April 2, 2007
The Coming Storm
Dark clouds are converging over America’s economy. Here are three scenarios on how they could develop into a serious storm that could hit you.
Fishermen and sailors must be constantly on the lookout and prepared for changing weather. Smooth sailing can quickly turn into a fight to keep one’s head above water. Likewise, today’s breadwinners must be prepared for abrupt changes in the economy. Good times can quickly turn into recession; high-flying stock markets can crash; and as history clearly shows, all bubbles eventually pop. Often, fat years are followed by lean years.
As economist James J. Puplava has said, “Economic and financial conditions never remain constant. They are as seasonal as the weather. Forecasts change depending on the patterns that emerge” (Financial Sense Online, March 15, 2001).
Financial meteorologists and prognosticators identify two looming, yet self-induced storm fronts threatening America’s economy: deflation and inflation. However, like climatologists trying to predict the weather, many disagree as to which poses the most immediate danger. Further, some identify a third and even more powerful economic storm brewing.
Although the outcomes of these coming storms are predicted to be very different, their origins are similar.
Mounting Debt Levels
Like a downdraft of dense freezing air, virtually all levels of American society have become weighted down and pressured with debt. Personal, corporate, state and federal debt levels are all at or near record highs.
U.S. consumer credit debt hit an all-time high of $2.4 trillion last September, soaring 80 percent since 2000. Similarly, the amount of household and mortgage debt as a percentage of disposable income is at its worst level in over a quarter century. For the past two years, Americans on average spent everything they made and then some. During 2006, people spent 1 percent more than they earned. The only other time in history America’s savings rate was in negative territory for a full year was during the Great Depression.
In corporate America, debt has become so endemic that there are now more companies with “junk” credit ratings than with investment-grade ratings, says credit rating agency Standard and Poor’s.
