The Reckoning is Coming

Economic doom is coming for most but there's good news for opportunity seekers

The saying goes that when America sneezes, the rest of the world catches a cold. If there is truth to the analogy, then the world is in a whole lot of trouble. Because America appears to be on the brink of cardiac arrest. 

The physical health of America is appalling. Many of her proudest cities look like dystopian third world slums. Crime is out of control and infrastructure is crumbling. In many parts of the country the water is not safe to drink, the streets are not safe to walk, the bridges are not even safe to drive across. When natural disasters strike, like the recent hurricane Helene and the fires in Hawaii, the emergency response looks more like the slow and decrepit response of the world’s poorest countries, not that of the richest. 

America’s job prospects are similarly bad. Like Australia and much of Western Europe, America has largely deindustrialised and is living off debt. America’s highest revenue generating companies are vampiric resellers of Chinese-made consumer goods. Walmart is number one, followed by Amazon and then Apple. What does America actually make? Boeing planes, that fall out of the sky. F35 fighter jets, that cannot leave the ground. Bombs, drugs and treasury bonds. 

America’s finances, though, are where it is most diseased. The US government debt is currently $36.2 trillion – 123% of GDP. Each year the Government outspends its earnings by more than Australia’s entire GDP. 

Total US debt is an eye-watering $103 trillion, almost equal to the GDP of the entire world. But on top of that the US has unfunded liabilities – committed expenses for which there is no budget allocation – of $221 trillion. That’s more than 200% of global GDP and amounts to $654,000 per US citizen. 

But America does not just have a debt problem; it has an everything problem. Even Donald Trump, with all his experience leveraging bankruptcy to revive companies, is not going to fix this one. It is irresolvable.

To underscore the point further, in the past two years America added another $1.9 trillion worth of new sub-prime mortgages. In 2007, $1.9 trillion was the entire value of the sub-prime mortgage market that triggered the 2008 Global Financial Crisis.

Also since 2007, America’s student loan debt has ballooned to $1.7 trillion. The auto loan market has also more than doubled, to $1.7 trillion. And Americans have racked up $1.4 trillion in unsecured credit card debt (up 50% since 2007). The total US mortgage market has doubled to $20 trillion and the portion of sub-prime mortgages also increased.

So, the problem that triggered the worst financial crisis since the Great Depression is now worse. And it is joined by at least three more debt market problems, that are even less stable. 

Behind the scenes, since 2008 until recently, America, the EU, Japan, UK, and other major economies have been printing currency (“quantitative easing”), running zero (or negative) interest rates, reducing (or removing) bank reserve requirements, monetising debt, pushing pension funds into junk instruments, buying corporate stocks to juice the stock markets, and papering over problems. The fiscal and monetary armories are exhausted. 

These strategies to keep the global economy limping forward are based on Keynesian economic theories. Ironically, Keynes failed to foresee the 1929 crash and great depression. He somehow lost substantial money in the roaring 20s stock market. And he massively mis forecast the Weimar hyperinflation. His ideas sold books, but did not work well.

A reckoning is a mathematical certainty. It will be much worse than the GFC, because the entire situation is worse. And as bad as the picture is in the US, the EU is even worse, as is Japan. Australia, too, will not cruise through this crisis on a wave of Chinese mineral purchases. There is going to be severe pain.

This sort of once-in-a-lifetime crisis will be profoundly confronting for libertarians and will require deep introspection. The meaning and value of freedom will change. The importance of personal goals over family, friends and community will be challenged. 

But the terminal decline of an empire or society does not mean the terminal decline of opportunity, freedom and hope everywhere. The world does not collapse. It reorients and reconfigures. Capital does not disappear; it moves.  

There are always people hungry for opportunity, freedom and growth. These people are drawn to each other; usually in places which offer an abundance of opportunity due to not being a place previously considered. For example: Hong Kong in the 1970s, Singapore in the 1980s or Dubai in the 2000s. 

The West is unarguably in decline. The East is ascending. It might be time to look at a map and do some research, just in case the maths are telling the truth about America.