Quote:
Originally Posted by Splum
The economy is booming... in the USA. Stock market is at an all time high, oil prices are down, unemployment is low, etc. I dont know what its like down in that third world cesspool of shit you live in, sa'matter the banana prices too high?
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OK Splum - I'll try and answer you with some reality which extends to far more than silly political leanings...
Five major factors supercede all employment figures, stock markets et al....
(a) The housing bubble has bust. Over a longer time, US home prices over the last half of the 20th century was less than 3% per annum, net of inflation. This was actually fine and blended with average costs and population increases.
Ending 2005 we saw high levels of purported value of home increase values which was certainly not due to increased income generation, but more related to loose financial market conditions and sheer exuberance based on nothing. The result is a substatial increase in foreclosures (around 43%) and further increases predicted during this year.
(b) "OilFlation". The US has produced about 3% of it's own oil consumption while consuming 25% of the planet's oil production. Private vehicles within the US consume 50% of this volume. For a nation with only 5% of the world's population to consume 25% of world oil production is totally unsustainable. Tho there will be fluctuations on oil markets - this matters little when viewing the overall problem within the US economy.
(c) The Sea of Debt. To put it another way - "Never have so many spent so much and saved so little". When a nation spends 160% of it's wage packet and relies on perceived values in home equity and an increasing number of credit cards to sustain a lifestyle which has never been earned - there are problems.
In fact, the proclaimed US economic recovery since 2001 has been largely dependent on IOU's. The last three years has produced shop-happy consumers under the illusion of vastly increased home equity and heading towards living beyond their means. Good while it lasts, - but even the best sprees cannot go on forever.
(d) Plunging Current Account Deficit. This is now at unprecedented depths. This element is easy to blame on politicians etc, but is really a measure of how much extra US customers are purchasing from foreign sources. Imported energy alone now accounts for 25% of this deficit.
The US manufacturing sector now represents only 10% of total US economic activity. This scary stat leaves no doubt that the US is unable to export itself out of this deficit. The result is a huge global imbalance which is unsustainable.
(e) The Shrinking Dollar. Historically global trade imbalances have been corrected by devaluation of the debtors currency. The US trade deficit over the last few years has already resulted in significant appreciation of the Euro, GBP and Canadian dollar - and yet the US deficit has only worsened.
US money outflows have been rapidly increasing and now nearing $700 billion/year. How long can that last? As long as the Fed Reserve keeps cranking out IOU's. But, we have already reached a level where foreign govt's are acknowledging US currency is being debased and Mr Loan Manager is getting more stringent in his terms. There is an alternative for the Loan Manager - take gold bullion in lieu of more questionable US Treasuries - and that is happening.
While still being sustained by IOU's, consumption of foreign product continues and this is being paid for with a weak dollar.... more unsustainabilty.
That's the brief version - not got time for the long one, but bottom line - it's only a matter of time and the clock started ticking a while back.