Unemployment
Did you know that the unemployment rate has more than doubled in the last ten years from a low of 3.7% to a current 9.2%? After the financial collapse in late 2008, the United States has lost over 500,000 jobs in a single month. America lost over 2.6 million jobs in 2008 and over 1.8 million in the last 4 months of 2008. At that point, unemployment was just above 7%. Unemployment continues to soar across the states however, there is already a solution in action. It may not be a pleasant solution for average Americans, but it will offer more jobs in the future.
Competitive Edge
President Obama visited Culver City in California only a week ago at the L.A. Fund Raiser to discuss change and how we must become more competitive. The “competitive edge” that Obama doesn’t address in his speech is actually the effects from devaluation of the United States Dollar. As the USD losses its value, products produced in the USA will become more competitive with other countries. Therefore, American exports will increase as foreign countries are able to buy more of these goods because of their stronger currency. In contrast, devaluation of the USD will greatly affect the profitability for US companies and the standard of living for most Americans. In retrospect, China has had the competitive edge for decades because of their cheap labor, undervalued currency exchange and increased compensation from foreign investments. Their standard of livings are below marginally and wages will continue to be suppressed because of the availability of new workers. Developed countries are well aware of China’s competitive advantage. Moreover, the United States and Japan both outsource and invest into China to help improve their competitiveness. Since 1999, China’s exports continue to increase annually as Japan, most other Asian countries and the United States exports continue to decline. This is a perfect example of the key ingredients needed to become competitive globally. Now, without getting into tariffs and other government regulations to equalize the playing field, we must understand the disadvantages that the United States is facing and the future that it holds.
Federal Debt
Foreign Investments has been paying the tab for the uncontrollable consumption(debt) in the United States for decades. Japan and China are the top debt holders. However with a potential possibility of downgrading the AAA rating of US Government Bonds, foreign countries have stopped purchusing US treasuries and have started to sell their positions. To display the magnitude of this event, Russia has decreased their purchase of Treasures by 26% in the last 6 months. What will happen when foreign countries stop buying US Treasuries or when foreign countries begin selling their positions? A bond Bubble as Peter Schiff forecasts. If a bond bubble does in fact happen, the consequences would be more severe than the real estate and financial bubble combined. Now, a bond bubble bursting is quite far from sight and current events such as managing the United States federal budget are more practical to concentrate on. Within the next few years, budget cuts will be made to reduce the federal deficit. In result, Social programs(Medicare/Medicaid) will experience large cuts and a possible reduction in top corporate and individual taxes may be in the horizon as this may increase global competitiveness. In contrast, Obama states that increased taxes on the wealthy and other spending cuts are proposed to reduce $4 trillion in debt over the next 12 years. It is clearly a battle between the Democratic president and the newly elected Republicans(H.O.R. -John A. Boehner).
Personal Debt
People in America have accustomed to debt as if its perfectly normal. From their first “store-charge-card” to their 30 year mortgage, Americans have purchased items that they could have never afforded without borrowing from the banks and creditors. The motto has been ” buy it now, pay for it later,” but how long can this last? The average American has 4-5 credit cards with a balance of $8,000+, a car loan, and some still have $20,000+ in student loans. With rising inflation, little job creation, and little saving the average American will be paying interest to the banks for their entire life. Even if you lock in a low interest rate on your mortgage you will still pay double the amount of what you purchased your home in interest alone. Banks tightened their lending credit exponentially after the first financial bubble as they display “learn from your mistakes” but what about the consumer? United States Retail-Sales has been positive since August 2010 while over 350,000 new unemployment claims come in every week since 2008. Even though, Bank of America’s quarter profits are down over 30%, this doesn’t mean that consumers are not spending or paying their bills. In actuality, BoA is still making profit in all their sectors besides the mortgage sector and BoA financial reports display an overall view of the health within the US economy and the consumers. Credit card delinquencies has actually declined for the last 18 months.
Future
The financial crisis caused a huge spike in unemployment claims in 2008-2009. Millions of jobs were lost and are still unavailable today. Most unemployments benfits would have expired by now and these Americans would be forced to accept part-time work and lower wages. Some could be homeless or gave up completely in hopes of securing another job. Because of part-time workers and the ones that gave up completely, the statistics displaying the unemployment rate are far from the truth. On the contrast, Retail-Sales are stable, click here for the detailed report. As long as the banks and foreign investments continue to keep America afloat, the future will look the same as today. However, if foreign investments find another safe haven do not expect the current trend to continue much longer. Bull markets in commodities is an indicator that unrest is around the corner. Just imagine if China’s economy were to slow down and the largest debt purchaser of US treasures can no longer sustain the monthly purchases. Remember, that global economics is built on simple principles and business cycles. Problems normally start in the United States and spread across the world, so keeping an eye on the US economy is surely the best indicator to forecast the future. The US dollar index is at 74.12. If the Dollar Index falls below the lows from 2008 (71.50), don’t expect a sharp recovery like what we saw previously.
