If people truly understood how bad the U.S. economy is, there would not be people turning to the U.S. for a safe haven. But because ignorance is so prevalent across the world, people turn to the U.S., rather than real assets. Conventional wisdom regarding the U.S. economy has benefited Americans in the sense that Americans get to enjoy a higher standard of living because people are conditioned to trust that they are safe with the U.S. Whether that has to do with stocks, government, military, morals, or ideals, people have been conditioned to think the best of the U.S. And as a result, the government can spend recklessly and still remain at the top.
Now, if a company’s balance sheet looked like the American government’s balance sheet, investors would flee and the stock would collapse. But for whatever reason, there is a disconnect between human beings and how the system is being run, making it surprising that a collapse in faith in U.S. sustainability just has not happened.
People hear the facts on how high the national debt is, but there really is no connection as to what the consequences are when a nation gets in over its head. $5 trillion, then $10 trillion. And then $20 trillion. Does it really matter what the number is anymore? People hearing that the national debt exceeded $100 trillion will not cause an official disruption in the economy because the world refuses to acknowledge the severity of the situation. As a result, every American enjoys an inflated standard of living that will soon be disrupted.
Unfortunately, I tend to believe that this will go on until we reach an internal breaking point, and it will be then that the house of cards will begin to fall. When the consequences of the debt and spending trickles down to Main Street, that is when I believe all hell could break loose. The clearest signal of when this will likely happen is when the U.S. begins to default on its obligations. Rising interest rates will cause monthly expenses to skyrocket, and being able to fulfill those obligations will likely be where reality will set in and where a past-due harsh collapse will eventually strike the American economy.
I still don’t think it will be an overnight collapse, but conventional wisdom will eventually change and America will no longer be the safe haven country that everyone turns towards. People will have a much more different viewpoint of this country and are going to change. Global citizens will have a much different world view of the America of the past 100 years.
I had no choice but to address this, because it’s shocking that the U.S. dollar is seeing so much strength. The U.S. Dollar Index has surged nearly 25%, and many of us are wondering how this can be when the underlying economy backing the U.S. dollar is headed for a collision course. We’ve seen commodities take the brunt of the hit with this dollar appreciation, yet the question is why?
“The momentum of the dollar’s advance is unprecedented,” said analysts at Société Générale. The most recent run up in the dollar was partly to do with investors believing that the American economy is improving and that the Federal Reserve will raise interest rates. Rising interest rates is typically accompanied with a stronger dollar, however, the very fact that interest rates are rising might be the reason the country will fail to fulfill its obligations.
It really is a catch-22, and conventional wisdom is blind to what is ahead. What makes it interesting is investing your money accordingly to profit in a system that is driven on ignorance.