In the first article, I laid out why our economic/financial problems are severe and unfixable due to demographics exacerbated by rising oil prices. In the second, I speculated about possible paths to a crisis. This one is about the reasons why the severity of the next crisis will be unlike anything we’ve seen yet.
The End of the Dollar Age
The federal government is rapidly amassing over 20 trillion in debt along with over 200 trillion in unfunded liabilities. Setting these astronomical sums aside, bailouts for failing state and local governments, the banking system, and pension plans alone would necessitate trillions in dollar creation to the point where Americans would experience crippling inflation and the position of the dollar as the world’s reserve currency would become untenable. This predicament is so dangerous because our economy relies on importing far more than we export, utilizing a currency backed by nothing but confidence. Last year, the trade deficit was 502 billion dollars. When the day arrives that exporters won’t accept IOUs, the ramifications will be powerful. Regardless of whatever solution is attempted, we will have to confront the immutable fact that we’ve been consuming far more than we produce for way too long. It’s physical reality, so there’s no way around it.
The US functions on oil. According to the US Energy Information Administration, roughly 7.8 million barrels of crude oil were imported per day in 2016. These transactions have been conducted for decades according to the Petrodollar System. Once the dollar loses significant value, it will be very hard for Uncle Sam to bully this resource from exporters. In order for their own countries to stay afloat, they need to exchange their oil for something of comparable worth. No amount of coercion will change that, especially since the US military would require massive amounts of oil to make good on threats. China is already preparing for the end of this system by introducing gold-convertible crude oil futures contracts, denominated in Yuan. This is because they don’t want their ability to import oil impacted by our looming dysfunction. Oil price spikes and shortages will impact everyone and almost everything in economic our supply chain.
Like Tesla and the fracking companies described in the first article, there are many highly-valued businesses such as Netflix that seem healthy, but actually have a negative cash flow. If their borrowing costs go up significantly or lenders get spooked entirely, then they will go belly up. Without access to cheap credit, it will be very difficult for companies to survive turbulent times.
Here’s the scenario that I worry about: If retailers are unable to cheaply import their merchandise using dollars, and then transport it to stores using trucks powered by low-cost oil, there could be real trouble. Most grocery stores are stocked on a 24 to 48 hour basis. It’s entirely reasonable to expect skyrocketing prices, panicked people, and bare shelves. We could see chaos, even if that’s only a temporary situation.
Back in 2008, most Baby Boomers were still in the workforce. By now, millions have retired and that’s increasing at roughly 10,000 per day. The expense of moving so many productive people over to the other side of the ledger is a big piece of our unfixable problem. This population will eventually reach around 60 million. They’re reliant on 401(k) and traditional pension plans. A significant drop in equity prices (they’re in a huge bubble) will wipe out their means of supporting themselves. Worst still, roughly half of public debt is held by pension plans, so government insolvency will hit them especially hard.
Part of America’s invigorating transition process from a prosperous 1st world white country into a brown 3rd world shithole is a massive increase in the amount of people dependent on government handouts to survive. This growing difference between needs and means translates into budget deficits, to which governments respond by borrowing and not paying for other stuff. Since much of America’s industry has been shipped away and its middle class gutted, many whites are now included in this number. Their ranks will swell when the economy takes a nosedive. Scarcity is one of the principal drivers of sectarian conflict. That will be discussed in the next article of this series.
Things Are Terrible Already
Prior to the 2008 recession, the country was in much better shape than it is right now. Many people had savings and assets like their homes. This helped a bit to cushion the blow of hard times. This time around, that is not the case. Americans are mired in record levels of debt. For instance, household debt is now around 13 trillion, the student debt bubble is around 1.4 trillion and the auto loan bubble is around 1.2 trillion. All of these figures are both indicative of trouble and potent sources of trouble for the banking system once the borrowers come under pressure.
For many people unconnected to the financial sector, the 2008 recession never ended. That’s why we have a truthful unemployment rate over 20%, and we’ve had negative growth in our GDP ever since the subprime mortgage crisis tanked the economy. Reality exists whether the government chooses to measure it honestly or not. The stage is set for a very ugly show. Next, we’ll take a look at some historical precedents and see how they can be interpreted to anticipate the calamity on our horizon.
-By Tommy Shackleford