Thursday, October 3, 2019

The Reasons For America's Difficult Path Ahead Remain

In the early part of 2018, a piece appeared on this site titled; "The Three Reasons America Faces A Difficult Path Ahead." These three major obstacles are and will most likely remain solidly carved into our path forward. Regardless of record new highs in the stock market or any positive predictions, there is no guarantee as to how long this growth trend will go. When easy money is the fare of the day leverage is generally growing at a rapid pace. While leverage tends to drive a market higher, when it is on the rise it also has exactly the opposite effect, when the market is falling only it often works faster and magnifies the fall. The three key challenges that America must confront and deal with are explored below. Our failure to deal with them will impact and bode poorly upon our ability to maintain our position in the world.

1.   The Low Job Participation Rate; Yes unemployment is at fifty-year low but much of that is because we have a very low civilian labor force job participation. Many people have left the workforce. The work ethic has taken a hit over the last few decades as many people adopted the attitude that frequently the reward for going the extra mile is just not there. The longer someone is out of the workforce the more difficult it is to return. Expensive job retraining programs will not solve the issue of creating new jobs in a world where higher mandated wages push employers to replace workers with robots that can perform repetitive tasks.

A Smaller Percentage Of Americans Are Choosing To Work
It should be noted that globalization has elevated the importance of creating jobs and a balanced economy that supports a strong middle class. A huge difference exists between creating a valuable and worthwhile product that benefits society and breaking a window then praising the jobs replacing it yields.  It is difficult to envision a larger share of Americans rushing to find jobs when society has come to accept not working as acceptable.

2.   Exploding National Debt; During recent years the national debt has soared and all indications are that it is about to get bigger as the bill for entitlements increases. The myth that a scenario of growth coupled with a falling deficit will allow us to outgrow many of the problems we face brings with it a false optimism and hope. In all truth, we have allowed those we have sent to Washington to spend money we don't have and continue to ignore the ever-growing debt being created.

Click Here To View The National Debt Clock
The fact is our trillion-dollar deficits will become commonplace before long. The deficit during the Obama years ran at over twice the nosebleed levels that had been projected. As things stand America continues to rack up a deficit each year of nearly $2,500 for every man, woman, and child in the country, such deficits were unheard of in the past unless it was during a major war.

Currently, the costs of entitlement programs are slated to rise in coming years. When we couple that with Trump's tax reform bill which has added to the deficit to the cost of paying over 100 billion dollars for a slew of natural disasters plus increased military and infrastructure spending it is clear the deficit will continue to grow. Trillion-dollar deficits are set to become commonplace in the coming years unless taxes or raised. Sadly, this massive deficit is much of the driving force that is propelling the economy forward, and it is not sustainable.

America Remains A "High-Cost Producer"
3.   Jobs Will Not Come Rushing Back; The truth is the recent tax reform bill that President Trump signed into law may slow jobs from leaving America but is not enough to cause them to return. The cost to produce goods in American remains higher than in many other parts of the world because of things like healthcare and regulations governing things such as liability and pollution.

Many people have mistakenly surrendered to the idea America is too small to continue to remain the world's premier nation. This is based on population numbers and discounts the idea that quality beats quantity hands down. Sadly, the spirit of, "I will gladly pay you Tuesday for a hamburger today" is alive and well in many of those advocating free trade and the expansion of globalism. Those advocating free trade would have been wise to remember that countries such as China that export goods at slightly below cost in exchange for manufacturing jobs are not stupid they are predatory and we in America are their prey.

We should not lose sight of the fact that while free trade is important, fair trade is far more so and should be the main issue. Trade policy has massive long-term ramifications on the strength of a nation's economy. Often people fail to note the difference between free and fair trade. In many ways, the global economy has become an ill-regulated business model tilted to favor big business and giant conglomerates. It is these companies that promote "free trade" which has replaced the idea of fair trade. Companies have long pushed for national borders to vanish as they pursue ever-larger markets and strive to achieve greater supply chain efficiency. Transnational companies have sold us out and made it completely about profit. 

The combination of the three obstacles listed above constitutes a grave problem with no easy fix. The bottom-line is that the longer we go before making a real effort to mitigate our problems and change our current policies the larger the negative ramifications will become. Clearly, America is not the only nation to face such problems or imbalances which means mankind and society, in general, will see economic challenges continue to unfold. Balanced trade instead of huge deficits or surpluses between various countries would contribute to both global cohesion and the world economy. Unfortunately, a country's prospects can rapidly diminish and when they do it can be incredibly difficult to turn things around. Like it or not in an unfair world tariffs may be the only tool able to protect the ability of the middle-class to earn a living.


  1. Hi. I've been reading your blog for a few months now and agree with you on many issues. However, I am skeptical of the dire prognostications that you and others make regarding our economic future. I have been reading about the impending economic collapse, dollar collapse, hyperinflation, etc. for almost 15 years now and yet it just never seems to happen. Yes, the debt is absurdly high, but is it really unsustainable? Many other countries, including China, Japan, and most European nations, are deeply in debt and their situation is much worse than ours. The Europeans already have sky high taxes and still are drowning in debt, yet they continue to hum along rather well. Japan has had a debt to GDP ratio of 200+% for many years now and yet it, too, is humming along OK. I believe that ultimately there will be a debt crisis in the form of higher interest rates and then some nations will begin to either "restructure" or default. The American and European central banks will intervene to lower rates and bail out the govts. What effect this will have on the currency and prices is uncertain in my opinion, but I just don't see *hyper*inflation happening; maybe some modest inflation, 5-10% a year for example, but that's it. We have already had significant inflation in food prices for the past decade despite the govt. propaganda that inflation is below 2%, so I certainly see prices on some things continuing to rise, but will there really be a catastrophe? I'm just not convinced. Right now the USA is the least rotten apple in the bushel, though, and capital is flooding in which only strengthens the dollar thus limiting price inflation. Could the world lose confidence in the dollar? Yes, I suppose, but where else are they going to go? Thanks for your commentary.

    1. Dave2020, thanks for your comment. I recognize such a lengthy and though out comment takes a bit of work to produce.

      While markets may climbing a wall of worry and advance over time history shows when they fall out of bed their decline can occur very rapidly. Another important thing to remember is we can accurately predict nothing when it comes to the future economy. Joining these two ideas together I have come up with an answer to your question. If and when wealth flees fiat currencies and flows into tangible assets we will see fireworks.

      With this in mind for years I thought limited world resources would drive inflation but this was proven wrong because of new technologies. It is difficult to argue things have been held in check by improved production methods allowing us to produce often at a lower cost.

      Still, the economy has a lot of moving parts and something more important is going on. The growth in debt and overall money supply is far outpacing the growth in real tangible assets. Just this morning I read an interesting article you might find interesting. It is titled; 'An inflationary Depression." the link is below

  2. Thanks for the link to the article. It was interesting, but again I'm skeptical because it is promoted by Goldmoney which has a vested interest in folks believing that the dollar and other currencies will collapse and so owning gold will save them. By the way, I do not believe that gold will save anyone from a currency crisis as govts. will intervene and likely outlaw the buying and selling of gold. Govts. don't like competition and will not tolerate folks using gold and silver as currencies in a crisis. The Europeans have been printing and running negative interest rates for a decade and yet the Euro, which does not have the history or track record of the dollar, is still relatively strong and stable. As for protectionism, Trump and those that support the tariffs are not protectionist, but are simply demanding that other nations play fair and follow the rules, which China, the Europeans, and others do not. Tariffs are the only tool to force them into compliance. I don't like tariffs as I agree that they undermine economic prosperity, but I can't see another way to punish countries who cheat on trade. They may not even work, especially with China whose leaders wish to dominate the world and are willing to endure some short term economic pain in order to achieve their goal. I agree that there will be negative consequences resulting from the credit expansion and huge debt loads, but I don't think it will be an economic depression. Probably more of a gradual decline in our standard of living as currency devaluation reduces purchasing power. I love these discussions and appreciate your blog. Thanks!

    1. Dave2020, for the record, gold is not my thing either because it can be taken away or outlawed. Paid for real estate that produces an income is my thing. People need a place to live and work.

      No one wants to take buildings away from you because they are so hard to maintain. It should be noted real estate is a long game and not easy to learn. Also, the potential for this investment varies across the country.