US economy: A downhill trip
The US will soon be going backwards in terms of financial development and economic growth.
The economy of the United States (US) is in dire straits. In June 2010, a well known financial sector analyst, and the woman who blew the doors open on the 2008 mortgage crisis, Meredith Whitney, forecasted that two million government employees would be laid off in the coming years because of fiscal problems. It is happening.
Over 300,000 employees were fired in fiscal year 2011, and this number is about to increase by 50 per cent in 2012. Around 450,000 people who work for US states, counties, cities, towns and villages could get the pink slips next year, which would be a sharp increase from the 300,000 laid off this year. The number of job cuts will rise mainly because the federal stimulus program is ending while the cost of Medicaid is spiralling. Medicaid is the state-federal health plan for the poor and disabled.
The deficits of states and municipalities in the US will climb to $155 billion in 2012 from about $108 billion in the current fiscal year. So much for job creation. After hundreds of billions of dollars were spent on government entitlement programs, it is clear that government budgets are unsustainable. The budget deficit is currently standing at $14.2 trillion.
First the cities and the states will go bankrupt (it’s clear that most are insolvent right now). The Federal government will do their very best to bail them out. But will it work? Eventually, the federal government, itself insolvent, will be recognised for what it is: bloated and bankrupt.
The real fun will begin when the rest of the world finally responds to America’s sovereign debt crisis by cutting off the international credit card, leading to the collapse of the largest credit bubble in the history of the world.
The US would be going backwards in terms of financial development and economic growth. What backs currency is confidence in a government's ability to pay debt, its government system and its economy. The US dollar is weak and bearish at the moment and investors have started piling up gold and silver in their asset portfolio.
Some aren't calling for gold to be used as tender but are calling for a return to the Gold Standard, which attaches the value of the dollar to a certain amount of gold. I have been bullish on gold, silver and oil for the last 12 years. A return to the gold standard would stabilise the dollar by discouraging hefty fiscal spending as well as by preventing the Federal Reserve from printing excess money. QE will not be able to fix the economy.
According to Steve Forbes, former GOP presidential candidate and Forbes Magazine Publisher:
"People know that something is wrong with the dollar.. you cannot trash your money without repercussions.”
What seems astonishing today could become conventional wisdom in a short period of time.