Ken’s

Today’s economic troubles are far more reaching than most average Americans understand.  The economy as we know it right now can be described by most economists as the perfect storm.  Although leaders are opposed to mentioning the word recession in America, we’re in the midst of the worst economy since the Great Depression.  What most people don’t understand is that when something in the economy changes today, it takes several months to see the outcome or result of the changes made.  For example, banks have frozen their lending to individuals and businesses.  As a result, in takes up to 6 months before the money that had been spent or lent to run out through the multiplier effect.  I believe that we’re in month 4 of the 6 before the money is gone and America will be tapped out.

It was in June of this year when Gas prices had peaked that I had predicted that Oil prices would drop unde $60.00 per barrel. see blog!    I just didn’t realize it would happen so soon and the way that it did.  There are some fundamental reasons why oil will continue to drop in price.  Several decades ago, the Arab countries and OPEC made an agreement with the United States to peg the United States dollar to the price of oil.  As a result, when the dollar goes up, the price of oil goes down.  But when the price of oil goes up due to robust demand on energy, the value of the dollar goes down.  Much of what happened with the prices of oil occured because of speculation.  Reglardless of how many of them denied it, it was speculation.  But much of the speculation was encouraged by very low capital gains (tax cuts) on comodity trading that was spawned by the Bush administration.  I know it’s hard for the Bush lovers to accept that Bush was responsible for the OIL and real estate bubble.  The truth is, you can single handedly blame him for it.  Interest rates and tax cuts have the same result on fiscal policy.  While Greenspan took the inniciative to create economic growth, it was Bush’s responsibility to raise taxes during economic expansion.  Unfortunately, Bush kept taxes extremely low even during good times, causing a fiscally stimulated double wammy in the economy.  Low taxes and low interest rates invited speculators into the markets, pushing the prices of oil and real estate to unrealistic exponentially inflated levels.  With the O’bama presidency just right around the corner, the knowledge that O’bama plans to bring capital gains taxes back to their historical norms, many of the speculators are now unemployed.

The question is whether this is good for America.  Although I support O’bama and his great cause of change, I have to pause and put my Econ hat on.  The O’bama economy is bad in the short term but great in years to come.  The Bush economy has proven to be great in the short term and terrible in the long run.  So, let me explain:  Ask yourself, what industry(s) does the United States have the most influence on?  The answer is NONE.  America’s standard of living is too high to manufacturer goods here.  The manufacturer industry has tanked, the technology industry has been exported and outsourced to India, and have you noticed that even your apple juice is imported from China?  So, what is American known for around the world?  We are the largest exporter of only one thing.  I would bet you could never guess.  We are the largest exporter of debt.  Our greatest export is money.  We are the largest consumer in the world.  Or we were.  We didn’t become the largest consumer in the world because of our hard work.  We became the largest importer of goods and the largest exporter of debt because of tax cuts and low interest rates.

Look around you.  Everything from your Escalade, your jet ski’s, boat, BMW, pool in the backyard, your mc’mansion house,  bloated big screen tv, the over indulgent rock on your wifes finger, her coach purse collection, the three x-mas tree’s your wife have purchased in the last 3 years that sit in storage because she’s buying another, the fine china that is too nice to use, the 3 investment homes you bought on interest only loans, may I go on?  In addition to buying all of these things on your home equity line of credit, you also purchased an expensive PDA cell phone that came with an expensive cell service, went out to eat every day and night, got your kids used to expensive toys regularly, your wife got accustomed to shopping uncontrollably, and among many other bad habits, you got used to it. We as consumers could not have done it without debt.

Welcome to today’s Great Depression.  America’s greatest export (debt) is gone.  We are not a nation of innovation nor are we a nation of exporting debt.  The economy as we know it is finished.  The reason why we will not see an economic expansion like we just experienced ever again is because the world can no longer trust the United States, nor can they go to the United States for leadership.  It would take a miracle or a real leader to prove to the world that our nation could be trusted again.