So says Monty Pelerin (www.economicnoise.com) in edited excerpts from his original article*.
Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!) and www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) has edited the article below for length and clarity – see Editor’s Note at the bottom of the page. This paragraph must be included in any article re-posting to avoid copyright infringement.
Pelerin goes on to say, in part:
The U.S. economy is spent. The current crisis, begun about five years ago, is still a severe recession despite claims otherwise. Even after squandering trillions of taxpayer dollars, there is no recovery.
This is not “your father’s recession.” It is part of a more serious, deeper secular problem. What has happened has been treated as if it were a cyclical problem, a normal business cycle. It is a cycle but it occurs within a secular downtrend. A secular problem is longer-term, generally arising as a result of structural changes in an economy. Over the last fifty plus years, the structure of the U.S. economy has changed, usually slowly. But these changes have cumulative effects and eventually these become increasingly meaningful as to how they affect an economy.
Some of the major structural changes in the U.S. economy have involved the increased role of government. Government growth has produced excessive tax burdens, regulations, interventions and debt loads. The result has hollowed out the productive sector of the economy. What once was a vibrant, productive and wealth-creating machine is no longer. The economy is sclerotic, sluggish and non-responsive. The stagnation and under-employment that characterizes all advanced welfare states now plagues the U.S. economy. The most productive wealth creator the world has ever seen has been crippled.
Sometimes long-term trends can be conveyed better with charts than raw numbers. Here are a couple of charts that clearly indicate the secular downtrends in the economy:
The damage began decades ago and accelerated over time. These charts and others illustrating similar secular trends can be found at Chartist Friend.
For those who prefer numbers, USA Today describes the declining standard of living:
Median household income fell 2.3% to $49,445 last year and has dropped 7% since 2000 after adjusting for inflation, the Census Bureau said Tuesday. Income was the lowest since 1996.
The effects on family net worth have been devastating as well. According to CNNMoney:
The average American family’s net worth dropped almost 40% between 2007 and 2010, according to a triennial study released Monday by the Federal Reserve.
The stunning drop in median net worth — from $126,400 in 2007 to $77,300 in 2010 — indicates that the recession wiped away 18 years of savings and investment by families.
In terms of purchasing power, the real drop in average net worth was probably closer to 80% and the effective savings and investment wiped away was substantially more than 18 years. There is no indication that either household income or net worth has recovered since the collection of these statistics. Indeed, indications are that the negative trend continues.
Government has thrown trillions of dollars at these problems with no results. More money will not help the economy recover. It has moved the government closer to defaults on its debt and its promises. The solution proposed by government is solving a debt problem with more debt. David Stockman is correct when he says:
The idea that somehow all of that debt is irrelevant, as the Keynesians would tell us, is fundamentally wrong – and the reason why the economy can’t get up off the mat.
It is a dangerous time for investors. There are no safe havens one can run to and hide, especially those involving sovereign debt. Moodys has even downgraded Germany and put it on negative watch. There is only one sovereign left in the world that Moodys considers AAA — Finland. How much Finnish government debt is in your portfolio? Regarding sovereign debt Pater Tenenbrarum observes:
It is anyway faintly ridiculous that there are still government bonds deemed to be ‘safe havens’ when the great bulk of the issuers of said bonds are up to their eyebrows in debt and and have unfunded liabilities that consist of numbers that actually manage to strain the imagination a bit. As an example, US treasury bonds have become an irresistible magnet for money seeking safety in spite of the current administration increasing the public debt by more than 50% in just four years.
The common denominator in all sovereign problems is the social welfare state. The concept was foolish to begin with, but the political advantages for greedy politicians seeking power and votes were overwhelming. Unprincipled politicians everywhere saw the growth of government as a road to riches — for themselves! The social welfare state provided the vehicle. For politicians, riches proved correct. For the common man, however, the results have been tragic and will get worse.
Now we are at a point where economies are about to collapse. There is nothing that governments can do to prevent these failures short of dismantling the welfare state. That is politically an impossibility.
Politicians have reached their desperation point. They will say and do anything to retain their positions and extend the scam. These are dangerous times, regardless of what your government tells you. Most of us in their position would likely behave similarly. Honorable men, however, would come clean and present the facts to the public. Unfortunately there are few honorable men in politics. Those who enter with good intentions eventually jump on the gravy train to corruption.
Nothing that can be done will avoid the world-wide Depression that lies ahead. Further political stimulus actions can only make matters worse….
[Editor’s Note: The above posts may have been edited ([ ]), abridged (…), and reformatted (including the title, some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.]
By threatening to drop money out of helicopters to fight deflation – to leave a paperweight on the “print” button if you will – Bernanke convinced the market and all of Wall Street that the Fed would always be there to step in and save the day. [In fact, however,] the whole thing was a bluff meant to prop up the markets – the famed Bernanke Put – and it was a lie. The markets will be realizing this in the coming months, if not sooner, and when they do, we’ll see the REAL Collapse: the one to which 2008 was just a warm-up. [Let me explain.] Words: 444
We are in the latter stages of the debt death spiral where debt and interest payments can only be made by adding more debt. This process has a sure ending. Like the flush of a toilet, the spiral goes faster and faster until it finally ends. [Let me put forth just how serious the problem is.] Words: 431
At the risk of looking/sounding like some crazed religious fanatic usually seen carrying a sign or proclaiming: “Repent, the end is near,” I shall avoid the word “repent”. To me, the rest of that proclamation appears accurate and reasonable, at least with regard to our economic condition. [Let me explain:] Words: 1896
This short video – on the unsustainability of government spending – should be watched by everyone, including those not yet old enough to vote. It should be shown in every high school and college classroom. Anyone that cannot understand this presentation should not be allowed out without a guardian.
Our civilization would not be able to handle such a transition from an expansionary credit based economy where goods and services were readily available into a paradigm of credit contraction, supply shortages and destitution and this is what is coming. There is no way to prevent it – only to defer it until a later date – and that day will soon be upon us. Words: 590
The outcome of the election of 2012 will [only] determine the rate of speed at which we approach the [financial] cliff [because] neither political alternative is willing to change course, to steer away from the cliff. The cliff is so high that whether we go over it at 200 mph (Obama) or whether we merely slip over the edge (Romney), the end result is the same — fatal for the economy and perhaps our entire political system. It is the fall that will kill us. [This article explains why that is going to be the case.] Words: 1135
The deficits aren’t going to stop anytime soon. The debt mountain will keep growing…Obviously, the debt can’t keep growing faster than the economy forever, but the people in charge do seem determined to find out just how far they can push things….The only way for the politicians to buy time will be through price inflation, to reduce the real burden of the debt, and whether they admit it or not, inflation is what they will be praying for….[and] the Federal Reserve will hear their prayer. When will the economy reach the wall toward which it is headed? Not soon, I believe, but in the meantime there will be plenty of excitement. [Let me explain what I expect to unfold.] Words: 1833
…The US Government and its catastrophic fiscal morass are now viewed by the world as a ‘safe haven’. This would easily qualify for a comedy shtick if it weren’t so serious….[but] the establishment is thrilled with these developments because it helps maintain the status quo of the dollar standard era. However, there are some serious ramifications that few are paying attention to and are getting almost zero coverage from traditional media. [Let me explain what they are.] Words: 1150
With the U.S. election just months off, political pressures will mount to favor fiscal stimulus measures instead of restraint. Such action can only accelerate higher domestic inflation and intensified dollar debasement culminating in a Great Collapse – a hyperinflationary great depression – by 2014. [Let me explain why that is the inevitable outcome.] Words: 2766
Whether our current economic crisis will end with massive inflation or in a deflationary spiral (ultimately, either one results in a Depression) is more than an academic one. It is the single most important variable for near and intermediate term investing success. It is also important in regard to taking actions which can prepare and protect you and your family. [Here is my assessment of what the future outcome will likely be and why.] Words: 1441
Daniel Thornton, an economist at the Federal Reserve Bank of St. Louis, argues that the Fed’s policy of providing liquidity has “enormous potential to increase the money supply,” resulting in what The Wall Street Journal’s Real Time Economics blog calls “an inflation inferno.” [Personally,] I think it’s too soon to make significant changes to a portfolio based on inflation fears. Here’s why. Words: 550
The developed economies of the world have opened the money spigots…[and this] massive money and credit creation is sitting in the banking system like dry tinder just waiting for a spark to set it ablaze. How quickly it happens is anyone’s guess, but once it does we are likely to be enveloped in a worldwide inflation unlike anything before ever witnessed. [Let me explain further.] Words: 625
Evidence shows that the U.S. money supply trend is in the early stages of hyperbolic growth coupled with a similar move in the price of gold. All sign point to a further escalation of money-printing in 2012…followed by unexpected and accelerating price inflation, followed by a rise in nominal interest rates that will bring a sovereign debt crisis for the U. S. dollar with it as the cost of borrowing for the government escalates…[Let me show you the evidence.] Words: 660
Interest rates have been manipulated to keep them extremely low in an attempt to stimulate the economy but…unless deficits are dramatically reduced…. interest rates will eventually rise and government interest expense will double or triple from the amounts being paid today. That potentially triggers a debt death spiral, where government has to borrow more than otherwise expected. It also raises the credit risk and could ratchet interest rates up again. It has happened to Greece, Portugal, Spain and other European countries already this year and could well happen in the U.S. too. Words: 595
Everyone who purchases a Treasury bond is purchasing a depreciating asset. Moreover, the capital risk of investing in Treasuries is very high. The low interest rate means that the price paid for the bond is very high. A rise in interest rates, which must come sooner or later, will collapse the price of the bonds and inflict capital losses on bond holders, both domestic and foreign. The question is: when is sooner or later? The purpose of this article is to examine that question. Words: 2600