Is the Collapse of the American Economy Just Around The Corner?

As many of us wake up every day feeling the extended hangover left by the over-indulgence of the late-20th Century party in the U.S., some of us are wondering if things may go from bad to worse yet. Will there be a collapse of the American Economy? Were the economic bubbles of the late 1990s and of 2008 just a warning of the bigger storm ahead?

eco recovery obama

 

Of course, if you read mainstream headlines or listen to the major TV networks, you’ll probably not know what I’m talking about. They say things are good and we’re in an economic recovery. The good old days are just around the corner – we just need to hold on a little longer. This kind of positive, non-thinking attitude was acceptable back in 2009, when we were all afraid that the housing market collapse might lead to another Great Depression. We were all afraid – afraid of losing our job, losing our home and losing our nation’s sense of economic greatness.  And we needed a good pep talk!

 

But now it’s 2015. The spending party has been over for a long, long time – especially if you believe the party started back in the 1990s and ended around 2000. At this point it’s just dishonest reporting to tell us all that things are getting better. Most people in America know that things are not getting better; they are getting worse (unless you are in the top 1% of earners in the US). The official unemployment rate (source: Bureau of Labor and Statistics) is less than 6%; however, almost 93 million people in the US do not participate in the labor force – a record number (source: October 3, 2014 Article – ZeroHedge.com), which is almost 1/3 of the population of the United States! Shocking! The inflation rate for the past 10 years has ranged from a measly 1-3% (source: Bureau of Labor and Statistics). According to Wikipedia.org,

 

In economics, inflation is a sustained increase in the general price level of goods and services in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services.

 

Yet, despite this low-level (almost zero) supposed inflation rate, the price of things such as food at the grocery store, housing, medical care and the like seem to have no upper end in sight and are obviously increasing at a much greater rate than 1-3% per year. And have you noticed that you aren’t making as much money as you perhaps thought you were? According to the data from the US Census Bureau, the median salary in the US has been declining since its peak in the year 2000, and is trending to return to pre-1990s levels (see image below). It’s really depressing…oops, I said the “D” word!

median income 

The bottom line is that despite what the mainstream news tells us every day, it is hard to ignore the low wages, inflation and higher costs that are thrust at us every week of our life. So where are we headed and is it going to get worse? The answer is that I don’t know, but I believe things will get worse before they get better. As a novice student of economics, it’s clear that we are in a recession or early depression state, as an economy. However, we have some tools in our corner that have helped us in the past, both of which may be only serving to delay the inevitable pain that may be coming. The tools I’m thinking of are Quantitative Easing (QE) and the Dollar as the global reserve currency. QE is the policy of the Federal Reserve to print more money, and in theory, prop up the economy by buying bonds. The reserve currency is considered the “go-to” currency for international transactions – which makes the Dollar more insulated from international issues and coveted as a safe haven from other currencies. Both tools are fine in the short term; but in the long term, they both will become obsolete and irrelevant. The fact is that QE has done little to improve the economy and many informed observers believe that the Dollar’s days are numbered as the global reserve currency.

 

Over the past 2-3 years I’ve heard a lot of predictions from different sources regarding an end to the Dollar, the demise of the US and a collapse of the world economy – and the resulting turmoil and lawlessness that would ensue if any of these predictions came to fruition. The speculation of collapse seems to get louder every year, and I tend to believe where there’s smoke, there’s fire. It doesn’t take a trained economist to see that the United States is not in a fiscally strong position. Our national debt is at a record high. Government commitments (liabilities) are growing astronomically for programs such as Social Security, Medicaid/Medicare, Military Spending, Social Welfare programs, etc. Yet how do we plan to pay for the programs to continue, much less expand? No one has a good answer to that question, and I believe we cannot continue like this. It seems clear that we’ll have to make severe cutbacks and changes as a government, or we are headed for a much uglier, more abrupt fiscal re-balancing.

 Participation of Labor

So where does privacy fit into all this? I usually blog about things that fit directly into the model of privacy and security. In this case I feel strongly about this topic. Financial collapse has been on my mind a lot lately and I would be remiss to not at least make one post on the topic. To me it would be akin to me coming to your home to give you advice about installing new locks on your doors when all the while your house is on fire. If the house is on fire, there’s no need to worry about the locks; let’s try to put this fire out first. My goal is not necessarily to be the fireman, but instead to be the warning, telling you to get out of the house.

 

It’s one thing to sense danger; but what if there were real reasons to think that our economy is in danger? I believe that there are underlying facts and information that support economic danger ahead. Despite the fact that the US unemployment numbers look misrepresented, the stock market is at an all-time high (red flag!), prices are clearly higher, the middle class is shrinking, as well as smaller factors, it appears to me that much of our economic woes can be explained in some part by our country’s demographic trends. After World War II, the “baby boom” generation was born – and what eventually followed is what may well go down in history books as the “Golden Age” of America. The average working person made more money (in general) and was able to purchase more things like new cars, houses, etc. Many people worked jobs that had good retirements and offered good benefits. It was not uncommon to have a “blue collar” job where one made enough to pay for a house, a new car and retire after 20-30 years of service. I personally know of many people who lived this life. Sure, there were exceptions and there were always those who struggled, but on average, the baby boomer generation came out of the “Golden Age” smelling like a rose!

stock crash 1929 

Fast forward to now; the baby boom ended long ago. Young students head off to college, incurring record amounts of debt for an education that does not guarantee any job or future career. In the 21st century, it is not uncommon for college graduates to be living with their parents indefinitely and depending on their baby boomer parents and grandparents for financial support. Those who don’t go to school have a sea of mediocre or low paying jobs to choose from (if they’re lucky) – jobs like working in the fast food industry or service industry jobs (like telemarketing, customer service, etc.). We all know that these jobs won’t pay the bills, much less buy a home or support a family. My point is that the Golden Age has come to an end. And in my mind, we’re sliding downward toward something worse.

 

Hopefully I’m wrong about my dire economic statements and we never have to live through a financial meltdown. And I hope my instincts are wrong. But I believe in a collective consciousness – meaning at some level we are aware of what others are doing and thinking. And at this moment in history I believe many of us sense that things have gone awry and things are getting worse each day. We, as Americans, have become spoiled – enjoying a Golden Age of technological developments, cheap oil and pizza delivered to our door. We forget that many of our grandparents endured grave hardship during the Great Depression of the 1930s, following the stock market crash of 1929. We should never forget that those who ignore history are doomed to repeat it. Will you wake up and smell smoke, or remain asleep until it’s too late?

econ recovery flag

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