America is a Sinking Ship. Wake Up!

originally posted Sep 25, 2006

America is in a state of decline. This is a fact. For whatever reason, America's financial condition has changed drastically between 1999 and now, the year 2006. This change is of such magnitude, that the mass media, the schools and every family's home should be ringing with the sounds of energetic debate, vigorous planning and decisive analysis. Yet this is not the case.

I would like to point out some interesting facts. These are not my opinions, but hard facts of which I am aware and think are important. I, of course, draw certain conclusions from these facts, but I will present the facts to you unencumbered by rhetoric, so that you may draw your own conclusions.

Firstly: gold. Since the turn of the millennium, gold has risen from about $300 to over $600. If you are not in the habit of thinking about gold, you may be unaware that it has been quite cheap for the past 20 years. In fact, many people thought that gold would never again be a worthwhile investment. Yet for some reason, the price of gold is rising. Platinum, which is rarer and followed with less interest, is over $1200, from around $400… quite a jump. Let us assume that there's a socioeconomic reason for this, since neither gold nor platinum was suddenly stolen by U.F.O.s.

Next: oil. As I'm sure you have noticed, gasoline is quite a bit pricier these days. This is because oil has gone from about $11 to $76. It did this at about the same time that gold rose. The price of oil affects the price of unleaded gasoline (which you put in your car,) but it also affects a lot of other things in the economy. You can find out the exact details if you're interested, but suffice it to say that it's a big deal when oil costs a lot. There are a lot of political ramifications and tricky situations involving the Middle East, but let's just stick to simple facts here at home.

Your modern American is distinguished from his forbears by his notable lack of savings in addition to the heavy debt he carries. Generally, "we" put most of our net worth into a house. Since The House is such a central part of the American economy, it's a dire sign when the housing sector is weak. After the big run-up in real estate and proliferation of new building, the current market is what they call "soft"… what we normal people call shitty. Sales are at a significant low and building has dropped enough to put a serious dent in the economy. There are a number of clever people who measure these things, and I'm relying on their judgment rather than my own.

I also obtained some interesting facts about the real estate boom from these clever people:

• 32.6% of new mortgages and home-equity loans in 2005 were interest only, up from 0.6% in 2000;
• 43% of first-time home buyers in 2005 put no money down;
• 15.2% of 2005 buyers owe at least 10% more than their home is worth (negative equity);
• 10% of all home owners with mortgages have no equity in their homes (zero equity);
• $2.7 trillion dollars in loans will adjust to higher rates in 2006 and 2007.

That doesn't encourage a lot of confidence in the sales that were made: it looks like a fair percentage of those deals will fall through once things revert to the norm. Plus, anyone who bought for profit will find that the equation no longer works or that there's no one to buy that 2nd or 3rd house from them.

One notable exception to this "low-savings" paradigm is the significant interest that the middle-class - specifically the baby boomers - took in the recent stock market surge i.e. the huge run-up during the '90s of tech stocks etc. It resulted in an unprecedented influx of private funds into the equity markets. Events like this tend to distort the economy, generating a profit frenzy and fostering opportunism. Additionally, these heady bull markets are like a long run on speed: eventually you will crash and pay the price. I would, at this time, like to point out that although the bull market is a demonstrable reality, my expectations of the immediate outcome are opinion, dealing as they do with the future. This is to carefully delineate fact from speculation.

Many people will, of course, disagree with me as to this final outcome, usually because:

a. it's "different" now, or
b. the internet has changed everything and my favorite:
c. the market is global now… in some inexplicable but axiomatic way that can't be explained to a simpleton like me…
or any number of other reasons.

My response is: believe what you want. I however, will keep my head down and wait for the fallout. I may not know why everything happens or when it will do so, but I still expect the historically validated ebb and flow of kingdoms and their money to assert itself in such a fashion as to inconvenience as many people as possible. Unless you're a Saudi Prince or own a nice island, you're just one of us. And those of us born after the Boomers' party days have watched ourselves dumped with mess every time so far. Time will tell – and don't burn any books.

It is important to understand that I am not a pessimist. The cycles of life and death are integral to existence and without them we would never experience the fascinating variety offered by a dynamic system. A static existence would be far worse than any calamity we encounter. I am merely attempting to gather the available information which I believe is pertinent to this very moment, so that I can both illustrate my viewpoint and stimulate speculation on these lines in others.

Anyway, before I cram too many numbers in, let's just break it down to this: lots of money on war, devious and power-hungry politicians, corrupt corporations above the law, thug police, overflowing prisons, rising real prices, falling U.S. dollar and a noticeable nervousness by the Russian, European, Chinese and Japanese Central Banks in continuing to hold worthless American paper. Let's not even touch the crazy church cults and paramilitary survivalists. Let's pray we can keep a better lid on the genocidal fascism than Germany in similar circumstances.