When other industries
realized the kind of money that can be saved by sending work overseas, they
soon followed suit. Outsourcing moved up the corporate food chain until even
R&D jobs and other high-level, high-skill set jobs were shifted to Asia.
This, of course, diminished the number of these positions in the US. Thus began
three major trends:

 

The US’s economic shift from
manufacturing to services (mainly financial)

The massive drop in US incomes

The beginning of the debt bubble

 

Nothing illustrates the
first point like the rise of the financials sector.
From 1970 until
2003, financials’ market capitalizations as a percentage of the S&P 500
rose from less than 5% to 22%. Over the
same period, financials’ earnings as a percentage of the S&P 500’s total
earnings rose from less than 10% to 31%.

 

Put another way, by 2007 one in
every three dollars of corporate profits came from the financial sector.
  Meanwhile, China was experiencing an
unprecedented level of growth thanks to our renewed trade: Chinese per-capita income doubled from 1978 to
1987 and again from 1987 to 1996.

 

Now, fewer jobs in the US
means lower US incomes. Going by the Federal government’s official (inaccurate)
data, weekly US incomes peaked in October 1972 and have since fallen 15%. Of
course, these numbers are based on official inflation data which is horribly
under-stated. According to John Williams of www.shadowstats.com,
if you were to go by real inflationary data, US incomes have fallen more like 40%.

 

This fact stares us in the
face everyday, though no one really notices it. In the early ‘70s, typically
one parent worked and the other stayed home. Today, BOTH parents work and most
Americans are barely getting by.

 

The reason we didn’t
notice the dramatic drop in quality of life in the US before is because of one
thing:

 

Credit.

 

Credit cards had been in use since the ‘50s, but they had yet to catch
on, largely because banks couldn’t make obscene profits from them (the interest
rates they could charge were limited on a state-by-state basis).

 

Then, in 1978, the Supreme Court passed a law stating that banks could
charge their cardholders any rate
allowed in the bank's home state
. With this ruling, credit cards suddenly
had the potential to become a major profit center for banks. Major banks immediately
shifted their credit card operations to states where there were no limits on interest rates (Delaware and South Dakota).  

 

Credit creates the illusion of wealth (or in the US’s case for the
last 30 years, the illusion of maintaining the same standard of living) because
you’re able to spend more than you make or spend money without paying upfront.
Americans, earning less and facing rising costs of living, gradually began
their descent into indebtedness: between 1980 and 1990, credit card spending average household credit card balances
quadrupled.

 

In this manner, the average American didn’t notice that his or her
quality of life was deteriorating at a rate of about 2-3% a year. Similarly, he
or she didn’t notice that more and more jobs (of greater and greater technical
expertise) were shifting overseas. 

 

And thus began the epic shift in American wealth to Wall Street (the
rise in the financial industry) and China (the producer of cheap goods we had
to buy due to the drop in incomes).

 

Because of this,
incomes fell in the US forcing consumers to start using credit to maintain
their living standards. The same practice occurred in the public sector as
well. Adjusted for inflation, gross tax receipts have only risen 40% in the
last 39 years. However, over the same time period, total government spending
increased 2,600%!!!

 

To fund this
insanity, the US issued debt in the form of Treasuries. Foreign governments
(most notably China) which were generally getting richer selling us stuff
loaded up. The whole scheme is similar to buying a toy from the store, then
having the store lend you money to buy another toy… ad infinitum: hardly a
sensible long-term plan for financial solvency.

 

Now, everyone knows
we run deficits. But not everyone knows that the deficits we publish are
unbelievably understated. Corporations, in order to qualify for generally
accepted accounting principles (GAAP) have to count their pension and
healthcare expenses for retirees.

 

Uncle Sam doesn’t.

 

John Williams of www.shadowstats.com notes that official
US deficit statistics do NOT include net present value of unfunded social
security OR Medicare expenses. A lot of folks have made a big deal about the US
running a $1 trillion deficit this year. Well, if you included the net value of
those unfunded Social Security and Medicare expenses we cleared a $1 trillion deficit in 2007, a $5 TRILLION deficit in 2008
and are on course to clear a $9 TRILLION deficit this year.

 

To give you an idea
of how big a problem these deficits are, consider that the US government could
tax its citizens 100% of their
earnings and NOT have a balanced budget.
 

 

In light of these
issues, the government’s $787 billion stimulus package doesn’t exactly breed
confidence in an economic turnaround. Incomes have lagged inflation in this
country for 30+ years. Creating a bunch of temporary positions related to
construction and the like is NOT going to alter this in any significant way.

 

Moreover, most of
the job growth in the last 10 years has come from Bubbles: two out of five jobs
created between 2002 and 2007 came from the housing industry. The irony here,
of course, is that the Stimulus Plan is merely following this trend, creating
jobs from our latest (relatively unreported) Bubble: the bubble in government
spending and employment.

 

Bottomline: the US
needs to create sustained job growth involving skilled professionals with high
wage earning potential, NOT more guys laying concrete. We need fundamental
structural changes to the US economy, NOT temporary positions resulting from
one-time government projects.

 

And with a $9
trillion deficit in the works, $787 billion doesn’t really mean much in terms
of increased tax receipts. Also, and this is bit of a personal aside, it’s hard
to believe that throwing $787 billion towards creating jobs really shifts our
economy away from financial services when we’ve thrown $2 trillion+ towards
Wall Street and the banks (via direct loans and lending windows).

 

The US has a MAJOR debt
problem. Including future social security and Medicare expenses we owe $65
TRILLION. Because we live in a world in which the words, “billion” get thrown
around with too much ease, I’d like to put that number into perspective.

 

Let’s say you have a stack
of $1,000 bills. $1 million would be a stack eight inches high. $1 billion
would be a stack 800 feet high (think the Washington Monument). And $1 trillion
would be a stack 142 miles high. Total US debt, if laid on its side, would be a
stack of $1,000 stretching more than 1/3
of the way around the earth.

 

Ok, so where is the US
economy REALLY at right now?

 

Year over year real
employment, real industrial orders, real housing starts, and real retail sales
are all posting their largest drops since the production shutdown following
WWII. Put another way, the last time the US economy fell this hard this fast, we were intentionally shutting down the
monster than was the US war machine in WWII.

 

This is no recession. We are
already on our way to a Depression (a GDP contraction of 10%) possibly even
another Great Depression. One in nine Americans are currently receiving food
stamps. Real unemployment (without birth/death seasonal nonsense and all the
other Federal gimmicks) stands at 20%.

 

So I don’t buy the “green
shoots” theory at all. Having things get horrendous at a slightly slower rate
is NOT a sign of a recovery. Green shoots can pop up anywhere including the
asphalt in the parking lot outside my office. That doesn’t mean the parking lot
is about to become a lush meadow.

 

No, the US is heading for a
really, really rough time. The US monetary base has doubled in the last year.
We owe $65 trillion in liabilities. The US government could tax every company
and every American 100% of their annual incomes AND NOT PAY THIS OFF. The Feds
will have to inflate this mess away. And they’ve got a master money printer Ben
Bernanke overseeing this situation.

 

Now, I cannot foretell
precisely how this will all play out. Typically when a bubble bursts it takes
10+ years, possibly an entire generation, before the assets that participated
in the Bubble return to new highs (sometimes they NEVER do).

 

Now, we just got off the
biggest credit/ debt bubble in the world’s history. I’m talking about 30+ years
of spending money we don’t have culminating in a period in which Americans were
speculating in the single largest asset they ever purchase (a house) without
putting a cent of their own money at risk (0% down NINA loans).

 

We also saw a bubble in
stocks, Treasuries, and most every other asset you can invest in. So the idea
that we can recover from this in a couple of years seems over enthusiastic to
say the least.

 

Remember, Japan experienced
a similar Bubble (though they had higher savings than we did) and “lost” a
decade of economic growth. It’s worth noting that Japan WAS NOT an Empire like
the US.  Japan did not have with
bases in 170 countries, a world reserve currency, and a crippled job market
(history rhymes, it does not repeat).

 

So in terms of the real US
economy, I don’t foresee a recovery anytime soon. The stock market may soar
thanks to the Fed’s money printing, but a jump in financial speculation is NOT
an economic recovery. If the S&P 500 goes to 20,000, but we’re drinking
$1,500 beer and wiping ourselves with $100 bills, we haven’t gotten richer
(nevermind the fact that an S&P 500 of 20,000 DOESN’T create jobs).

 

So how will we know when a
bottom is in and the economy will recover? I’ve postulated a few signs (some
humorous, others not so pleasant). Bear in mind, much of this in tongue in
cheek. But like all sarcasm, there’s a grain of truth.

We will bottom WHEN:

 

CNBC and Bloomberg
start firing anchors and cutting their coverage time by hours, not minutes.

 

Maria Bartiromo and Jim
Cramer start telling investors to short the market with all they’ve got.

 

Questions like “do you think we’re heading for a recovery”
result in the questioner getting punched in the face or ignored like a loony
tune.

 

People HATE stocks and stock
ownership has plummeted back to one in ten Americans (the pre-401(k) levels).

 

Investing is no longer a
hobby and people fight tooth and nail to retain their nest egg (honestly what
the hell is “play” or “speculative” money?)

 

The number of mutual funds
has fallen by at least half (why are we paying fees for people who can’t beat
the market?).

 

People no longer want to get
an MBA to become a broker or a financial advisor.

 

Our economy is based on
“making something,” not “offering advice.”

 

Books about Warren Buffett
no longer comprise an entire publishing industry (seriously, Amazon lists
5,000+ books on him).

 

The Richest 500 people in
the world are no longer all billionaires (never happened before in history…
how’s that for concentration of wealth?)

 

Then… we will have probably
hit bottom.

 

Good Investing!

 

Graham Summers

 

PS. If
you’re getting worried about the future of the stock market and have yet to
take steps to prepare for the Second Round of the Financial Crisis… I highly
suggest you download my FREE Special Report specifying exactly how to prepare
for what’s to come.

 

I call it The Financial Crisis “Round Two” Survival
Kit
. And its 17 pages contain a wealth of information about portfolio
protection, which investments to own and how to take out Catastrophe Insurance
on the stock market (this “insurance” paid out triple digit gains in the Autumn
of 2008).

 

Again, this
is all 100% FREE. To pick up your copy today, got to http://www.gainspainscapital.com
and click on FREE REPORTS.

 

PPS. We ALSO
publish a FREE Special Report on Inflation detailing three investments that
have all already SOARED as a result of the Fed’s monetary policy.

You can
access this Report at the link above.

 

 

 

 


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Wed, 08/17/2011 - 09:08 | Link to Comment pama
pama's picture

I believe any one of the sons of bitches. Just sayin that some how some way, trust has to be re-invented.
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Tue, 07/26/2011 - 07:30 | Link to Comment pama
pama's picture

As stated above, my ears were bleeding. If you read it backwards your ass will bleed.
loans for people with bad credit

Sat, 07/16/2011 - 18:47 | Link to Comment hama
hama's picture

The first thing in the morning ZH read makes me wonder? Is the confidence and faith in the Government and Media so destroyed that it can not be rebuilt? Not to say that I believe any one of the sons of bitches. Just sayin that some how some way, trust has to be re-invented.
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Sat, 07/16/2011 - 09:02 | Link to Comment hama
hama's picture

This level of inflation will make it difficult for people to properly value the products they buy relative to the products value in silver.. A value buying guide might be a useful tool going forward.
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Fri, 07/15/2011 - 07:42 | Link to Comment hama
hama's picture

compound annual inflation rate, the appropriate term to measure this year over year inflation measurement? This level of inflation will make it difficult for people to properly value the products they buy relative to the products value in silver.. A value buying guide might be a useful tool going forward.
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Fri, 07/15/2011 - 05:56 | Link to Comment hama
hama's picture

we are specialized in handing nike shoes and wishes to enter into business relations with you.Our company has been in this line of business for many years and enjoys high?international prestige.
car loans

Sun, 03/06/2011 - 00:54 | Link to Comment locinvestor
locinvestor's picture

Once again, an "expert" is missing a key point.

Why wil this continue unchecked? Because not all but many people don't take the time to research and find out what's really going on. They can run down a long list of excuses. I have to protect my family, my home, my job. I have to think short and long-term. All valid points.

Now, what made millions protest and not back down to stop the Vietnam War? The fact that they either knew someone being drafted OR they were going to be drafted. Then, in their mind it finally hit them personally. One "Great Turning Point".

Look at everything that's happening. We're in two wars and now possibly a third. A bankrupt country's President says "we will do anything necessary to protect the United States". How is Libya a threat to our security? We have to get as much oil as possible before the Russians or Chinese do. Which means that Gaddafi is more dangerous than Mubarack was. How do you define that? Who's more effective in torturing people?

The only way to stop all this stuff is a mass continuous non-violent protest. So my investment advice? Save your money and don't buy this guy's investment guide. Instead, think creatively and make yourself heard.

Sat, 03/05/2011 - 23:26 | Link to Comment cranky-old-geezer
cranky-old-geezer's picture

The seeds of today’s crisis were first sown in 1971 when the US formally opened up trade with China.

I stopped reading after this blatantly false statement.

Right year, wrong event.  Coming off the gold standard is the root of today's crisis.

Sat, 03/05/2011 - 19:52 | Link to Comment max2205
max2205's picture

Well nice advise but admitting you missed a 100% index rally and 500% on most stocks is pretty brave but well I don't know why you reminded us that you wrote that then and state it still applies now. I'll check back after the next S&P double to 2,600. BTFD !! Ben won't ever let the market correct more than 5-10%. EVER

Sun, 03/06/2011 - 00:29 | Link to Comment cranky-old-geezer
cranky-old-geezer's picture

Nor will there be his "economic collapse".  Inflation isn't collapse.   It's slow deterioration, slowly pushing people into poverty, not dumping them into poverty all at once.

Yes I can foresee S&P 2600 and well beyond, Dow 35,000 and well beyond, but not because the economy is impoving, rather because the Fed is running the presses high speed, inflating the money supply out to infinity. 

Screw their M2 numbers, people know there's tens of trillions more dollars floating around out there not included in M2, it's just as bogus as all the other stats put out by the government and Fed.

We'll see QE 9, QE 19, QE 29, and keep right on going till the dollar is worthless, but that steady S&P rise will make a lot of folks rich in nominal terms ...or think they're rich.

 

Sat, 03/05/2011 - 19:43 | Link to Comment geno-econ
geno-econ's picture

The point is in order to further US exports industry needs help from gov, in form of ;

Temporary subsidization of new technology

Temporary duties to protect infant industries

USTR negotiations to open overseas markets

Protect national security industries from overseas competition-ex. military boots and arms Do we want to rely on China for either?.

Financing for large overseas projects

Use of stringent anti-trust, dumping cv duties and 301  provisions against violators

Adherance of labor laws, counterfieting, private property, intellectual property, human rights etc. 

If US domestic regulatory enforcement of Wall St and bank sector is any example , there is a lot more we can do overseas if we get rid of law firms and lobbyists reresenting foriegn interests and governments.

 

Sat, 03/05/2011 - 18:39 | Link to Comment geno-econ
geno-econ's picture

Good suggestions for scaling down ,doing with less and making small local businesses viable. More important question is will it be more efficient in  mass production/distribution economy and will it result in more exports---most effective way to pay off huge deficits

Sat, 03/05/2011 - 17:34 | Link to Comment topcallingtroll
topcallingtroll's picture

There are bound to be great investments as we americans have to adjust to the reality of being poorer.

Streetcarts manufacturing as more cities allow street food, bottomfishing at storage locker auctions, pawn shops, microfinance and factoring for immigrant shops and storefronts, building a flea market and renting booths, gun ranges, security.........there are business opportunities everywhere if people have an entepreneurial eye.

Sat, 03/05/2011 - 14:40 | Link to Comment dizzyfingers
dizzyfingers's picture

Okay, but please include the greens of the 70s who wanted "clean air" and "clean water" above all other things. When gov realized it could tax and/or regulate whole industries to death, that was the end of heavy industries in the US that supported many families for over a hundred years.

According to the greens, we still don't have clean air (have they checked the air quality anywhere else, I wonder, such as in China near Shanhai and Beijing?) or water (though the drinking water in the US beats most places) but once again profit can be made and power achieved by scaring people to death.

Eventually US citizens will have to get licenses to have children because people are so easily convinced that everything is far worse than it really is. Assert your rights to freedom, or freedom will be all gone. 

Sat, 03/05/2011 - 17:38 | Link to Comment topcallingtroll
topcallingtroll's picture

The river running near pittsburgh doesnt catch on fire anymore. I would say we have made good progress on pollution but still have a long ways to go.

Sat, 03/05/2011 - 14:28 | Link to Comment Sabremesh
Sabremesh's picture

I first published this essay in the Summer of 2009. At that time the whole world believed Obama’s Stimulus Program was working...

What? I certainly didn't. Who is this smug twat?

Sat, 03/05/2011 - 11:21 | Link to Comment geno-econ
geno-econ's picture

Great review by GS and TCS in pointing out genesis of long term fallacy in

socalled "global economic model" . Interesting how when an idiology , religion or economic model is established for the masses it is almost impossible to change as long as it benefits those in control. Question is  where all this will end and if any individual survival preperation can avoid nasty end result .  I was particularly impressed with discussion of Japanese model which was essentially a "national planning "endevour by MITI--Ministry of International Trade and Industry" to grow the Japanese economy after the war. Obviosly they were extremely successful.  Perhaps America now needs a MITI type national planning component, or have we lost our national identity and are frozen in a religious fervor  of an idiology called "global economy"

Sat, 03/05/2011 - 10:51 | Link to Comment deepsouthdoug
deepsouthdoug's picture

The Supreme Court doesn't pass laws - it rules.  Nixon didn't visit China until 1972 so trade agreements were passed after that.  Your claim of 1971 is wrong.  Try and get your facts right before you post them the next time.

Sat, 03/05/2011 - 13:51 | Link to Comment Kayman
Kayman's picture

A "corporation" from its  conceptual beginnings (the English and the Dutch, I believe) was always a legal "fiction".

Deemed to have all the attributes of a person, except that it could not breath. However, it was granted neverending life, if so chosen.

Now our Supremes have indeed "passed" a law, by granting the corporate Zombies the same legal rights as you and me.

So... I respectfully beg to differ.

Sat, 03/05/2011 - 10:32 | Link to Comment WallStreetClass...
WallStreetClassAction.com's picture

The American economy will continue remaining a giant ponzi scheme until the failed banks are forced to liquidate. Otherwise, these failed banks will continue their practices of capital dislocation and bubble forming, at any cost (to us, the taxpayers).

There is way to organize, and hold the banksters accountable. The grass roots efforts already taking hold. At www.WallStreetClassAction.com we organize a class action against the banks, the ratings agencies and other financial institutions involved in staging the colossal securitization fraud and subsequently crashing the economy and resulting in over $5 Trillion in asset losses in the US alone.Wall Street monopolistic, essentially rogue financial entities have destroyed the fabric of our society and broke our laws, making a mockery of fiscal prudence, ethics and justice. Even our very government is controlled and manipulated (by being an interdependent collosal trap) by this highly illegal banctel, where bank executive officers "retire" or transition into various government regulatory and controllership positions, futher aiding and abetting the ongoing fraud. And when the overleverages casino style betting and back-hedging finally tipples over and out of control, the losses are effectively socialized, while the injured parties are thrown out on the street.
By having repealed the essential laws and regulations beforehand banks had stepped up the level of their offense to premeditated obstruction of justice and outright conspiracy to wire fraud. Citibank - Travelers “merger” and “Glass-Steagall shattering” alone had cost us the taxpayers $2-3 Trillions in real asset losses. Hedging, backroom betting, trading fraudulently rated derivatives, all to be eventually back-stopped by the Nation’s books, while remaining off their own is an affront to feducuary trust, a mockery of fiscal prudence and ethics. 
WE THE PEOPLE will hold the banksters legally liable. 
SIGN UP ON THE SITE www.WallStreetClassAction.com

Sat, 03/05/2011 - 10:06 | Link to Comment GoingLoonie
GoingLoonie's picture

"Put another way, the last time the US economy fell this hard this fast, we were intentionally shutting down the monster than was the US war machine in WWII."

The war machine is just another jobs program, much of which has been privatized and stands ready to make sure that the middle class does not questions it's new status as the serf class.  True recovery will begin when: 1.  The banks sucking intermediation dollars is stopped; and 2. The massive war machine private and public is disassembled.  

The inside the beltway jargon du jour is, "The war in Iraq is being shifted to the Department of State as we finish our nation building."  We are actually bringing thousands of Iraqi "police" to the US and "embedding" them with our own police departments so they can learn how to operate.  Or, is that how we operate?  Depends on what outcome you want.  I would call it treason, with massive potential for terrorism.  

Sat, 03/05/2011 - 13:07 | Link to Comment Kayman
Kayman's picture

Going Loonie

1. I would like to amend your first point. WHEN THE BANKS BECOME BANKS.

Intermediation between savers and borrowers is what banking is.

Churning and skimming is a bastardization of banking.

Conning people into "the market" is how our contemporary banksters pick your pocket clean.

Sat, 03/05/2011 - 10:26 | Link to Comment falak pema
falak pema's picture

They'll be piloting the drones from outsourced far distance flying and surveilling over Coney Island as per WB7's panoramic, masterly portrayal. Terrorist threat from aliens? Or spec-ops subcontracted outside job?

Sat, 03/05/2011 - 09:03 | Link to Comment savagegoose
savagegoose's picture

here's a tip

stick to 1 font

Sat, 03/05/2011 - 08:42 | Link to Comment flapdoodle
flapdoodle's picture

I agree that a mere 25% drop in standard of living is manageable, but the problem is averages - a few will drop 25%, but my sense is that most will drop more, while some won't drop at all or even improve their standard of living, e.g. US Gov't employees and banksters...

Economic stratification in the US is advancing rapidly - goodbye middle class...

Sat, 03/05/2011 - 08:28 | Link to Comment LeBalance
LeBalance's picture

Let's examine the introduction:

"I first published this essay in the Summer of 2009. At that time the whole world believed Obama’s Stimulus Program was working at that the stupid greenshoot recovery was underway. Today I’d like to reprint this essay because the same structural issues that plagued the US in 2009 are still valid and because this piece proved, two years ahead of time, that the US would suffer a massive economic collapse."

Hmmmm....

So Graham (aka I) was the "only person" in the "whole world" to see that the recovery was a fraud.  That is what is stated here.  Ostensibly that is why the reader should pay attention to Shepherd Graham, because he knows his shit and no one else in the "whole world" does.

Well Graham's words certainly are confusing, because the "whole world" was not in the "we have recovery: screw real estate tanking, employment nonexistent, debt albatross, etc boat."

So even if Graham was a person who saw this, there are others and maybe (just maybe) those others are worth reading as well.  Maybe, they are worth reading even more than Graham, because they do not have such an inflationista ego?

Sat, 03/05/2011 - 12:22 | Link to Comment Confused
Confused's picture

Being a bit harsh no? We both know, "the whole world" is being used with some poetic license. Similar to the way TD says it. 

Sat, 03/05/2011 - 02:19 | Link to Comment Bobportlandor
Bobportlandor's picture

Do authors who post theses articles do the math questions?

Dollar Bill = .0043" thick as far as I can tell
1 Million = 4.3" ( 1000 x $1000 )
1 Billion = 4300" = 358.33 feet ( 358 feet in circumference, the Cyclorama is the largest painting in the country.

1 Trillion = 4,300,000" = 358,333.33' feet = 67.866 Miles

3T  = 204  miles ( Distance to space station )
15T = 1018 miles
25T = 1696 miles ( Mukwonago Wisconsin to Portland Oregon

)
45T = 3054 miles ( coast to coast )
50T = 3393 miles
75T = 5090 miles ( Prague to Charleston )

75T / 300 million = $250,000 each to be paid over 40 years = $6,250 per year @ 0% interest. Good luck all.


Sun, 03/06/2011 - 13:06 | Link to Comment JW n FL
JW n FL's picture
by Bobportlandor
on Sat, 03/05/2011 - 01:19
#1021567

 

Do authors who post theses articles do the math questions?

************************************************************************

Bob!!!! Great!! Job!!!

when the broader populace wakes the fuck up, I may have a job for you.. it is now held by "The Ber-Nake"..

Just make sure the numbers add up, 1 + 1 just like you did here and all will be well.

Hang in there Bob, we are getting there.. slowly but surely.

Sat, 03/05/2011 - 13:00 | Link to Comment Kayman
Kayman's picture

Math is cold comfort without foundation.

75 Trillion/300 million ( I assume you meant the population of the U.S.) ?

In reality the debt must be paid by taxation of the existing GDP or growth in GDP, or both.

Either way the numbers are MATHEMATICALLY impossible to carry the debt burden. Even a modest 3% interest on $75 Trillion means taxes for interest alone of $2.25 Trillion in an economy of $14 Trillion.

Ergo, the Bernank has to keep printing until the casino burns to the ground.

The alternative is a shiny new leader, untainted and untaintable, steps up and tells the American people the truth. There is no free lunch. And, yes, working for a living is an honourable calling.

Sat, 03/05/2011 - 17:11 | Link to Comment sharkbait
sharkbait's picture

.....

Ergo, the Bernank has to keep printing until the casino burns to the ground.....

 

Precisely and exactly correct.  This simple fact seems to get lost in all the falderol.  

The mystery is is it a controlled burn or an explosion?  Still not clear to me.

Sat, 03/05/2011 - 09:38 | Link to Comment malikai
malikai's picture

I did the math too and found it subaccurate. I'm glad I'm not the only nitpicker in the bunch. :)

Sat, 03/05/2011 - 01:21 | Link to Comment three chord sloth
three chord sloth's picture

The seeds of today’s crisis were first sown in 1971 when the US formally opened up trade with China.

No, they weren't. They were planted earlier than that. They were planted in the 50's and 60's, when the Western world allowed Japan to forge a new development paradigm that came to be known as the Asian Model. That model is built around a handful of sub rosa subsidies to the business sector from the workers/comsumers, including things like cheap currency, low interest rates, suppressed wages/consumption, and import barriers (sometimes by overt policy, sometimes informally).

Whole sectors of American industry were already shadows of themselves long before China entered the scene (and even before the usual boogieman Reagan took office); for instance textiles and clothing, steel, and even non-computer consumer electronics were already back on their heels by the beginning of the 1980's.

The US government began bartering away our blue collar industries back in the 1950's; trading away US workers' jobs in order to help speed post-WWII redevelopment, first in Europe and then Japan, in part to help those left devastated by the war, in part to cement friendships old and new, and in part to help those nations fight off internal communist elements by quickening job growth. The fact that manufacturing employment reached its peak back in 1953 at 33% of US workers illustrates this.

One of the major roots of the problem was the decision to allow Japan to get away with its beggar-thy-neighbor model of development built on international wage arbitrage, currency manipulation, and product dumping. This set the stage for China to follow that same path decades later. The credit explosion since the 70's was just a reaction to that first decision; the-powers-that-be had too much invested (reputation wise) in the earlier decision to re-open that issue when its ill effects became apparent, so they took the path of least resistance -- cut loose the old industrial base and shoved us into the new finance/services/retail based economy. And quite frankly, they much prefer the US-as-office-park model... it is their bailiwick after all. Just like Schumpeter said they would way back in the 40's.

 


Sat, 03/05/2011 - 13:44 | Link to Comment Kayman
Kayman's picture

3 Toe

Graham still has a point, because at least Japan and Germany were forced to invest in North American factories.

And Japan quickly learned quality, and Germany always understood quality.

In return for the short term thrill of purchasing Chinese consumer junk at Chinese Wallmart, we, as a nation are saddled with a $Trillion of LONG TERM DEBT.

The thrill is gone...

Sat, 03/05/2011 - 18:36 | Link to Comment snowball777
snowball777's picture

At least we still have our nuclear arsenal, naval fleet, and air superiority to show for it, right?

Sat, 03/05/2011 - 12:14 | Link to Comment zaknick
zaknick's picture

Magnificent summary.

You probably won't read this comment but I sure wish you'd address future developments as you see them.

One other thing. These alliances with overseas cliques, you don't address the morality of these national destinies- subverting which typically had a dark C!A drug trafficking funded side to them. Most of these alliances were not wealth generating for the majority of those countries citizens but were, in fact, detrimental to the healthy development of their economies just like the US.

There is a whole socio-economic/class warfare aspect to this crony capitalism that is part and parcel of these policies.

Looking forward to more of your comments.

Sat, 03/05/2011 - 22:11 | Link to Comment three chord sloth
three chord sloth's picture

Thanks zaknick.

You're right about the whole "detrimental to the healthy development" thing, but good luck getting the world's elites to admit it. I have a sinking feeling that they really think they are doing a bang-up job of engineering the world, and see the "masses" as ungrateful wretches.

Sat, 03/05/2011 - 05:54 | Link to Comment falak pema
falak pema's picture

 

  1. Dead on TCS. They invented the outsourcing model creating the young, new giants of SE Asia. Japan's modeling hotted up regionally after Nixon's clever, selfish, 'tricky dicky' play of gutting Bretton Woods. This guy Lee Kwan Yu of Singapore is the iconic model of that 'baby SE Asia boom'. He made his island alike HK into the new capitalistic 'el dorado'. Far thinking guy. He even advised Deng Tsiao Peng to get out of Maoist China model. Make it the block buster it is today. He's the man who sold the Japanese idea to China, after having planted the seed in Singapore. There you go Brave new world. USA now has to recoup and build its new paradigm on home ground : Economy (competitive advantage in regional cum global markets+ Ecology (resource constrained local incentive and eco friendly options)+ Social (job creation + cultural education to stay first tier in world). It's all there. Just reach for it. The developed world now needs a low growth, qualitative change which looks after people and the planet. The 'empty, new, unlimited resources continent' world leadership model is over. Welcome to an overpopulated, global, multipolar world.

 

Sat, 03/05/2011 - 01:45 | Link to Comment RockyRacoon
RockyRacoon's picture

There was a time when "Made in Japan" meant it was crap.  And it was.   Not so much any more.   "Made in the USA" could become the same denigration.

Sat, 03/05/2011 - 02:25 | Link to Comment reader2010
reader2010's picture

The saddest part is that even Made-in-the-USA products have at least 50% of the parts stamped with Made in China. Marc Faber said only beer and positutes are made in the USA nowadays. 

Sat, 03/05/2011 - 13:39 | Link to Comment Iam_Silverman
Iam_Silverman's picture

"The saddest part is that even Made-in-the-USA products have at least 50% of the parts stamped with Made in China."

Wrong.  None of my ASE's have any mention of Chinese influence!

Sat, 03/05/2011 - 08:38 | Link to Comment johnQpublic
johnQpublic's picture

cant find a prostitute ETF....why?

Sat, 03/05/2011 - 16:05 | Link to Comment Cpl Hicks
Cpl Hicks's picture

Try the pink sheets or maybe under-the-counter...?

Sat, 03/05/2011 - 10:32 | Link to Comment New_Meat
New_Meat's picture

"... positutes ..."

HOZ

Sat, 03/05/2011 - 01:05 | Link to Comment BigDuke6
BigDuke6's picture

The usa has a problem when apple exports 1.9 billion $ worth of iphones from china to the usa every year.

http://www.adbi.org/working-paper/2010/12/14/4236.iphone.widens.us.trade...

all the innovation in the world won't save you when multinationals are shafting the bottom line like that.

Sat, 03/05/2011 - 00:55 | Link to Comment pitz
pitz's picture

Yup.  Time to take all the bankers and real estate barons, and shoot them.  Put the engineering talent that has been mostly unemployed/underemployed for the past decade into the places formerly occupied by the bankers/real estate people.  Voila, massive economic growth.

Sat, 03/05/2011 - 00:43 | Link to Comment lynnybee
lynnybee's picture

Approximately 2 years ago I heard DAVID TICE on BLOOMBERG.    He said , "in the future the words 'mutual funds' will be a dirty word. "     

 

Sat, 03/05/2011 - 13:38 | Link to Comment Kayman
Kayman's picture

Hi Lynnybee

Mutual funds and return on investment are Mutually Exclusive. The game is skimming the mark.

Sat, 03/05/2011 - 13:36 | Link to Comment Iam_Silverman
Iam_Silverman's picture

"in the future the words 'mutual funds' will be a dirty word. "

Or, mutually exclusive!

Sat, 03/05/2011 - 00:27 | Link to Comment bigelkhorn
bigelkhorn's picture

I listen to the FFT guys over at they called the US collapse years ago...the  stockmarket crash back in 08 and this middle east crisis. Well worth having a look at. They also have a controversial ebook coming out next week called U.S. SECRET HIDDEN TREASURE MAP! http://www.forecastfortomorrow.com/news/products looks intresting

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