Since I last blogged about our economy I have read what I could to find more information on the topics covered to see if there is more evidence that supports the premise that things seem coming to a head in the near future. I think they are, although when that might happen, I just would not know. Too much is under the control of those who will not share information on what they have not consummated yet. But still, where there’s smoke, there’s fire. So I wanted to spend a little time talking about a few issues that we touched on before.
US Trade Deficit, China and Gold Backed Currency
You would need to read the earlier economic post of March 28th here for the background, it is too much ground to go over again, but it is clear to me that there is a chain reaction building. The US trade deficit grows worse each year, worse probably each month. China is our largest trading partner. We import a vast amount more from them than we export, which means more dollars (in terms of value or wealth) leave than returns. Our annual trading deficit was $22 billion in 1993, $124 billion in 2003, and $318 billion in 2013. These numbers are additive (add them up) not cumulative (a running total of all history). In addition, China holds somewhere in the neighborhood of $1 trillion in US debt. What does it mean? Besides the loss of thousands upon thousands of jobs annually; with more money leaving than coming in, we have to borrow from foreign lenders to meet our budget deficits and burgeoning national debt, becoming more and more dependent on foreign debtors. Our largest creditor is our biggest trading partner. They have lots of our money, we keep sending them more and then ask to borrow it back. Sounds like a no-win situation for us.
We borrow big and we buy big from China, who is possibly making noise of a gold backed currency (we talked of their gold hoarding last time); China, who could use a newly minted gold standard (pun intended) to replace the US Dollar as the world’s reserve currency (for settlement of international trading which would lead to a catastrophic decline in demand for US currency around the world); China, who could crash our financial system just by cutting back on buying our government debt. So, does the wish to sell us a ton of goods (over $400 billion last year) and keep the value of their debt investments outweigh the wish of being the only gold backed currency, dominating international trade? Would they take the trade-off and deal with the associated costs and disruptions? Maybe, as it might mean creation of lots of high value, high paying financial services type jobs at the cost of lower paying manufacturing ones (which sounds a lot like what the US starting doing years ago, so if China followed suit, it would serve them right if they wound up where we are, owing a ton of money to who knows who else). You cannot be sure about the trade-offs they might be willing to make, and the Chinese are famous for not talking about their plans. I believe it is a matter of political will to see it through to the end game despite the pain along the way. Between China and the US, I think we all know who has more of the will to reach the end game. But now we are in a double spiral – buying ever more goods from them and borrowing it back to pay our own bills. How long before we lose complete control of our destiny in these areas?
Capital Controls and Cashless Currencies
We spoke last time of H.R. 2847 and capital controls, which are restrictions on money flowing in and out of a country, out of its economy. We will be in a place for the government to do that legally the middle of 2014 (see the last post). Our currency could crash if the above mentioned loss of reserve currency status meant the US could no longer settle international debts in dollars (which makes printing them indiscriminately or borrowing in an unrestricted way less effective or even possible), the US might look to seize the ability to keep Americans from moving cash out of the country to safer foreign currencies. Economists state that only countries that worry about currency crises worry about implementing currency controls.
This could be viewed as a form of wealth confiscation; you force your citizens to keep money onshore in your national economy, possibly supplying it back to you to finance government deficit spending at a time the demand for US dollars abroad and the appetite for US sovereign debt has dried up overseas. Keeps everyone all lashed together on the deck of the sinking ship. It also opens up another possibility: using a currency crisis to trigger a move to a cashless currency (think of Bitcoin) that would engender even more government control over money supply and movement (and the ability to tap into and take over private wealth). You could really push a socialist agenda if the ability to cut off wealth transfer was as easy as a flip of a switch. Think of how easy to set up a system of government providing more and more goods and services through a cashless transfer of wealth among the populace, and taking control over more and more facets of daily living.
Bulls and Bears and Markets, Oh My!
There is an old saying in the stock market that bulls make money, and bears make money, but pigs get slaughtered. Well, maybe it is sheep or lambs instead; the innocent, unaware and clueless. Over the past few weeks, the stock market has done some twisting around. Some say it is beginning of the end, some say, not yet, they will calm things down for a bit longer, others say huh? Does the market history and trading volatility have the feel of, the smell of, managed trading or manipulation? Many are beginning to think so. Is the stock market so unrealistically overpriced as to value that it is just waiting for that nudge over the precipice into a plunge and crash of epic and historic proportions? If all that is what is truly going on, I can tell you that Mr. and Mrs. Average Person, Mr. and Mrs. Small Investor don’t stand a chance, and will be the last to know.
And all the while the financial markets are roiling, the consumer economy is taking a buffeting: Family Dollar Stores closing hundreds of locations, Coldwater Creek recently filed for Chapter 11 bankruptcy and has closed all store locations. These are not small businesses, not behemoths either, but operations that had hundreds of locations, now all gone. Along with the jobs. People are hurting everywhere in our country. And it does not seem that conditions are getting any better. Here is an interesting factoid: the growing Canadian middle class now out-earns the steadily shrinking US middle class. Always a bulwark in the economic prosperity of our country, this group is now in danger of being overtaken by similar groups in other countries. Not a good sign of long-term US economic health.
We have talked in the last economic post of the similarities of the between the stock market trending of the past year or so as compared to that before the stock market crash in 1929. People are also comparing the drop in housing sales in the past few months of what we saw in 2007 before the housing bubble broke and look what that did to the economy in 2008 and 2009. I am not a die-hard fan of trend analysis as an absolute indicator of future events (the only absolutes I really hold to are the sovereignty, holiness and justice of God; the absolute truth of His Word as He caused to have written in the Bible; and that Jesus is truly God and our only means of eternal salvation). But you cannot ignore trends as possible indicators of what the future holds.
Connections or Conspiracies?
Isn’t it strange how these topics seem somehow tied together, soon triggered by the actions going on in our trade imbalance and our voracious appetite to borrow back the money we ship out of this country? A few years ago, things like capital controls or wholesale wealth confiscation would have seemed like the dreams of a sci-fi writer. Now, it does seem more and more plausible. Trade deficits and debt spirals – happenstance or planned activities? In desperate times, people will accept solutions that would have seemed unspeakable just a short time ago.
Those in power never let a good crisis go to waste. And if one doesn’t come along in a timely fashion, why not create it? That is why I always found the movie Wag the Dog funny, but in a scary way.
What to Do Now?
We have said it before. Pray. Seek wise counsel from investment advisers (and it would be better if you were getting that counsel from a Christian adviser). Stay alert, be watchful. Prepare. But always remember we need be faithful to the one True and Living God. If you are obedient to His will for your life, He will lead you where He would have you be, even if it is not where you would like, nor the most pleasant of circumstances.
And always remember…
Jesus is coming soon!