Is the current economic system starting to look like the above picture? The debt super cycle no longer works and has ended for consumers. It will soon come to an end for governments. 10 Years ago, the official U.S. Government debt was just below $6 Trillion, today it is at $14.6 Trillion. This additional $8.6 Trillion failed to produce full employment and with unemployment at 9.1%, there is no good news in sight for those who are looking for jobs created by economic expansion. Both personal and public debt have supported a national lifestyle that is no longer sustainable.
The current model is of consumers spending money at 70% of GDP and this model is broken. They are no longer increasing debt, the stock market has reduced wealth, and job growth is not occurring. These three factors are negatively impacting the current paradigm. Americans are reducing the discretionary spending due to lower home equity value, greater energy costs, and state/local governments are cutting back services and increasing taxes when possible.
We are now in an era of austerity. Consumption will be replaced with savings and investment, the standard of a half century ago. A crisis of confidence is ahead for all politicians. Their unemployment numbers may soar in November, 2012, elections.
Corporations are building cash on their balance sheets but the uncertainty is forcing them to hold their cash until some sort of stability is seen. Corporations are being thrown under the bus to divert attention from the politicians. When government creates uncertainty and instability, they eliminate the incentive for corporations to invest in long term capital programs thus jobs are not created.
Europe’s economic stability is in question. Italy’s 10 year bond rate is above 6% which reflects the risk of default whereas Germany’s bond rate is hovering around 3-3 1/2%. Greece’s rate is much higher. European investors may head to the door soon and if they decide to cash out, the U.S. market will suffer another record drop in the Dow Jones Industrial Average.
The coming storm is setting up the next move for gold and silver. Now that gold has surpassed the $1,600 level, I suspect we could see a parabolic move upward. Within 5 years we could see $10,000 gold and $250 silver. However, this would be accompanied by gut-wrenching corrections that could trigger your adrenalin flight response. Emotions play an important part in the market. Fear trumps greed in one’s core survival instinct. A 40% correction in stock prices would not be unexpected. Economic instability will create a lot of noise as the thunder rolls though. Now is the time to seek Our Heavenly Father’s voice to guide you through the coming storm. Man’s opinion and $5 will buy a Cinnamon Dolce Latte right now, that is, until inflation brings forth another price increase