Conservative commentator Rush Limbaugh says the U.S. is on an unsustainable course; there isn't enough money from taxes to pay everyone lifetime healthcare, lifetime pensions, and hefty incomes. The federal government now spends 50 percent more than it takes in. Social Security and Medicare are on the brink of insolvency and are little more than government Ponzi schemes. Soon there will be more people on welfare than not. Borrowing and printing more money will no longer save the country from defaulting, because our debt will soon be so high other countries will not want our dollars.
Earlier this year, three financial analysts predicted financial meltdown will take place in less than a year. Author Robert Prechter, who wrote the book Conquer the Crash, sees economic parallels to the Great Depression and predicts the illusion of a recovery will fail like it did in the 1930s. Art Laffer, the economist who invented the Laffer Curve, predicted a crash in 2011 if the Bush tax cuts were not extended. Since Obama backed down and extended the tax cuts through 2013, the crash has been delayed.
Economist John Williams predicts that a hyperinflationary Great Depression will take place by 2014. Investment banker Martin Hutchinson believes that the next stock market crash will be worse than Black Monday, the 1987 crash which dropped lower than the 1929 crash. The 1987 crash did not trigger a depression because there wasn't an accompanying collapse of the banking system. Hutchinson warns, “We are living in the greatest debt bubble in the history of the world and Wall Street has been transformed into a giant casino that is based on a massive web of debt, risk and leverage.“
The U.S. is arguably in a depression, but the government won't admit it because it makes the government look bad. Thanks to welfare programs, it doesn't seem as bad as the Great Depression. 25 percent of adults may be out of work, but they have welfare instead of Hoovervilles. Instead of starving Americans standing in food lines, we see Americans obese from living on food stamps. An economic depression occurs when there is greater than 10 percent contraction in economic activity over a period of 12 months or more. By contrast, recessions usually last 10 months. The longest recession in history until now lasted 16 months. This recession began in December 2007 and supposedly ended in June 2009, but the recovery is the weakest in history after a recession. If this is only a recession, it is an extremely severe one.
The condition of the U.S. economy today mirrors the economic situation prior to the Great Depression. There is slow economic growth, massive deficits, high unemployment and foreclosures, and a shaky banking system. Real unemployment is at the same level it was during the Great Depression, around 25 percent. The drop in home prices and sales is actually worse than during the Great Depression. The stock market has been dropping, and stocks are currently overvalued by as much as 50 percent. Speculative greed precipitated the stock market crash, similar to the investors and homeowners of today who made risky investments they could not afford.
Like Obama, President Herbert Hoover used a heavy-handed government interventionist approach to deal with the bad economy. Hoover was criticized by his successor, President Franklin D. Roosevelt, for “reckless and extravagant spending” and “thinking we ought to control everything in Washington.” Hoover raised taxes and slapped a tariff on imports. The top rate on personal income taxes rose from 25 percent to 63 percent. Taxes were increased on businesses and tobacco, and new taxes were added to telegraph and telephone use and checks.
Obama has put onerous regulations into place that are crippling the economy and allowing little room for recovery. There are environmental restrictions on offshore drilling, CO2 emissions, and Obama refuses to approve the Keystone Pipeline, which would have created 100,000 jobs and reduced dependency on foreign oil. Americans are already taxed to the hilt, and their taxes will go up even higher with Obamacare, the biggest tax increase in history. Buried under taxes and regulations, businesses are unable to create new jobs. Businesses are fleeing the country or outsourcing labor, due to the burdensome regulations and demands unions have placed on them. Because of the unions inflating the cost of production, it has been easy for China to shut out our overpriced products. China manipulates its currency, undervaluing the yuan in order to boost exports and limit imports. China's trade surplus helped bring about the recession. When the crash comes, China may demand that the U.S. pay its debt, even if the U.S. does not have the money to pay it.
The Great Depression was triggered by the Federal Reserve's manipulation of money, the stock market crash and failure of financial institutions. The Federal Reserve manipulates interest rates by pumping new dollar bills into the economy through the banks. This lowers the interest rates, which prompts more risky investments. The Federal Reserve caused the last recession in this way, yet it continues to pump paper money into the economy, a manipulation known as “quantitative easing.” All of this Federal Reserve activity only postpones the inevitable crash, ensuring that it will be a big crash.
How will the financial meltdown happen? Limbaugh predicts California will file bankruptcy under Obama, then other states will follow suit. There will be a stock market crash and Americans will lose their savings. Banks will fail as people rush to take their money out, and those who don't get their money out early on will find their accounts frozen. There isn't enough money to bail out all the banks if they all fail. The Federal Deposit Insurance Corporation was created in 1934 to avoid a repeat of banks failing during the Great Depression, but there is no longer enough real money left for massive bailouts. America's level of debt and deficit spending will cause other countries to lose confidence in the dollar, and they will start withdrawing their investments.
There will be rioting and major civil unrest. The violent Occupy Wall Street protesters are an indication that it is already starting. Economist John Williams predicts, “Trouble could range from turmoil in the food distribution chain and electronic cash and credit systems unable to handle rapidly changing circumstances, to political instability.” The government will finally be forced to choose what will no longer be funded.
Because of the global economy, the effects will be felt worldwide. Most European countries are already in a depression. Europe is headed for collapse. Countries like Spain, Greece and Italy have overvalued euros, making their economies uncompetitive. People are fleeing Spain, where unemployment is at 25 percent. They are pulling their money out of the banks and moving to England and other countries to find jobs. Seven percent of Spain's GDP was withdrawn from Spanish banks during July. Not only Spain is affected, banks are starting to collapse around the world, freezing customers' bank accounts. These things will happen in the U.S. too if our economy collapses.
What has brought the U.S. to the brink of economic collapse? Greed. As a result of the Federal Reserve flooding the market with paper money, interest rates artificially decreased, so people made investments and bought homes they couldn't afford, putting themselves way into debt. The banks continue to make reckless investments, despite the heavy regulations Obama has forced on the industry. When the Ponzi scheme fell apart, the government bailed out a few select banks and arbitrarily pumped billions of dollars into the economy, but it has only put a temporary band-aid on the problem.
If Obama wins reelection, Americans should pull their money out of the banks and stock market and put it into gold and other precious metals, where it will be much safer during a crash. Obama has indicated he will continue the failed policies of Herbert Hoover and FDR. Obama said he wants a “New New Deal,” referring to FDR's socialist programs. Under Hoover and FDR, those big government programs slowed the recovery and prolonged double-digit unemployment after the Great Depression.
Fortunately, it looks like Mitt Romney is going to win the presidential election. If anyone can reverse the runaway government spending, it will be Mitt Romney with his successful business and investment background in the private sector. President Ronald Reagan faced a worse economy than Obama did when he entered office, but by cutting taxes and streamlining regulations, annual economic growth rates increased up to 8 percent, quadruple Obama’s record now. America needs a transformation from a high-consuming, debt-ridden economy, to a manufacturing and exporting nation once again. Obama tells Americans the government will provide all kinds of things for them, even though it has been made painfully clear the government cannot afford to. Romney will tell Americans the truth, that greed is what got us into this situation. If Americans focus instead on taking pride in a day's work, the entire economy will turn around.