The Economic Collapse
Dec 9, 2010
Have you ever seen pictures of extravagant wealth from places such as Dubai or Abu Dhabi and wondered where in the world they got all that money from? Have you ever read news stories that talk about China lending us hundreds of billions of dollars and wondered how they could possibly have so much wealth? Well, it is actually quite simple. They got much of it from us. Every month, the United States buys much more from the rest of the world then they buy from us. It is called a “trade deficit” and the United States has been running one for decades. In essence, what is happening each month is that we are transferring somewhere between 40 to 50 billion dollars of our national wealth to the rest of the globe and they are sending us oil and cheap plastic gadgets that Americans greedily consume. By the end of the year we have usually transferred somewhere around a half trillion dollars of our national wealth out of the country for good.
In order to maintain our standard of living, the U.S. government has been going to the countries we have been sending our wealth to and has been begging them to loan us massive amounts of their dollars. At this point the U.S. government literally owes trillions of dollars to the rest of the world.
Scoffers say that it is just a bunch of “paper money” that we are sending them, but the truth is that it is hundreds of billions of dollars of “paper money” that is not in the hands of average Americans. We have sent massive amounts of our wealth and prosperity overseas and it isn’t coming back unless we borrow it.
Today there are dozens and dozens of U.S. cities such as Detroit, Michigan and Camden, New Jersey that are turning into post-industrial hellholes while thousands of gleaming new modern factories are going up all over China. 42.9 million Americans are now on food stamps (a 16 percent increase in just one year) while the oil sheiks of the Middle East build opulent palaces that are extravagant beyond belief.
Most Americans do not realize how serious the U.S. addiction to foreign oil really is. We are constantly being drained of our wealth by the oil powers of the Middle East.
So what are they doing with all of this money? Well, let’s take a look at just a couple of examples.
Have you ever heard of the Emirates Palace? It is located in the United Arab Emirates and it cost approximately 3.8 billion dollars to build. The following is how one writer for a major UK newspaper described it after a visit….
The Emirates Palace has so many biggest and best boasts, it could have its own chapter in the Guinness Book of Records, but the atrium is the whistles and bells, the jaw-dropping big daddy of them all — 60 metres high, 42 metres wide and topped with the largest dome in the world. Staff need golf carts to negotiate their way around it. It is decorated with 13 colours of marble, ranging from sunrise yellow to sunset red (to reflect the many hues of the desert), and lots and lots and lots of gold: 6,040 square metres of gold leaf cover the largest gilded expanse ever created in one building. It’s even in the food. I ate gold leaf on my chocolate cake. Apparently, it aids digestion.
In Dubai, there is so much wealth that they pretty much build whatever they can dream up. For example, in Dubai you will find the largest “indoor ski resort” in the world. One travel site describes it this way….
When one thinks of Arabia, let alone Dubai, one likely pictures an arid desert of heat and sun. One does not think of snow skiing. Yet, that is what one can do at Ski Dubai, arguably the largest indoor ski resort in the world. The resort features 22,500 square meters of ski area. The heavily insulated building is kept at 30.2 degrees Fahrenheit during the day and 21.2 degrees Fahrenheit throughout the night, which is when the snow is generated. The resort features five ski runs and is open year round.
But it is not just the Middle East that is getting incredibly wealthy off of the United States. In a recent article entitled “China #1, United States #2? 25 Facts That Prove The Transition Is Really Happening” I detailed how China is in the process of surpassing the United States economically.
Over the past 25 years, the U.S. trade deficit with China has soared into the stratosphere. In 1985, the U.S. trade deficit with China was 6 million dollars for the entire year. In the month of August alone, the U.S. trade deficit with China was over 28 billion dollars.
For many Americans this can be difficult to comprehend. For a moment, imagine a giant map of the world and that there is a gigantic pile of money in China and a gigantic pile of money in the United States. Then start taking 20 billion dollars from the pile of the United States and give it to China every single month.
After a while, what is going to happen?
Well, the United States is going to be a lot poorer and China is going to be a lot wealthier.
As we have become poorer, it has been harder and harder to maintain our very high standard of living.
The U.S. government has been borrowing larger and larger sums of money from the rest of the world in order to “stimulate” our economy, but in the process we are piling up horrific amounts of debt.
The national debt of the United States is now 13 times larger than it was just 30 years ago.
If we did that again over the next 30 years, we would have a national debt of approximately $170 trillion by the year 2040.
Of course that will never happen.
Why?
Well, because the entire financial system would collapse and we would be forced into national bankruptcy long before we ever got into that much debt.
The truth is that we are already on the verge of total economic collapse. In fact, CNS News is reporting that retiring U.S. Senator George Voinovich believes that the collapse could happen at any time now….
“I think we are on the edge of it right now. I really do,” said Voinovitch. “If we don’t do something about dealing with the debt and the budgets that aren’t being balanced for as far as your eye can see, we are over the cliff. We are on thin ice right now. And I don’t think that we can wait. We need to move forward. We need to move forward for our own benefit, but we also need to move forward because the world is watching us right now.”
Indeed, the world is watching us, and they are getting tired of financing our runaway debt.
Just this week there have been some very troubling signs. For example, U.S. Treasuries just experienced their biggest two-day sell-off since the collapse of Lehman Brothers.
The rest of the world was deeply troubled when the Federal Reserve announced another round of quantitative easing. Federal Reserve Chairman Ben Bernanke had promised that the Fed would not monetize U.S. government debt, but now that is exactly what is happening. The rest of the world is less than thrilled by this.
In addition, many economists are warning that the tax cut deal that Barack Obama and the Republicans have agreed to will increase U.S. government debt even more. In reaction to the deal, economist Nouriel Roubini recently posted the following message on his Twitter account….
“Obama-GOP tax deal costs $900 billion over two years. US kicking the can further down the road. Are bond vigilantes starting to wake up?”
A recent article on CNBC described what these “bond vigilantes” are….
Bond vigilantes – the term was coined by economist Ed Yardeni in the 1980s to describe major investors who demand higher yields to compensate for the perceived risks resulting from large deficits – could derail the country’s precarious recovery, some economists say.
The truth is that the U.S. government is not going to be able to borrow endless amounts of very cheap money forever.
At some point the U.S. is either going to face much higher interest rates on government debt or the Federal Reserve is going to have to step in and monetize the vast majority of all new government debt.
Either alternative will be absolutely disastrous.
Most Americans just assume that the wealth and prosperity that we have enjoyed for so many decades will always be with us. But that is not the case. We have been exporting our national wealth and our national prosperity so that we could fill up our shopping carts with cheap foreign-made plastic crap and so that we could fill up our cars with foreign oil. It has been a fun ride while it lasted, but with each passing day a national financial implosion draws ever closer.
An economic nightmare is coming.
You better get ready.
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