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> Collapse of U.S. Economy Imminent

21 January 2006, 22:55

I don’t doubt that the credit economy can keep going for some time....the question is how long?
The longer it goes on, the worse the economic fundamentals will get, and the worse and harder to avoid will be the fall.

If you want to read some serious economic discussion of this, try reading Bonner and Wiggin’s best-selling book "Empire of Debt: The Rise of an Epic Financial Crsis". (That is, if you can find a copy....last I heard Amazon was sold out.)

It is a serious discussion by real economists, and is recommended reading by some of the leading economic journals. If found it so riveting, that I couldn’t put it down, until I had read it straight through.

The assumption of many people like you, is that Asian countries like Japan and China will be forced to continue buying US debt, because if they don’t, the US economy will collapse, and so they would lose their export market, and that would hurt them too much. So, in self-defense, they will continue to buy worthless US bonds.

That is, indeed, the only thing that is keeping us from collapse at this time.

But, throughout history, the fundamental value of a currency, is based on the economic output of a country. As China becomes the major manufacturer in the world, and the US output shrinks to almost nothing, the fundamental fact is that our currency has no real value, and we are just buying time by assuming that the Asian countries will continue to bail us out, by buying our debt.

The trouble is, by selling debt, we are in essence, printing more money. By issuing no-interest loans, and continuing to fuel the economy by consumer indebtedness, inflation is inevitable. (In fact, inflation is starting to take off.) As long as there is inflation, the price of gold will go up (gold has more than doubled, since Bush took office, as a result of his incredibly high deficit spending).

The longer we fool ourselves into thinking the Asians will bail us out, the worse inflation will get, and the higher the price of gold. At some point the Asians will increase their gold holdings (countries like Russia have just announced they are doing just that.) For China to increase their gold holdings by just 5%, I think I heard, would mean something like 67% of the world’s gold supply....thus resulting in another phenominal increase in the value of gold.

The point is, these factors are completely out of our control.

The longer our debt economy lasts, the worse off the economic fundamentals will be. And there has never been a time in history, when the economic fundamentals didn’t rule in the end.

My worst concern, is that if, and when, we finally collapse, how will we be able to recover? In previous economic collapses, we were still one of the only industrial countries in the world. So, it was just a matter of finally getting it together, and getting the capital together, to fund our recover. But now, with places like China and India taking the economic lead, with people working for 16 cents/hour....how could we ever recover to the point of competing in the world, without lowering our standard of living to that of a third world country?