The American Dream?

So, what is happening to the American Dream? I suggest you read two articles published yesterday titled, 'Outcasts: Tonight Tens of Thousands Of Formerly Middle Class Americans Will Be Sleeping In Their Cars, In Tent Cities Or On The Streets' - reading time 5 minutes, and 'Worse Than China and Brazil: How US Income Disparity Leads to Civil Unrest' - reading time 3 minutes with what I think is a very worthwhile embedded 7 minute video.

As early as, at least two years ago, I noted that if the U.S. economy continues to deteriorate at a Main Street level, that the U.S. may face societal disruption. More than once I have cited the looting that went on in New Orleans during, and in the aftermath of, Hurricane Katrina. While the 'sleeping in cars' article picks up on only 2 or 3 isolated cases, I think the article is worth reading if for no other reason than that you may come away wondering (as I now do) how many individuals and families in the U.S. find themselves homeless when only three years ago, or perhaps even one year ago, such a thing would have been beyond their comprehension.

I think the 7 minute video embedded in the second article is well worth listening to. The person commentating is Dr. Zbigniew Brzezinski a Polish American political scientist, geo-strategist, and statesman now in his early 80's. Dr. Brzezinski was National Security Advisor to President Carter from 1977 - 1981. He currently is a Professor of American Foreign Policy at Johns Hopkins University's School of Advanced International Studies, and is affiliated with the Center for Strategic and International Studies. Among other things, Dr. Brzezinski seems to be of a mind that (my interpretation of what he says):

• if a country's GDP growth is better than 'OK', wide disparities between the wealthy and Main Street may be tolerated. However, absent better than 'OK' GDP growth where such wide disparities occur, an environment exists that may, can, or will foster potential social disruption;

• the tipping point for social unrest comes when a statistically significant number of the lower middle class becomes financially threatened, and that is not the case in the U.S. at present. Accordingly, the U.S. is not yet facing a 'doom' scenario in the context of said wealthy/Main Street disparity, but currently is facing a pattern of serious social inequality that is worse than that of either China or Brazil; and

• Europe, Japan and the United States are the three biggest economic successes in the period after WWII, and all three now face serious crisis. At the same time there is a degree of serious international turmoil. If each of the three doesn't get their act together at home, international turmoil will be even more difficult to deal with than it otherwise will be.

If I have interpreted Dr. Brzezinski's remarks properly, he has said nothing I disagree with. That said, I strongly suggest you listen to the video and determine for yourself whether I have his remarks 'right', or have misinterpreted them.

More Stimulus?

An article yesterday says 'Fed Debates More Stimulus as Economy Weakens' - reading time 3 minutes. The article reports that the minutes of the last Fed meeting show that some members think the Fed should consider new stimulus measures (after QE2) if growth fails to meaningfully reduce U.S. unemployment. Other members are reported as saying the Fed would need to remove its 'low interest rate policy' "sooner than currently anticipated" if inflation (I assume in non-durable goods) continues. I assume that means 'if Mr. Bernanke's view that current inflation is 'transitory' proves to be wrong'.

The last paragraph of the article says: "Many economists say they don't expect the Fed will raise interest rates until next summer at the earliest. And some think the Fed will wait until 2013, based on the weak economy." These economists may prove to be right, but from my perspective all they are doing is 'blowing smoke on a windy day'. So much currently is happening in America, China, the Eurozone, Japan, the Middle East, the United Kingdom, etc. on a daily basis, that I think for anyone to think they can reasonably forecast anything by way of economic growth, economic stability, and how the Fed or any other Central Bank will act with respect to interest rates for the rest of this year is a stretch - to think they can forecast such a thing into 2013 to me isn't plausible.

Mr. Bernanke presented his semi-annual economic report to Congress yesterday morning. His comments were reported last evening in an article titled 'Fed Ready With Stimulus If Needed: Bernanke' - reading time 4 minutes. In addition to reporting what is said in the article's title, Mr. Bernanke also is reported as:

• re-affirming "plans by the Fed to sustain record stimulus (whatever that means), and to hold its benchmark interests rate near zero for an 'extended period'";

• saying that in the medium term (whatever that is) there are uncertainties with respect to both economic recovery and inflation; and,

• I think importantly, saying that failure by Congress to raise the Debt Ceiling would lead to a 'major crisis' and throw 'shock waves' through the financial system. I assume he was speaking of the 'global financial system', but the article doesn't make this clear.

Yesterday the price of physical gold rose to new highs, while at the same time the U.S. equity markets gained ground. Commentators attributed the former to the drop in the U.S. dollar that occurred following Bernanke's speech, and the latter to an expectation by the U.S. equity markets of more Quantitative Easing. I said earlier in this commentary that economists who were forecasting into 2013 were 'blowing smoke'. On reflection, I am thinking that almost no one in the financial markets isn't 'blowing smoke'.

Notwithstanding Bernanke's remarks to Congress on the Debt Ceiling, the ongoing Debt Limit Negotiation was reported last evening as 'going no-where' after a 2 hour meeting held late yesterday afternoon. But then, why listen to your most important financial advisor when only your constituents can re-elect you.

I have said in several recent e-mails that, setting aside the Debt Ceiling negotiation entirely, I don't expect U.S. unemployment to improve in the foreseeable future - and I expect to see QE3, or 'U.S. Federal Government Subsidization' under some other guise, perhaps as early as September. I think Humpty Dumpty is sitting on the wall with a big crack in his back as he teeters on the edge of the wall - much like the U.S. baseball fan who last Monday night at the Home Run Contest held in conjunction with the Major League Baseball All-Star game was saved from falling to his death by his brother who held him by one leg and one arm as he fell over a second tier stadium railing trying to catch a baseball. Recall 'too big to fail'. What about 'too big to fall'?