With about 900 banks expected to fail, the U.S. Economy will move into a second wave of problems. A recent trip to Ft. Myers, Florida, revealed a substantial glut of commercial real estate properties standing vacant with no expected rental income in the future. The newest Target store looked like a ghost town. Needless to say, we did not have to wait in the checkout line. This is indicative of those areas who enjoyed double-digit growth over the last few years in the real estate bubble. Prepare for the next bubble to pop.
Bubblenomics
In times like this,new words are created to describe the events being observed. The word that best describes the current response to our economic woes is “Bubblenomics”. Monetary policy is being used to address structural issues with our economy. Money can’t fix a loss of manufacturing jobs by printing more and the average American’s productive capacity is underutilized. We need to create or build to provide a foundation for a strong economy. Historically, savings and investment provide the needed capital for new businesses and products. It will be found that Alan Greenspan failed as the Chairman of the Fed and savings rates should not have been pushed to extreme lows thereby punishing the savers. He managed to interrupt the natural cycle only to evoke a more severe correction on the bust portion of the cycle. In the meantime economic policies promoted “globalization” of manufacturing by moving plants offshore and undermining the productive use of our human resources in favor of building a “services & financial” economy which has proven to be disastrous. That move enriched a few on Wall Street and Washington but hurt the manufacturing states.
Cyclical Realities
The weather is made up of short cycles as well as long-term cycles and when these cycles converge on each other, we tend to get extreme weather. The same is true in the economic realm. History shows that we have boom/bust cycles occurring rather frequently. However there are longer term cycles that have been observed to have more notable effects on the economy and society. For instance there is a 51.6 year cycle has been studied since the Civil War and has proven to be rather accurate. We have entered the down cycle and with the convergence of the short term cycles (thereby increasing the amplitude), it sets the stage for $3,000 gold prices.
Reserve Currency
What prompted the world to establish the U.S. Dollar as the world’s reserve currency? First of all, the U.S. had 76% of the world’s gold in its possession after WWII. Secondly, we were the world’s arms dealer and food supplier. Mankind’s thinking runs in cyclical patterns and when one generation begins to die out, the next generation’s self interest kicks in and starts the process over again. We only need to look at Spain and Great Britain to see what a former World power looks like.
All of the above point to the spiral of Self Interest. In the 60’s the pressure against the U.S. Dollar began (51.6 year cycle). It culminated when Nixon closed the Gold Window which was prompted by the action of the French wanting to hold gold over dollars. Inflation had begun in the U.S. and those dollars were declining in relative value. Terms such as “greater good” mask the true term of “self interest”. What then surfaced was the battle of self interest between the government and the people. Social security is a great example. Government installed social security as a way of helping the retired people to sustain themselves after their productive years. All of us were required to withhold part of our wages with the promise we would receive benefits at retirement. What a noble cause! Fast forward a few decades and now those funds have been replaced by IOU’s and the threat of insolvency is at hand. What happened to all of our money as well as the employer matched funds that were deposited with the U.S. Treasury? That money is gone! It was used for the “greater good” by the various administrations who “borrowed” our money without our specific permission. If any of us did that at a private level, we would be put behind bars. The Rule of Law has given way to the path of Marxism. “Marxism is an economic political theory by which law is considered an instrument of oppression and control, and which the ruling class uses against the working class.” The complacency of the average American has allowed government to pursue a path whereby laws prefer the lobbyists of large corporations who fund reelection campaigns. Have you ever noticed how difficult it has been to have campaign financing reform? Why is it that Congress has their own retirement and healthcare benefits? Why do Congressmen get preferential treatment when breaking the law? The recent judicial decisions upholding the view that imminent domain needs could trump private land ownership is just another example of the issue of self interest. As the rule of law disintegrates, property laws vanish and people will no longer attempt to hold property, in fear of confiscation.
The rule of law is in the hands of 545 people in Washington. The recent bailouts of the “too big to fail” corporations and banks have brought to surface the change in the rule of law to the rule of self interest. Even though the President includes the “rule of law” in many speeches, self interests rule now. Goldman Sachs has been the indirect recipient of substantial bailout funds authorized by government officials who were former Goldman executives. Our Heavenly Father will reconcile the books of this path of self interest. It may not be this Friday or next, but you can be assured HE will!