The contemporary US economy is a consumption economy based on virtual wealth: Increasing debts based on unrealized real estate assets, purchased by loaning printed money that has no real economic backing. The problem is aggravated since production capabilities, including technological know-how have migrated almost completely from the US to the Far East. Thus, 70% of the growth in the American economy has to do with the consumption of finished products, while in China the giant growth of 10% per annum is created by production which is soon transformed into exports.
Uncle Sam's Bankruptcy
The bottom line is that in recent years, the US has been transformed from a self sufficient autarkic economy, into an economy dependent on outside forces. In reality, the US is enormously bankrupt, with the largest debt in the world, reaching the mythic sum of nearly 10 trillion (10,000 billion) dollars! Just for comparison, the second largest external debt in the world, Britain's, stands at 7 trillion, while Israel has an external debt of 73 billion dollars.
At present, nobody has a real interest in stopping this runaway train. The current Chairman of the Federal Reserve, Ben Bernanke, who became known as "the Chopper" after he made it clear he would not allow the US economy to fall into a recession, and if necessary, would fly over America in a helicopter and scatter dollars to citizens in order to fuel the economy (a citation of the recently deceased economist Milton Friedman).
The countries absorbing the excess dollars also encourage the continuous printing of money in order to ensure their growth and the unrestrained consumption of their products by the Americans. Furthermore, the Chinese, for example, make the simple calculation that a lower valued dollar would lower the value of their vast reserves of dollars. Additionally, such a development could also harm Chinese exports, as foreign purchasing power would fall. Simply put, Americans would not have the money to buy another shirt made in China.
The Inevitable Rupture of the Printing Bubble
But economics has one fundamental rule above all others, namely "There is no such thing as a free lunch", and one day it will all end. It could possibly start with layoffs in some factory, such as General Electric, due to an uncontrolled factor, such as a faulty assembly line. The reduced income of the people fired would lower consumption, which would create a feeling of recession and slowdown. This would soon lower real estate prices, the force behind movement in the American economy; mortgages could not be covered and even the banks might collapse.
It could also be triggered an external factor. Thus, for example, a number of countries with large dollar reserves, including China (reserves to the tune of a trillion dollars), Russia and Iran, have recently announced that they intend to diversify their reserves of foreign currency, in other words, exchange their dollars for other currencies such as the Euro.
Actually, it is difficult to predict when and how the bubble will burst, and the question is not all that important. Everybody realizes that the path to an economic crisis has been paved and the process is not reversible. Already, American economists warn of the expected fall in the real estate market, and the dispute is whether it would be an emergency landing or a crash.
Furthermore, the migration of production from the US would prevent any way of rehabilitating its economy, as its strength is very dependent on the ability of industry to produce and export. Textiles, shoes, electric appliances, computers – are all no longer manufactured in the US. The automobile industry, the acme of the American economy, is currently in deep crisis and experiencing soaring losses. General Motors alone lost over 10 billion dollars in 2005. Moreover, even after the value of the dollar plunges, there is still a yawning gap between the Far East and the West when it comes to manufacturing costs and employee salaries.
Even the assumption that the devaluation of the dollar against currencies used to trade with the US would generate positive change and create a trade surplus for the US has proved false. Thus, for example, the dollar has devalued against the Euro in the last 4 years by over 40%! Yet the American debt continues to grow.
A Global Dark Wave
One day a child will call out that "the dollar is naked". The unavoidable result of the weakness of the American economy would be an economic tidal wave – the value of the dollar would plunge, causing a shakeup of unprecedented magnitude in the global economy. It should already be noted that already today the value of the dollar is 5% of its value at the beginning of the twentieth century.
This bleak prophecy is not only the realm of lonely doomsayers. The highly influential book, 'Empire of Debt', by Bill Bonner and Addison Wiggin believes that like any other empire in history, the end of the American empire will also arrive. The authors describe how the enormous trade deficit, burgeoning personal and governmental debts, the real estate bubble and enormous military expenditure will ultimately cause the economic crash of the United States. British economist Bruce Porthouse, is gloomier still, and warns that the collapse of the dollar and the consequent global economic crisis, would cause the collapse of Anglo-Saxon society, to the point of famine in the US, Canada, Australia, New-Zealand, and Britain.
What can be done? There are those who recommend exchanging the dollar for other currencies. Bonner and Wiggin advise the purchase of gold. This metal is the leading economic base and is distinct from a country's economy. It is therefore a safe haven when the world's economies are in trouble. This explains the constant rise by 100% in the value of gold since the beginning of the twenty-first century – from 300 dollars an ounce in 2000 to over 600 dollars an ounce today.
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