By Nick Sorrentino
Last night I couldn’t sleep. Between a rather nasty summer cold and what has been happening in the stock market I just couldn’t rest. It looks like I may be in for some more restless nights in the weeks ahead.
I wish the world economy only had a cold. Unfortunately it has something much more serious. The world has waited and waited for a recovery, but the economy is still bed ridden two years into its “recovery.” We are in very serious trouble I am afraid.
Despite two years of cheerleading from the Federal Reserve, the media (both financial and otherwise,) and the White House, we are stuck. We are lucky that things are not much worse. Unfortunately our luck may have just run out.
Though much has been made of the downgrade of US debt by S&P, this is only a small part of what is driving what looks like another leg down in the “Great Recession.”
Europe and the death of its unsustainable welfare state is a much bigger part of the picture. Europe has made promises to its people based upon bizarro economics. Somehow everyone was supposed to have a month and a half vacation, and the ability to retire at 55, and things were to just chug along even with economic stepchildren such as Greece and Portugal clinging to the Euro zone’s skirts.
It was the European, post World War II dream. That dream is quickly turning into a nightmare.
But even Europe isn’t the biggest problem. It’s us.
The United States doesn’t want to come to grips with reality. That’s why we see such consternation and gnashing of teeth these days.
The American post World War II dream is dying right along with Europe’s. The days of a constantly expanding international empire fueled by an “almighty dollar” are coming to a close. As this order ends we will continue to see economic and political dislocation. But we don’t want to accept it.
For some this new reality is a catastrophic state of affairs and it’s just nearly impossible to accept.
For those approaching retirement there is a cold wind blowing across their portfolios. Not only that, social security is subject to the same demographic realities that are hammering Europe and is unlikely to survive in its current form. What had once seemed fairly sure, a comfortable retirement fueled by dividend heavy mutual funds and Social Security no longer looks so sure. In fact it looks pretty unsure.
For 70 years we have expanded government and put the cost of paying for it off on the next generation. The problem is that on a worldwide level, across what is generally referred to as “The West,” the generation exiting the scene is larger than the one replacing it. Since the state must be funded by those who are working, by-and-large, this is a major problem.
Add the dislocations of a postindustrial society and you have a recipe for massive change.
The Tea Party had little to due with the recent S&P downgrade despite the talking points coming from the White House and filtered through the establishment press. As I said the S&P rating is not the prime mover of the new market crisis anyway. Interestingly investors are actually piling into US Treasuries despite the downgrade looking for “safe haven.”
So that could be construed as encouraging.
On the other hand if investors are still buying US debt for safety reasons, despite a $60 trillion obligation that likely will never be paid back, one has to ask how bad the rest of the world economy is.