12 Major Problems With the U.S. Economy
When you include include normal debt, off-the-books debt, and unfunded liabilities the U.S. owes more than the GDP of the entire world! IT IS MATHEMATICALLY IMPOSSIBLE FOR THE U.S. TO COVER THESE OBLIGATIONS, and very soon the U.S. will be forced to default either outright by not paying certain obligations, or informally by creating money and paying its debts with devalued currency - which has already been happening.
PIMCO, previously the largest domestic purchaser of U.S. debt, and China, previously the largest foreign purchaser of U.S. debt, both stopped buying U.S. debt years ago. The U.S. can't afford to pay a market rate of interest on its debt that would attract normal investors. As a result U.S. debt is paid for by having either the Federal Reserve, or the bank of another country (like the EU) create money out of nothing to buy the debt with. More than $2 trillion in U.S. debt has been paid for simply by creating Dollars.
This is partially due to retiring baby boomers that will start collecting Medicare, Social Security, and government pensions. It is also because the Affordable Care Act ("Obamacare") will be fully in effect by then, and because the interest on the debt will increase. This estimate is actually very optimistic because it is expecting interest rates to stay artificially low and it is expecting healthy GDP growth which is unlikely to happen.
The last time there was such a small percentage of the population working was before women had fully entered the workforce. According to the Bureau of Labor Statistics this low participation rate is only partially due to retiring baby boomers.
The Obama Administration announces job gains each month, but these additional jobs often are not enough to even keep up with population growth, let alone gain back the losses from 2008.
Over half of Americans (52%) have had to make at least one major sacrifice in order to cover their rent or mortgage over the last three years. These sacrifices include getting a second job, deferring saving for retirement, cutting back on health care, running up credit card debt, or even moving to a less safe neighborhood or one with worse schools.
An increasing number of countries are setting up currency swap agreements allowing them to trade without first changing their currency into Dollars. Once the Dollar loses its reserve status the U.S. will no longer be able to live beyond its means with a large trade deficit.
The 2008 crash happened because banks were over levered with "junk" securities. Now, the business of bundling junk-rated corporate loans into top-rated securities is booming like never before following the implementation of regulation aimed at making the financial system safer. This is happening in part because of of low interest rates and easy money
An index published by the International Center on Housing Risk shows that the US as a whole and each state individually all have high levels of mortgages that would be upside down with even small declines in housing prices.
We have a new post-crisis financial category: systemically important financial institutions, meaning anybody big enough and leveraged enough to possibly create "systemic risk" for everybody else. If anybody at all is a SIFI, then Fannie and Freddie are SIFIs.
The Federal Reserve is still aggressively stimulating the market to try to create a recovery. The market cannot withstand another crash now. The U.S. economy has not recovered from the last crash yet.
Former Fed Chairs Alan Greenspan and Ben Bernanke, along with the Congressional Budget Office, have said the U.S. government's fiscal situation is unsustainable. Many experts who publicly predicted the 2008 crash (Mark Thornton, Peter Schiff, Ron Paul, Eric Englund, Marc Faber) are predicting another larger crash to come.
When the next crash happens it will be too late to protect your portfolio.
While it is possible to see the direction the U.S. economy is heading, it is impossible to predict exactly when the next crash will come. Once the mainstream media has announced that public confidence has failed it will be too late. Everyone will be trying to sell their Dollar-based assets and everyone will be trying to buy gold at the same time.
Once your house burns down it is too late to buy fire insurance. Investing a portion of your portfolio into precious metals is a hedge, or a form of insurance, which works to protect the overall value of your portfolio in the event of a crash. What are you doing now to protect your portfolio for tomorrow?