My original list of factors borrowed heavily from Paul Kennedy's Rise and Fall of the Great Powers, which was published over 20 years ago and is the quintessential guide book for how empires "change" over time. I also added some contemporary factors:
1) Peak Debt:
My original post discussed the unprecedented overall debt levels and cited the subprime crisis which was yesterday's version of today's sovereign debt crisis. And while the subprime debt crisis was widely discussed and analyzed well before the Lehman collapse in 2008, clearly that knowledge did not prevent the inevitable crash from occurring. Fast forward to today and in addition to still having near-record high levels of household debt, sovereign debt has also reached similarly insane proportions due to two well known factors 1) the global bailouts of the lenders/banks 2) massive fiscal deficits which are still propping up global economies and propagating the illusion of solvency. And so while we are all getting tired of the Greek debt drama (pun intended), the reality is that Greece is only somewhat ahead of the curve in its debt problem than most Western nations which have similar or in some cases higher levels of debt and/or deficit. Every time I turn on CNBC (before can hit mute), and hear stunted infotainers deriding the profligate Europeans, I just have to laugh at the hubris of it all. Be patient ! Every dog will have it's day. Actually, this guy said it best.
2) Real Estate Meltdown
Been there done that. The only major countries that have yet to experience a full fledged real estate meltdown are China, Canada and Australia. No surprise, these countries are all inextricably linked via their trades ties and more specifically commodities - Australia and Canada being two of the world's largest commodities producers, and China being the world's largest commodity consumer. Throughout China's long economic expansion, the Chinese have traded investments in real estate in exchange for commodities - which matches precisely the story in Canada and Aussie, where the marginal real estate buyer is Asian. So unlike ROW (the Rest of the World), after the 2008 meltdown, citizens in these 3 countries continued to over-invest in real estate under the general presumption that while real estate can collapse in every other part of the world, "it can't happen here". Unfortunately, I can't have sympathy for my Canadian brethren who apparently eschew reality for realty.
3) China Trade aka. Mercantilism aka. "Beggar thy Neighbour" policy
This is actually the most egregious aspect of this ongoing fiasco and the one that will have the most lasting deleterious impact on the American economy, of all these factors listed. As I have reiterated many times, the U.S. didn't just outsource its jobs, it outsourced entire industries and the associated knowledge and expertise. Intellectual capital and excellence in engineering and manufacturing does not manifest itself overnight - it accumulates over decades. And yet this current generation sold it off to Asia in exchange for what will amount to some short-term consumption loans. Some now say that the U.S. is not good at manufacturing and should not try to compete due to cost disadvantages. This is a loser's mentality. Japan and Germany both have structurally higher wage costs than the U.S. and they still compete very successfully in manufacturing. Ultimately, the American 1%ers of the day decided it was cheaper and much more profitable (short-term) to liquidate the manufacturing sector and hand the keys to Asia; meanwhile, the corrupt and addled policy-makers and economists who should have known better, looked the other way, or even worse endorsed the strategy.
Have I reiterated the "wisdom" of borrowing from the Chinese to build weapon systems designed to fight the Chinese? That was my point in this posting. Who is the Simple Jack at the Pentagon war gaming that strategy? I think they need to get together with the accounting department. Clearly the Chinese have that scenario covered - it's called stop buying U.S. dollars and watch the U.S. economy go tits up for good. No need to launch one missile, just wait for the Idiocracy to go into Clockwork Orange mode.
4) Energy Shortage
Not much to add here, other than to reiterate the obvious that relatively cheap and abundant energy is paramount to economic growth and vitality. With each passing day, the U.S. surrenders more control of its energy supply to unstable regimes in the Middle East, and for all that, even now the U.S. is not one step closer to adopting a coherent long term plan for reducing its dependence on ever-dwindling and more expensive fossil fuels. It's been 40 years since the U.S. became a net importer of energy - and still no plan ! Major strategic mistake. Picture having to negotiate with the Taliban one day to buy oil...
My original post discussed the unprecedented overall debt levels and cited the subprime crisis which was yesterday's version of today's sovereign debt crisis. And while the subprime debt crisis was widely discussed and analyzed well before the Lehman collapse in 2008, clearly that knowledge did not prevent the inevitable crash from occurring. Fast forward to today and in addition to still having near-record high levels of household debt, sovereign debt has also reached similarly insane proportions due to two well known factors 1) the global bailouts of the lenders/banks 2) massive fiscal deficits which are still propping up global economies and propagating the illusion of solvency. And so while we are all getting tired of the Greek debt drama (pun intended), the reality is that Greece is only somewhat ahead of the curve in its debt problem than most Western nations which have similar or in some cases higher levels of debt and/or deficit. Every time I turn on CNBC (before can hit mute), and hear stunted infotainers deriding the profligate Europeans, I just have to laugh at the hubris of it all. Be patient ! Every dog will have it's day. Actually, this guy said it best.
2) Real Estate Meltdown
Been there done that. The only major countries that have yet to experience a full fledged real estate meltdown are China, Canada and Australia. No surprise, these countries are all inextricably linked via their trades ties and more specifically commodities - Australia and Canada being two of the world's largest commodities producers, and China being the world's largest commodity consumer. Throughout China's long economic expansion, the Chinese have traded investments in real estate in exchange for commodities - which matches precisely the story in Canada and Aussie, where the marginal real estate buyer is Asian. So unlike ROW (the Rest of the World), after the 2008 meltdown, citizens in these 3 countries continued to over-invest in real estate under the general presumption that while real estate can collapse in every other part of the world, "it can't happen here". Unfortunately, I can't have sympathy for my Canadian brethren who apparently eschew reality for realty.
3) China Trade aka. Mercantilism aka. "Beggar thy Neighbour" policy
This is actually the most egregious aspect of this ongoing fiasco and the one that will have the most lasting deleterious impact on the American economy, of all these factors listed. As I have reiterated many times, the U.S. didn't just outsource its jobs, it outsourced entire industries and the associated knowledge and expertise. Intellectual capital and excellence in engineering and manufacturing does not manifest itself overnight - it accumulates over decades. And yet this current generation sold it off to Asia in exchange for what will amount to some short-term consumption loans. Some now say that the U.S. is not good at manufacturing and should not try to compete due to cost disadvantages. This is a loser's mentality. Japan and Germany both have structurally higher wage costs than the U.S. and they still compete very successfully in manufacturing. Ultimately, the American 1%ers of the day decided it was cheaper and much more profitable (short-term) to liquidate the manufacturing sector and hand the keys to Asia; meanwhile, the corrupt and addled policy-makers and economists who should have known better, looked the other way, or even worse endorsed the strategy.
Have I reiterated the "wisdom" of borrowing from the Chinese to build weapon systems designed to fight the Chinese? That was my point in this posting. Who is the Simple Jack at the Pentagon war gaming that strategy? I think they need to get together with the accounting department. Clearly the Chinese have that scenario covered - it's called stop buying U.S. dollars and watch the U.S. economy go tits up for good. No need to launch one missile, just wait for the Idiocracy to go into Clockwork Orange mode.
4) Energy Shortage
Not much to add here, other than to reiterate the obvious that relatively cheap and abundant energy is paramount to economic growth and vitality. With each passing day, the U.S. surrenders more control of its energy supply to unstable regimes in the Middle East, and for all that, even now the U.S. is not one step closer to adopting a coherent long term plan for reducing its dependence on ever-dwindling and more expensive fossil fuels. It's been 40 years since the U.S. became a net importer of energy - and still no plan ! Major strategic mistake. Picture having to negotiate with the Taliban one day to buy oil...
5) Financial Derivatives/Hedge Funds/High Frequency Trading - All that Crap
No change here. Still the tail wagging the dog, as Wall Street's financial WMDs continue to dictate terms to the global economy. Economically it's said to be a zero sum game (my loss is your gain), but it's actually a massive lesion on the world economy, one that leaks tens of billions of bonus profits for the privileged few rent seekers who command insider access. Worse yet, it's a massively leveraged out-of-control latent catastrophe that should have been dismantled in 2008, but has since been allowed to continue to grow in size and complexity. The Federal Reserve went all in during 2008/2009 to save the Machine, and in doing so, squandered their assets and their credibility, so who will save the system this time?
6) Fiscal and Monetary Policy - "this one goes to 11"
What can I say about a plan to borrow our way out of a debt crisis? We've had 0% interest rates for three years. Who exactly is the marginal buyer at these rates? Is it someone who just came out of a fucking coma for three years and now wants a new Suburban? How about some more QE (printed money) Bennie? What round are we on - is it QE3? ..I've lost track now. How about we just jump to QE11, I am sure that will be 8 notches better...
And on the fiscal side, what are we at: borrowing ~40% of the U.S. federal budget now? Who are we fooling at this point. Let's forget about taxes, because apparently paying $.60 on the dollar is too much for Republicans. Let's cut to the chase and borrow the Fully Monty !
At $1.3 trillion, the current U.S. deficit is enough to create 13 million new jobs each paying $100k/year. And yet, for all that, the number of new jobs added in October was a mere 88k ! Fiscal policy is DOA - no return on investment.
On a related note, we hear all the time that Wall Street paid back its bailout money...really? That is pure bullshit of course. The trillions in QE money used to juice the stock market, is still out there and sitting on the Fed's balance sheet. The likelihood of that money ever getting paid back is 0. And the $4.5 trillion in deficits that have stacked up since the 2008 meltdown? Never getting paid back. Who benefited from all of that deficit spending? As indicated above, wages and jobs are still well below 2007 levels. Corporate profits - ALL TIME HIGH BABY !!! Now, what do those hippy Occupy Wall Street types want again?
7) Complacency and Mass Delusion - Never go Full Retard...
Ah yes, the Idiocracy, my favourite subject. Here we are, every other TV show is now a cartoon - not targeted at kids mind you, but for Xbox addled Boy-men living in their parents basement and wondering what they will be when they grow up. Just the thought of my grandfather in his middle age watching a cartoon is unthinkable and ludicrous.
Ultimately successful countries unravel and fail because the population at large becomes overfed and complacent and can no longer stand to delay consumption gratification to make long term investments in infrastructure, education and R&D. That's the ultimate root cause of this fiasco and the root cause of every once-great nation that has failed.
No change here. Still the tail wagging the dog, as Wall Street's financial WMDs continue to dictate terms to the global economy. Economically it's said to be a zero sum game (my loss is your gain), but it's actually a massive lesion on the world economy, one that leaks tens of billions of bonus profits for the privileged few rent seekers who command insider access. Worse yet, it's a massively leveraged out-of-control latent catastrophe that should have been dismantled in 2008, but has since been allowed to continue to grow in size and complexity. The Federal Reserve went all in during 2008/2009 to save the Machine, and in doing so, squandered their assets and their credibility, so who will save the system this time?
6) Fiscal and Monetary Policy - "this one goes to 11"
What can I say about a plan to borrow our way out of a debt crisis? We've had 0% interest rates for three years. Who exactly is the marginal buyer at these rates? Is it someone who just came out of a fucking coma for three years and now wants a new Suburban? How about some more QE (printed money) Bennie? What round are we on - is it QE3? ..I've lost track now. How about we just jump to QE11, I am sure that will be 8 notches better...
And on the fiscal side, what are we at: borrowing ~40% of the U.S. federal budget now? Who are we fooling at this point. Let's forget about taxes, because apparently paying $.60 on the dollar is too much for Republicans. Let's cut to the chase and borrow the Fully Monty !
At $1.3 trillion, the current U.S. deficit is enough to create 13 million new jobs each paying $100k/year. And yet, for all that, the number of new jobs added in October was a mere 88k ! Fiscal policy is DOA - no return on investment.
On a related note, we hear all the time that Wall Street paid back its bailout money...really? That is pure bullshit of course. The trillions in QE money used to juice the stock market, is still out there and sitting on the Fed's balance sheet. The likelihood of that money ever getting paid back is 0. And the $4.5 trillion in deficits that have stacked up since the 2008 meltdown? Never getting paid back. Who benefited from all of that deficit spending? As indicated above, wages and jobs are still well below 2007 levels. Corporate profits - ALL TIME HIGH BABY !!! Now, what do those hippy Occupy Wall Street types want again?
7) Complacency and Mass Delusion - Never go Full Retard...
Ah yes, the Idiocracy, my favourite subject. Here we are, every other TV show is now a cartoon - not targeted at kids mind you, but for Xbox addled Boy-men living in their parents basement and wondering what they will be when they grow up. Just the thought of my grandfather in his middle age watching a cartoon is unthinkable and ludicrous.
Ultimately successful countries unravel and fail because the population at large becomes overfed and complacent and can no longer stand to delay consumption gratification to make long term investments in infrastructure, education and R&D. That's the ultimate root cause of this fiasco and the root cause of every once-great nation that has failed.
