Sunday, February 22, 2009

Core Causes of America's Debilitated Economy

(Also go to to see the panel discussion on nationalizing US banks)

As I watched my normal Sunday morning news shows today I came away with a few summaries of our current dilemmas from the various leaders and talking heads. I heard everyone from Arnold Schwarzenegger, George Will and my personal economic guru Nouriel Roubini who they have now included on many of these talking head forums, agreeing that American has to come together, stop the ideological bickering, and unify on overcoming the economic devastation our markets have experienced.

Upon reflecting on all this, I have come to the point of a "laymen’s" summary of the core causes for America's instabilities economically and otherwise. Some of these are so simple yet profound, and in most cases, reversible...

US Currency is affected by Government debt. Let’s face it, the fundamental problem in all this is that governments do not have to fall under the same budgeting and balance sheet rules that corporations or we individuals face every year or quarter. They are uniquely allowed to spend what they don't have, allocate YOUR tax dollars to anything THEY determine to be in the national interest (Take an informative look at this compendium of links to see where our national debt is currently at THIS link). The executive office issues budgets and requests while Congress determines the budget and allocates funding. The balance of these powers...and their abilities to balance a financial statement is far from living in the realities of the rest of us. Having the government bail out the banks is really a misnomer. They are borrowing YOUR money to bail out the failed bankers, mortgagers and investment managers who came up with all these brilliant mechanisms to cover up their huge "Ponzi" schemes. Mr. Madoff is a small player compared to most of the culprits truly responsible in the financial houses of the world. Thanks to these combinations of political and market actions, our currency is no longer backed by anything of value and I believe will continue to fall against those countries that HOLD our government securities and China, Japan, Russia and other wonderful "friends" we have in the world.

Savings to Debt ratio of the average consumer is what REALLY has our citizenry helpless in light of this global economic crisis. 25-30 years of buy/borrow today, save tomorrow has gotten us to these alarming statistics taken from a 2007 report from "Financial Sense" I found online:

-Since 1990, 83% of today's domestic financial sector debt was created, as it increased by a factor of 6 times (2.5 times faster than the economy); household debt increased 60% faster.

-2006 was a new, all-time record high in debt ratios of the household, business, and domestic financial sectors - also record debt ratios owed to trust funds.

-In FY 2006 the federal government's bite out of trust funds of $328 billion set another record, bringing total trust fund debt to $3.6 trillion, including $1.8 trillion siphoned from the social security trust fund.

-In 2004, the average credit-card debt of US households was $9,300, up from $2,966 in 1990, according to research firm - - that's 214% more debt.

Wall Street and the banks are still hiding TRILLIONS of bad debt and inflated asset valuations from the world's prying eyes. No one seems to be able to get their arms or minds around the real numbers these bad debts and valuations represent. Until they do, even the largest of institutions are not trusting governments OR banks with holding their funds. As an American investor here in Panama told me a couple weeks ago..."who can we trust with our hard earned money? The bankers? The government? Investment funds? All these people have let us down...where are we to go now with what little we have left?" The days of blind trust in bank accounts and government securities are now behind us I am afraid. Of course, that COULD have some upside for small business and entrepreneurial enterprises. I think people will want to be "hands on" and invest in THEMSELVES more going forward.

Government entitlement programs and funding of warfare is sucking the lifeblood of our economic system...primarily our tax dollars. As I have stated in previous blogs, this is what I think the original masterminded intent was of the 9/11 terrorists...and I think they have succeeded far beyond their wildest imaginations...or maybe not. Get us committing to worldwide armed conflicts and suck out vast resources of both money, oil and intellectual energy focused on the "terrorists" while ignoring our own internal demise based on entitlements and welfare spending.

Domestic education levels continue to drop against foreign students. The dumbing down of American youth is making our whole country less competitive in the international marketplace. Yes, they can do well on computer games and running networks, but most don't know how to drive a nail, fix a mower, or do simple math in their heads. Many high end jobs are being farmed out offshore or foreigners are being brought onshore, and it’s not just about payroll costs. It is about work ethic and capabilities of comparative laborers. The days of $20 an hour broom pushers and expensive entitlement programs for workers are over in light of global competitiveness. Education is going to be more key going forward than ever before...and I'm not just talking about college. Ongoing workshops and on the job training needs to be increased rapidly to recover our competitive industrial complex. And let's not forget the very real factor of America's use and dependency on DRUGS. Are the culprits the Mexican and Colombian SUPPLIERS, or the empty lives and minds of the USERS? This is a huge hole in our national soul.

Loss of money standards is quietly at the core of our valuation process of assets. The Gold standard is dead so inflation continues to rise against unchecked currencies being erroneously printed without any value or "reserve" behind them. The "good faith and credit" of most governments are becoming more and more suspect. The currency and trade gyrations are extreme as the world's access to real time information via new technologies is causing faster reactions to change in the international marketplace.

The rich and educated are not reproducing at the same rate as the poor and uneducated. The percentage of poor versus the rich continues to grow heavily on the side of poverty while we see the middle class being squeezed out of existence. Government rules benefit the poor masses (to keep them placated) or the rich who get these people elected and re-elected. Small business and entrepreneurs are increasingly without a voice and power. This will continue to erode the equilibrium in the world between the haves and have nots.

During my upcoming two weeks in the USA I hope to get a first hand, refreshed interpersonal look at my friends and family's observations along these lines. Are Americans truly as "divided" and conflicted as the everyday media portrays us to be? What are the best solutions for these epic problems we face currently? I hope to come back with renewed insight and hopeful agenda that we all can work towards in building a common consensus of what SHOULD be done to secure our future welfare.

Final thought...don't sit back and wait for the governments and global mega corporations to bring you solutions. Cover your own a-- first, then contribute to the "power of one" mentality to restore sanity and reason to these global dilemmas.


skalliwag37 said...

Dear Ed,

Right on. As individuals, other than doing our best to cover our own asses, the only thing that I know to do is to vote against every incumbent politician (whether you like them or not) until they get the message that they can not continue to spend the next generations money on useless enterprises. This is my personal "solution".

Timothy said...

Hi Ed,

An interesting post; you certainly do know how to argue a point. I'm not sure if you have seen this article recently but I thought it would really interest you:

Basically, Obama has vowed to halve the deficit by the end of his first term. A noble endeavour indeed! It will be very interesting to see if it actually happens.