The USA (and the West) Has Arrived at the Greater Depression

The problem is that for quite a while now, the U.S. and much of the Western world has been consuming more than they produce. Not only the U.S. government but the American society itself is bankrupt, and unfortunately, the situation is much more serious than economic bankruptcy.

by Doug Casey for International Man

I am of the opinion that what’s happening now isn’t just another cyclical downturn that can be papered over by printing up some more money—although that’s exactly what the U.S. and other governments are doing, and in unprecedented amounts. In fact, what the world’s governments are doing is not only wrong but also the opposite of what they should be doing.

Barring the start of another world war—which is not unlikely—the physical world probably won’t be changed much by the Greater Depression, but the way people relate to the world will change a great deal. And not because of the virus, which is about 90% hysteria; it’s just the pin that broke the bubble.

For roughly a whole generation, the U.S. government’s inflation of its currency has been inviting the whole country to live beyond its means. Living beyond your means is what consumer debt is all about.

Mortgage debt is where it all started, and it allowed people to live in houses much bigger than they could afford. In the Greater Depression that is now upon us, many people won’t be able to pay their mortgages. In fact, they won’t even be able to pay their utilities and taxes; maintenance will be deferred indefinitely. But that’s just the tip of a very big iceberg.

Detroit is illustrative. The city is toast, no matter how many billions the government throws at it.

During the serious downturn between 1980 and 1982, the average car on the road was seven years old, and they were all crappy cars. Today, the American fleet of cars is not only close to brand new, but today’s cars last almost forever. They’re not going to need to be replaced for a long time, and that means that auto sales are going to be in the tank for a long time. Also, in the same way that many can’t afford to pay their mortgages, many will be learning that they can’t afford to own a car.

Many vehicles are going to be abandoned in the lender’s parking lot.

As late as the ‘60s, most people paid cash for a car. Even in the ‘70s, a loan was usually for no more than two years. Now, the standard auto loan is for five to seven years. And many cars are leased, out of necessity.

The average family may now have several expensive new cars in the driveway but typically with negative equity in every one of them. Cars have gone from being a minor financial asset to a major financial liability.

The big default snowball won’t stop there; it will pick up all manner of debt as it rolls along.

For instance, everybody thinks he has to go to college, generally wasting four years grazing at the claptrap smorgasbord tended by liberal-arts profs. With the costs skyrocketing, there are over $1.6 trillion of student loans out. They’ll mostly be defaulted on when English majors find there’s little market for their opinions on social engineering.

Credit card debt will likely be the last crisis to hit. People keep making the minimum payment at 18% as long as possible, and they won’t default until the last minute, simply because they have no further source of funds.

State and city debt represented by municipal bonds is at serious risk because these folks can’t print dollars. And their receipts from income, sales, property, and every other kind of tax are plummeting. At exactly the same time, citizens’ demands are skyrocketing. The $1,200 payments that the Feds are sending out aren’t going to help much—especially since the money came from out of taxpayers’ pockets.

The $24 trillion debt that the government acknowledges it owes is actually dwarfed by the $135 trillion debt from unfunded liabilities for Social Security, Medicare, Medicaid, and such, and this doesn’t include contingent liabilities from FDIC, PBGC, and similar insurance programs.

A large chunk of that debt is held by those nice foreigners who, for years, sent us Sonys and Mercedes in exchange for paper. There’s currently a rush to obtain US dollars because they’re cash and not overpriced stocks and bonds. But that’s going to not only stop but also reverse in the near future, resulting in a much lower standard of living for average Americans.

If there’s a way for them—the governmental and federal geniuses who think they know what’s best—to get us out of this mess, I simply don’t see it. Beginning with the crisis that started in 2008, they’ve used the final arrows in their quiver of phony solutions—namely, the ZIRP (zero-interest rate policy) and quantitative easing (printing money).

What Happened Redux

The problem is that for quite a while now, the U.S. and much of the Western world has been consuming more than they produce.

It’s much as though you borrowed a million dollars for consumption. You’d enjoy an artificially high standard of living… for a while. But when the time came to pay it back, with interest, you’d suffer a very real drop in your standard of living for a very long period.

The enjoyable part of that process is more or less what the average American has been doing for years and is now about to stop doing. But ruinous spending is even more serious in the case of government. It’s a rare American who understands that government debt will eventually reach into his wallet because, in a complex economy, there can be so much delay between cause and effect.

So let’s simplify the matter and look at a two-man economy: a peasant and his king.

Let’s say the peasant produces three tons of food per year. He gives the king one for taxes (after all, kings have to eat too), consumes one himself, and keeps the last ton for seed for next year. The king would like more, but—barring a breakthrough in production technology—there simply is no more grain to be had.

Perhaps financial technology can provide an answer.

And so, after consultation with an economic soothsayer, the king offers the peasant a great deal. Lend the extra ton of seed grain to the king, who will pay it back next year, in time for planting, and with interest.

The peasant buys in, but when he comes back to redeem his scrip and the king tells him that the grain was used for something that seemed like a good idea at the time, it’s obvious they both have a problem. Everyone might starve next year.

This is the problem with government debt in particular. People tend to rely on it as a piece of the cosmic firmament, something with real value. But is the U.S. government essentially different from that of Zimbabwe? The answer is no.

One of the most serious problems of the next era is that it’s very likely that society will believe that what passed for a free market over the last several decades has been discredited.

Reagan, Thatcher, and many other politicians around the world delivered fairly significant tax cuts, privatizations, and some deregulation. These things, coming off a very severe recession of the early ’80s, resulted in what Herman Kahn correctly predicted would be “The Long Boom.” But the boom is now over, definitively. The question is what’s next.

It’s interesting how the world’s social mood seems to change almost in lockstep, at least at major turning points.

The ’30s and ’40s were a horrible time, dominated by statism and represented by characters like Mussolini, Hitler, Stalin, Roosevelt, Peron, Mao, and Franco.

The ’60s was the era of hippies. There were race riots all over the U.S. and student revolts all over the world—the U.S., Europe, and China.

The ’80s, ’90s, and ’00s were the era of the yuppie and his motto: “He who dies with the most toys wins.” It was an era of good times and conspicuous consumption—a bit like the Roaring ’20s.

That came to an end in 2008 when we entered the leading edge of a huge financial storm. It’s a huge storm, and it had a huge “eye.” Now we’re going through the trailing edge. It’s going to be much worse, much different, and much longer-lasting than what we experienced from 2009–2010. I suspect this era will have a lot of anger. A lot of blame. Some real poverty. A good measure of violence. It’s not going to be a mellow time in North America, Europe, or China. It will be worse in the so-called “developing” world, which will stop developing without foreign capital.

Let’s focus on the U.S., the current epicenter.

Bankruptcy on Several Levels

Not only the U.S. government but the American society itself is bankrupt, and unfortunately, the situation is much more serious than economic bankruptcy.

It’s rare for someone to go bankrupt because of one bad decision. It takes many bad decisions, a consistent pattern, and that’s possible only by having the wrong moral philosophy.

America’s moral philosophy has degenerated to the extent that Americans think it’s okay to invade other countries that have not attacked them. I’m not talking about just Iraq, Afghanistan, or Syria, pitiful non-entities on the other side of the world. The degeneration started earlier with even weaker prey like Granada, Panama, Haiti, and the Dominican Republic—and, of course, Vietnam.

America’s moral bankruptcy started with a government policy of inflating the currency, which constitutes fraud, and running up the national debt, which is an obvious swindle because the debt will never be paid. This bankruptcy started with the belief that an income tax was needed to level out incomes, but predictably, it did just the opposite. Boobus americanus thoroughly approved of all this and so much more.

Economic bankruptcy is almost always preceded by moral bankruptcy. And it’s accompanied by intellectual bankruptcy: in this case, the philosophical acceptance of economic collectivism and political statism.

The exact description of the situation is fascism—which, contrary to the History Channel, has essentially nothing to do with police jackboots, bizarre racial theories, or militarism. A fascist is simply one who believes in nominal private ownership of both the means of production and consumer goods—but with strong state control over both.

The word derives from the Roman fasces, a group of rods bound together around an ax. The bound rods offer strength; the ax, destructive power. It’s an image that appeals to the type of people who like to control others.

Fascism wouldn’t have had any appeal for the founders of America who, for a while, fought under a flag that showed a rattlesnake and the warning “Don’t Tread on Me.”

What made America different was its foundation on a philosophy of freedom. That word has been so corrupted and leached of meaning—another sign of intellectual bankruptcy.

America is now economically, morally, and intellectually bankrupt.

The country has wandered so far from its founding principles that it is now no different from any of the other 200 nation-states that have spread across the face of the earth like a skin disease.

The U.S. no longer stands for anything; it’s now just another piece of geography. Forget about “America”; it no longer exists. It’s been replaced by “The United States”—not even “These United States,” a concept that was interred by the unpleasantness of 1861–65.

As evidence, I offer you the current state of affairs.

Bankruptcy is a factual matter. Failing to declare bankruptcy when it has happened only adds to the problem.

Germany and Japan were totally and absolutely bankrupt—economically, morally, and intellectually—in 1945. Following the war, should they have tried to continue with their old currencies, policies, ideas, and institutions (that is, if the Allies had allowed them to)? In a word, no.

They had reached the point where the slate needed to be wiped clean, which it was. Then, within a generation, they went from being bombed-out wrecks to two of the most prosperous economies on earth.

Acknowledging bankruptcy is the first step to moving beyond it. Denying bankruptcy when it is a fact only prolongs and worsens the fact.

One obvious consequence of these layers of bankruptcy is an increasing reliance on government. It seems like a cornucopia to the average person, despite the fact that cheese distributions to the poor some years back, the free cell phones, and now $1,200 “alms for the poor” are among the few tangible benefits it has delivered.

Since the government produces nothing, anything it even seems to provide is at the direct expense of somebody else. This simple fact evades almost everyone, from the most ignorant voter to the most powerful officials.

Government produces nothing but wars, pogroms, confiscations, taxes, inflation, and regulation, but people still, idiotically, look to it for salvation—even though it’s the cause of their worst problems.

This is why I’ve long held that the average person is not as bright as you might hope. Once you get beyond discussing the weather, the state of the roads, TV programs, and sports, there’s often no one home.

And that’s the average person. But by definition, 50% of the population is less than average. And they all vote. It’s not hard to figure how they’ll vote.

I admit to being somewhat removed from life among these people, but it’s hard to see how they can even live on so little money. Maybe they’re smarter than I think. But then, people are tolerably competent at running their own lives; the problem arises when they try to run everyone else’s too. The problem arises when they become politically active.

It’s a near certainty that, facing the Greater Depression, the government is going to come up with something like the Newer Deal. That’s because Boobus americanus desperately wants the government—which he thinks is a magical entity that can do anything and solve every problem—to Do Something. And it will.

But it won’t merely fail to do the right things; it is going to do the opposite of the right things. That’s going to make things quite unpleasant…

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