An economy that moves its high productivity, high value-added jobs offshore is going nowhere but down. Except for the super-rich, there has been no growth in people's incomes for a decade. To substitute for the missing income growth, consumers took on more debt. That growth in consumer debt kept the economy going. However, most consumers have now reached their maximum debt load, and millions went beyond their limit.
(The first part of this report is based on email received
from economics analyst Monty Agarwal via email@example.com)
If history teaches us anything, it's that when even ONE
major government defaults on its debts, economic chaos follows. The crisis unfolds in four quick steps:
FIRST, since a sovereign debt
default would inevitably cause ALL bonds to crash, investors stampede for the
bond market exits, dumping as much as they can as fast as they can.
SECOND, as the bond market reels,
interest rates skyrocket and credit tightens.
The rates on 30-year fixed-rate mortgages, auto loans and other
long-term debts soar. Rates tied to
short-term money markets -- on credit cards and variable mortgages --
THIRD, consumers -- whose spending
represents fully 70% of the economy -- snap their pocketbooks shut.
FOURTH, corporate earnings and
stock prices crater. As the economy hits
the skids, unemployment soars.
Clearly, these events would be the coup de grâce to an
economic recovery as fragile as this one is. And they would almost surely transform a Great
Recession into a Great DOUBLE-DIP Recession, if not worse, plunging us into the
second bear market in three years, lighting the fuse on a second explosion in
unemployment, and triggering a second surge in personal and corporate
Indeed, this disturbing scenario is already beginning to
unfold before our very eyes -- not just in ONE major Western country, but in TEN
We've known for some time that Italy and Ireland are at risk
for default -- and just this week, we saw how investors' fears have caused them
to begin dumping British pounds and gilts (bonds) like there's no tomorrow.
Plus, the soaring cost of Credit Default Swaps -- "insurance
policies" that protect investors against default -- on the debt of Greece,
Portugal, Romania, Lithuania, Latvia, Iceland and the Ukraine is a clear sign
that investors believe they are also at elevated risk of default.
Put simply, it would only take ONE sovereign debt default to
crush this anemic recovery, but no
fewer than TEN major Western countries are now at risk!
What's more, no fewer than THREE powerful forecasting tools
are confirming that a great bond market conflagration, stock market decline and
double-dip recession are now on the horizon:
CYCLICAL ANALYSIS CONFIRMS
The cycles identified by the Foundation for the Study of
Cycles have accurately anticipated nearly every major shift in market direction, in every major asset class, in advance ... for 39 years.
And now, as the Foundation's Research Director, Richard
Mogey and I demonstrated in Nine Shocking New Forecasts for 2010-2012, the
current cyclical analysis is confirming that a major new decline in the economy
is coming later this year.
- U.S. stocks will decline
starting this year and continue falling in a zigzag pattern through 2012.
- The U.S. dollar index may continue to
firm somewhat as the European debt crisis drives investors into dollar-denominated
investments. But then the greenback
will collapse until late 2011 as the U.S. sovereign debt crisis
runs its course.
- Serving in its capacity as a global
crisis hedge, gold will skyrocket FAR higher than $2,000 per ounce by the
end of 2011.
- Crippled by soaring interest rates due
to the U.S.
debt crisis, our economy will suffer a devastating double-dip recession in
POLITICAL ANALYSIS CONFIRMS IT
If the rise of the Tea Party movement or the results of
recent elections in Massachusetts
mean anything at all, it's that many Americans are fighting mad. They're fed up with Washington's bailouts of failed bankers and
CEOs, skyrocketing federal deficits and
debts, out-of-control borrowing by the
Treasury, mindless money-printing by the
Federal Reserve, and now, the specter of
higher taxes ahead.
So the handwriting is on the wall: With midterm Congressional
elections only seven, short months away, any politician who votes for more of
the same is practically begging to be thrown out of office.
That means the days of Washington bailouts and stimulus are
numbered. And that, in turn, means that
the momentary economic stability which that spending bought will soon come to
VOLATILITY ANALYSIS CONFIRMS IT
Right now, the volatility indicators professional traders
rely on -- in the bond market ... in
currencies and more -- are signaling
that the economic stability and investment trends most investors have depended on
for the last year or so are coming to an end.
The smart money is now beginning to bet on major directional
shifts in all major asset classes -- and on the recovery unraveling before our
Writing at OpEdNews, former assistant secretary of the
treasury and Wall Street Journal editor Paul Craig Roberts concurs:
our economy is going down:
An economy that moves its high productivity, high
value-added jobs offshore is going nowhere but down. Except for the super-rich, there has been no
growth in people's incomes for a decade.
To substitute for the missing income growth, consumers took on more
debt. The growth in consumer debt kept
the economy going. However, most
consumers have now reached their maximum debt load, and millions went beyond
their limit, resulting in foreclosures and lost homes.
There are no jobs to which people can be called back to
work. The jobs have been given to the
Chinese and Indians.
The economy is set for a "double-dip," that is,
renewed decline. This, of course, means
larger federal, state, and local budget deficits. The U.S.
federal deficit is now so large that it can no longer be financed by the trade
surpluses of China, Japan,
Currently the deficit is being financed by deterioration in
the Federal Reserve's balance sheet. The
Fed is creating new reserves for the banks (thus the surge in the monetary
base) in exchange for the bank's toxic financial instruments. The banks are using the reserves to purchase
Treasury debt instead of making new loans.
This makes money for the banks, but does not grow the economy or create
jobs for the millions of unemployed.
According to reports, recent auctions of Treasury debt have
not gone well. China, America's biggest creditor, has
reduced its participation and is even selling some of its existing
holdings. Whenever all of a new Treasury
debt offering is not taken, the Federal Reserve buys the remainder. This results in debt monetization. The Fed pays for the bonds by creating new
checking accounts for the Treasury, in other words, by printing money.
On February 24, Fed chairman Ben Bernanke told Congress that
faced a serious debt crisis and that the Fed was not going to print money in
order to pay the government's bills. In
fact, Bernanke would have no choice but to print money.
Bernanke's warning to Congress is his way of adding Federal
Reserve pressure to that of Wall Street and former Treasury Secretary Paulson
for Congress to balance the budget by gutting Social Security and
Medicare. In case you haven't noticed,
no one in Washington or New York talks about cutting trillion dollar
wars or trillion dollar handouts to rich bankers. They only talk about taking things away from
little people. It is not the
Bush/Cheney, Obama, neocon wars that are in the cross hairs; it is Social
Security and Medicare.
Other Obama economic officials, such as White House
economist Larry Summers, a former Treasury secretary, have called for a middle
class tax increase. The problem with
this "solution" is that a good part of the middle class is now
jobless and homeless.
Money will have to be found somewhere if the Fed is to avoid
printing it. During the Clinton
administration a Treasury official proposed a 15-percent capital levy on all
private pensions to make up for their tax deferral status. This idea didn't fly, but today a desperate
government, which has wasted $3 trillion invading countries that pose no danger
to the U.S.
and wasted more trillions of dollars combating a crisis brought on by the
government's failure to regulate the financial sector, is likely to steal
people's pensions as well as to gut Social Security and Medicare.
The reason is that the dollar's role as reserve currency is
at stake. If the Federal Reserve has to
monetize the federal deficit, the world will turn its back on a rapidly
depreciating dollar. The minute the
dollar loses the reserve currency role, the U.S. can no longer pay its bills in
its own currency, and its days as a superpower come to a sudden end. Wars can't then be financed, and Washington's pursuit of
world hegemony will hit a brick wall.
Several years after receiving my M.A. in social science (interdisciplinary studies) I was an instructor at S.F. State University for a year, but then went back to designing automated machinery, and then tech writing, in Silicon Valley. I've always been more interested in political economics and what's going on behind the scenes in politics, than in mechanical engineering, and because of that I've rarely worked more than 8 months a year, devoting much of the rest of the year to reading and writing about that which interests me most.