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
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.
economic news has turned decidedly negative globally and a sense of
‘quiet before the storm’ permeates the financial headlines. Arcane
subjects such as a Hindenburg Omen now make mainline news. The retail
investor continues to flee the equity markets and in concert with the
institutional players relentlessly pile into the perceived safety of
yield instruments, though they are outrageously expensive by any
proven measure. Like trying to buy a pump during a storm flood, people
are apparently willing to pay any price. As a sailor it feels
like the ominous period where the crew is fastening down the hatches
and preparing for the squall that is clearly on the horizon. Few crew
mates are talking as everyone is checking preparations for any
eventuality. Are you prepared?
What if this is not a squall but a tropical storm, or even a hurricane?
Unlike sailors the financial markets do not have the forecasting
technology to protect it from such a possibility. Good sailors before
today’s technology advancements avoided this possibility through the use
of almanacs, shrewd observation of the climate and common sense. It
appears to this old salt that all three are missing in today’s financial
Looking through the misty haze though, I can see the following clearly
looming on the horizon.
Since President Nixon took the US off the Gold standard in 1971 the
increase in global fiat currency has been nothing short of breath taking.
It has grown unchecked and inevitably became unhinged from world
industrial production and the historical creators of real tangible wealth.
Iranian forces crossed into neighboring Iraq and killed 30 fighters from a group
it says was involved in last week's bombing of a military parade, state TV
reported Sunday. Gen. Abdolrasoul Mahmoudabadi of the elite
said the "terrorists" were killed on Saturday in a clash "beyond the border" and
that his forces were still in pursuit of two men who escaped the ambush. While Iran has said in the past it would target armed groups on Iraqi soil this
is a rare case of it actually admitting to an attack.
Tens of thousands of factories have left the United States in the past decade
alone. Millions upon millions of manufacturing jobs have been lost in the
same time period. The United States has become a nation that consumes
everything in sight and yet produces increasingly little. Do you know
what our biggest export is today? Waste paper. Yes, trash is the number one thing that we ship out to the
rest of the world as we voraciously blow our money on whatever the rest of the
world wants to sell to us. The United States has become bloated and
spoiled and our economy is now just a shadow of what it once was.
- The United States has lost approximately 42,400 factories since 2001.
About 75 percent of those factories employed over 500 people when
they were still in operation. Source:
The American Prospect - Dell Inc. has announced plans to dramatically expand its operations in China
with an investment of over $100 billion over the next decade. - Dell has announced that it will be closing its last large U.S. manufacturing
facility in Winston-Salem, North Carolina. Approximately 900 jobs will be lost.
- In 2008, 1.2 billion cellphones were sold worldwide. So how many of them were
manufactured inside the United States? Zero. Source:
The American Prospect - If our trade deficit with China increases at its current rate, the U.S. economy
will lose over half a million jobs this year alone. Source: Economic Policy
- As of the end of July, the trade deficit with China had risen 18 percent
compared to the same time period a year ago. Source: Economic Policy Institute [PDF]
- The United States has lost a total of about 5.5 million manufacturing jobs since
October 2000. Source:
The American Prospect - From 1999 to 2008, employment at the foreign affiliates of US parent companies
increased an astounding 30 percent to 10.1 million. During that exact same time
period, U.S. employment at American multinational
corporations declined 8 percent to 21.1 million. Source: Tax Analysts [PDF]
- In 1959, manufacturing represented 28 percent of U.S. economic output. In 2008,
it represented 11.5 percent. Source:
The American Prospect - Approximately 750 good paying
middle class jobs are going to be lost because making Ford Rangers
in Minnesota does not fit in with Ford's new "global"
manufacturing strategy. Source:
Economy In Crisis - As of the end of 2009, less than 12 million Americans worked in manufacturing.
The last time less than 12 million Americans were employed in manufacturing was
in 1941. - In America today, consumption accounts for 70 percent of GDP. Of this 70
percent, over half is spent on services. Source:
Economy In Crisis - The United States has lost a whopping 32 percent of its manufacturing jobs since
the year 2000. - In 2001, the United States ranked fourth in the world in per capita broadband
Internet use. Today it ranks 15th. Source:
MACLEANS.CA - Manufacturing employment in the U.S. computer industry is actually lower in 2010
than it was in 1975. Source:
Businessweek - Printed circuit boards are used in tens of thousands of different products. Asia
now produces 84 percent of them worldwide. - The United States spends approximately $3.90 on Chinese goods for every $1 that
the Chinese spend on goods from the United States. Source:
The Economic Collapse - One prominent economist is projecting that the Chinese economy will be three
times larger than the U.S. economy by the year 2040. Source:
MarketWatch - The Census Bureau says 43.6 million Americans are now living in poverty, which
is the highest number of poor Americans in the 51 years that records have been
An organization that tracks 250 million IP addresses a day has
been developing portfolios on Internet users and handing the
information to U.S. federal agencies as the latest incarnation of
the supposedly defunct Total Information Awareness spy program is
A group calling itself Project Vigilant went public at
yesterday’s Defcon security conference in an effort to add more
recruits to its 600 member strong cyber spy force. The outfit
announced that it had been tracking “Internet villains” for no
less than 14 years and handing the information to federal
authorities as part of a massive intelligence gathering program.
A Vigilant press release says that the organization tracks more
than 250 million IP addresses a day and can “develop portfolios on
any name, screen name or IP address'.
“Every purchase you make with a credit card, every magazine
subscription you buy and medical prescription you fill, every Web
site you visit and e-mail you send or receive, every academic
grade you receive, every bank deposit you make, every trip you
book and every event you attend,”
as the New York Times’ William Safire wrote in November 200
States accounting for two-thirds of the global economy are
either holding down their exchange rates by direct intervention or
steering currencies lower in an attempt to shift problems on to
The global game of pass the unemployment
parcel has to end somewhere. It ends in Greece, Portugal, Spain,
Ireland, parts of Eastern Europe, and will end in France and Italy
too, at least until their democracies object.
It is no
mystery why so many states around the world are trying to steal a
march on others by debasement, or to stop debasers stealing a
march on them. The three pillars of global demand at the height of
the credit bubble in 2007 were – by deficits – the US ($793bn),
Spain ($126bn), UK ($87bn). These have shrunk to $431bn, $75bn,
and $33bn respectively as we sinners tighten our belts in the
aftermath of debt bubbles.. The Brazils and Indias of the world
are replacing some of this half trillion lost juice, but not all.
So we have an early 1930s world where surplus states are
hoarding money, instead of recycling it. A solution of sorts in
the Great Depression was for each deficit country to devalue,
breaking out of the trap (then enforced by the Gold Standard).
This turned the deflation tables on the surplus powers – France
and the US from 1929-1931 – forcing them to reflate as well (the
US in 1933) or collapse (France in 1936). Contrary to myth,
beggar-thy-neighbour policy was the global cure. A variant of this
may now occur. If China continues to hold down its currency, the
country will import excess US liquidity, overheat, and lose wage
competitiveness. This is the default cure if all else fails, and I
believe it is well under way.
We have a new world order where China and India are buying gold
on every dip, where the West faces an ageing crisis, and where the
sovereign states of the US, Japan, and most of Western Europe have
public debt trajectories near or beyond the point of no return.
The managers of all four reserve currencies are playing fast
and loose: the Fed is clipping the dollar; the Bank of England is
clipping sterling; the European Central Bank is buying the bonds
of EMU debtors to stave off insolvency, something it vowed never
to do just months ago; and the Bank of Japan has just carried out
two trillion yen of “unsterilized” intervention.
what's driving the current equity growth in the U.S.
- Permanent Open Market Operations, or POMO, has the
Fed buying treasuries from the banks, and then those banks
act by putting money back into the market.
- The money turns algorithms up, they enter the
market, human investment managers don't enter the market,
only the algorithms. Real investors don't want to buy in.
- The equity markets are being goosed up by the Plunge
- The President has accepted that the recession still
exists for many Americans, and there is now going to be
more money, from QE 2, coming into the market due to the
belief that Keynesian stimulus failed.
- The bubble never ends when we start calling it a
- When America has been going no where for the last
decade, the emerging markets are where you should have
been putting your money.
- The Bovespa is a real bull market, rising at 1000%
Gordon T Long is not a registered advisor and
does not give investment advice. His comments are an expression of opinion
only and should not be construed in any manner whatsoever as
recommendations to buy or sell a stock, option, future, bond, commodity or
any other financial instrument at any time. While he believes his
statements to be true, they always depend on the reliability of his own
credible sources. Of course, he recommends that you consult with a
qualified investment advisor, one licensed by appropriate regulatory
agencies in your legal jurisdiction, before making any investment
decisions, and barring that, we encourage you confirm the facts on your
own before making important investment commitments.ont>
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Gordon T Long
is not a registered advisor and does not give investment advice. His comments
are an expression of opinion only and should not be construed in any manner
whatsoever as recommendations to buy or sell a stock, option, future, bond,
commodity or any other financial instrument at any time. While he believes his
statements to be true, they always depend on the reliability of his own
credible sources. Of course, we recommend that you consult with a qualified
investment advisor, one licensed by appropriate regulatory agencies in your
legal jurisdiction, before making any investment decisions, and barring that,
we encourage you confirm the facts on your own before making important