Two months ago, I wrote a commentary reporting that “the second bubble had burst� in the U.S. housing market. Roughly three weeks later, I reported that the U.S. economy had resumed its “crash�. Contrary to the reports of the mainstream media, there was absolutely no “surprise� at all to any of these developments.
I had previously written (in April of 2009) that the U.S. housing market would suffer its next collapse beginning some time in the spring of 2010. As far back as July of last year, I wrote commentaries explaining why the U.S. economy could not “recover�, followed by a plethora of commentaries simply asserting that there was no “recovery�.
While regular readers may be bored by this chronology, there is a “method to my madness�, beyond mere self-indulgence. I possess no crystal-ball, nor do I have access to any data not freely available to the rest of the media. As I observed recently, there is a very simple reason why I have been able to “see� this devolution of the U.S. economy clearly – and thus not be “surprised� by any developments: I look at long-term charts.
Most market reporters, commentators, and politicians are so genuinely incompetent that they continue to rely upon nothing but the same short-term “snapshots� which have caused them to be “surprised� by everything. However, it is a safe conclusion that even such rampant incompetence (combined with a strong “herd mentality�), could not and does not mean that the entire U.S. government remains in an oblivious state of ignorance regarding this re-acceleration of the collapse of the U.S. economy.
This begs an obvious question. Given that at least some elements of the U.S. government have known all along that the U.S. economy was not “recovering� and could not recover, why is it that only now are we hearing of tentative, new plans of more “life support� for the dying U.S. economy?
The answer is also obvious. As I pointed out when I originally denounced the Obama “stimulus package�, it was never anything more than a bad joke. The combination of the collapse of the U.S. housing sector, massive unemployment, and the largest credit-contraction in the history of the U.S. economy had combined to subtract approximately $2 trillion per year in consumer spending from this consumer economy.
The response of the Obama regime to this scenario was a one-time injection of $780 billion in “stimulus�, spread-out over more than a year. Obviously, you can't replace $2 trillion with less than $800 billion and call it “stimulus�.
This brings us to the present dilemma of the U.S. government. The U.S. economy is much sicker than it was when Obama ascended the throne. Wall Street has continued to ruthlessly choke-off all credit to the U.S. economy, meaning that tens of millions of American households, and tens of thousands of businesses are much closer to the breaking-point than they were in January of 2009.
The entire U.S. retail sector is in a terminal death-spiral, and its only response is to eliminate vast numbers of retail outlets, and herd consumers into more on-line retailing. While this “cuts costs� for these companies, most of those cuts will be reduced employment – fueling the next leg lower for consumer demand, resulting in even more store-closures, etc, etc.
This means that the trivial “band-aids� being mused-about by government talking-heads are utterly meaningless. Simply, the Obama regime has to “go big, or go home�. It must either engage in massive (genuine) “stimulus� of the U.S. economy – meaning a multi-trillion dollar commitment, or simply allow the collapse to proceed (and feed upon itself). However, in even contemplating another, massive wave of spending, Obama faces two other problems (which he created for himself).
Throughout this “U.S. economic recovery�, the U.S. government has continued to pretend that it was “almost ready� to begin some actual, fiscal restraint – halting the exponential increase in federal government debt. That was the only thing propping-up the U.S. dollar (putting aside the constant Euro-bashing by the U.S. propaganda-machine). Allow another sickening plunge in the U.S. dollar, and that will drive away the last, few chumps still insane enough to buy grossly over-priced U.S. Treasuries. This is the road that leads to hyperinflation.
If this was not bad enough, the Obama regime has continued to be successful in duping both the vast majority of sheep in the U.S. electorate, as well as Republican knuckle-draggers that the U.S. economy was “strong enough� to begin to curtail runaway spending. This pool of chumps is looking for spending cuts, not a multi-trillion spending orgy.
About Jeff Nielson