Here are excerpts from an amazingly thorough article with stunning documentation regarding our current economic situation. If this doesn’t give you nightmares, then I’m pretty sure that nothing will.
Click all charts to enlarge
The United States is facing both a structural and demand problem – it is not the cyclical recessionary business cycle or the fallout of a credit supply crisis which the Washington spin would have you believe.
It is my opinion that the Washington political machine is being forced to take this position, because it simply does not know what to do about the real dilemma associated with the implications of the massive structural debt and deficits facing the US. This is a politically dangerous predicament because the reality is we are on the cusp of an imminent and significant collapse in the standard of living for most Americans.
The politicos’ proven tool of stimulus spending, which has been the silver bullet solution for decades to everything that has even hinted of being a problem, is clearly no longer working. Monetary and Fiscal policy are presently no match for the collapse of the Shadow Banking System. A $2.1 Trillion YTD drop in Shadow Banking Liabilities has become an insurmountable problem for the Federal Reserve without a further and dramatic increase in Quantitative Easing. The fallout from this action will be an intractable problem which we will face for the next five to eight years, resulting in the ‘Jaws of Death’ for the American public.
The ‘Jaws of Death’ is the crushing squeeze of a shrinking gap between incomes and a rising burden of the real cost of debt burdens. Many may say there is nothing new in this, but I would respectfully disagree. There is a widespread misperception of what is actually evolving that stops voters from forcing politicians to address America’s substantial underlying dilemma. It also stops investors from positioning themselves correctly.
Any solutions of real substance are presently considered political suicide. It is wiser to wait for a crisis event to unfold. As White House Chief of Staff and a primary Obama political strategist, Rahm Emanuel has said on numerous occasions: “You never want a serious crisis to go to waste”. It doesn’t take much intelligence to understand this also implies looking for a crisis as a political shield, for example from an almost insurmountable political problem such as a generational reduction in the US standard of living.
Before I delve into misperceptions of the ‘Jaws of Death’ and a reduced US standard of living, we need to briefly consider for a moment whether this is a planned outcome or just happenstance? President Franklin Roosevelt said:
“Nothing in politics happens by chance”.
Being in business I have always been very watchful of a slightly different variation of the same theme:
“Strategy is something that happens to you while you are looking the other way”.
Maybe Mark Twain said it better than both of us:
“It ain’t what you don’t know that gets you into trouble. It’s what you know for sure and just ain’t so!”
My point is that there is a strong possibility that the ‘Jaws of Death’ is an orchestrated plan to reposition America’s standard of living. A plan not for the good of Americans but for the good of the banks and those that control the $630 Trillion unregulated, off shore, off balance sheet, OTC derivative market. It is no secret that America’s standard of living is no longer viable, as evidenced by a continuous and chronic deterioration in the US Balance of Payments, Trade Deficit and Current Account funding. It must be addressed and this may already be happening in a stealth fashion.
What the above suggests is that we need to address what is perceived as ‘truisms’ but in fact are not; what is perceived as reality versus what is perception. These subtleties are the veils that hide the real dangers from us.
Outstanding explanation of why we are all arguing over inflation/deflation and why we fail to understand what we are facing:
Inflation / Deflation
I am continuously troubled by the inflation – deflation debate. One of a number of issues in these debates that concerns me is no one ever defines ‘time’ in their analysis and predictions. Without time specified we could have inflation, then deflation, (or visa-versa) for exactly the reasons that both opposing views meticulously articulate. Maybe even more blatant is that seldom do analysts consider the possibility that we could have both. This is the school that I am a believer in.
I predict that over the next few years we will have inflation in the things we NEED and USE. These are the items we buy and consume every week, the items we buy and not finance, and the items we need ready and recurring cash for. Food, energy, consumables, and basic services are examples.
We will have deflation in the things we WANT and OWN. These are the items we strive for that we perceive will move our lives to an even higher standard of living. They are primarily assets like: housing, real estate, financial instruments, boats, exotic cars, art, collectibles, etc. – often the items we finance.
It may be as simple as Maslow’s Hierarchy of Needs; until our survival needs are met we won’t move towards the ultimate state of self actualization. We won’t think of luxury goods when we are hungry, cold and tired. But what is pushing us towards the ‘survival’ end of Maslow’s spectrum? If we live on debt and it becomes harder to secure or service, then this will accomplish that shift, despite new debt being cheaper than it previously was.
Money supply which is a driver of monetary inflation and deflation is now negative, as shown by the broader M3 money supply (which is no longer reported by the government). This illustrates that despite massive monetary intervention, forced deleveraging of mal-investments has come home to roost.
Finally, the author sums it all up:
Americans must face the hard reality that the US is now in decline and rapidly relinquishing its hold as the world’s dominant industrial power. A serious failure in political leadership to recognize this and act upon it, along with misguided public policy legislation, has hastened the decline.
What this means is that America’s standard of living, which has almost been assumed as a birthright, is now in jeopardy and for the middle class is already in full erosion. America, like all great powers in decline, has become complacent and apathetic with an unjustified sense of entitlement. Americans somehow believe that bad things cannot befall America, as though it is preordained to always be a preeminent power with the corresponding highest standard of living.
The facts are that we are at the precipice of a crushing decline in our standard of living due to fifty years of wasteful spending and bad public policy. We are near or now possibly past the point of no return without bold and rapid change. We need change that can only come from the public’s understanding of what change specifically is required and not just a political billboard proclaiming the ‘change’ mantra at election time.
As we move more and more towards a “have” and “have not” society where the middle class is disappearing and the government is involved in all aspects of our lives and economic well being, we are becoming acutely aware that America is now different. Our perceptions of what America is no longer matches the reality around us on a daily basis. The middle class in America is rapidly disappearing.
DISTRACTION REALITY Inflation lies ahead due to all the Government money printing.Deflation lies ahead due to deleveraging and banking problems. Deflation & Inflation both lie ahead.- Inflation in what we NEED and USE- Deflation in what we WANT and OWN Unemployment is a temporary problem due to a protracted recessionary recovery. Employment is a long term chronic problem that is structural in nature. Credit Availability will re-ignite the economy. Easy credit is the hole we must dig ourselves out of. Bank Lending is the problem. Borrowing is the problem – insufficient collateral and qualified borrowers.
Like housing being a good investment, much of what we hear or believe are false perceptions. We are distracted by these contrived and orchestrated misperceptions from the hard reality in taking the actions required to make real needed change. The US Standard of Living is now on the line.
Gordon T Long
To read the entire article go here: TippingPoints