Capitalism is dead, and so is the recovery

Trends Research Institute contributors sat down with Trends Journal Publisher Gerald Celente for a wide-ranging discussion on the state of the global economy and the direction it is taking. The trends forecaster provided a number of concise, timely answers to questions touching on job growth, investment opportunities, economic policy and the disappearing “common investor.”

In this question-and-answer feature, Celente crystallizes the trend lines to watch. He helps you identify the underlying economic tides to focus on most to find your way in a globalized economy.

Gerald, summarize for us the general state of the world economy, with a particular emphasis on the trend lines that have evolved over the last year?

In one word, “slowdown.” Tracking trends requires an understanding of where we are and the knowledge of how we got here in order to see where we’re going.

Let’s go back to the Panic of 2008 to see how we got here. It is a year that will live in infamy. It marked the end of capitalism in the United States. It was killed with four words: “too big to fail.” In capitalism, no private entity is too big to fail. A new trend line was established when both the Federal government and the Federal Reserve created policies that lavished tens of trillions of dollars in bailout money and “stimulus” for big finance, big banks and big business. Unprecedented.

So, where are we today? Despite the trillions lavished, Gross Domestic Product in the U.S. is expected to increase only 1.5 percent for 2013 while GDP is in decline throughout much of the world.

What is the single trend that worries you most and why?

The same thing that worries the rest of the financial world: Tapering.

Look how the world equity markets reacted in June when the Fed announced the possibility of easing back on their $85 billion a month bond buying program. A massive sell-off hit the global equity markets. It wasn’t until weaker economic numbers eased the fears of tapering combined with a fine-tuned publicity campaign featuring the who’s who of finance assuring the Street that central banks would stay on the cheap-money, low-interest-rate course for the foreseeable future that the markets rallied.

Are there any rays of hope? If so, where?

Hope is considered one of the most negative words in the metaphysical dictionary. Hope is wishing for something without doing anything to make it happen. The real economy lies in the employment and household income numbers.

These are the facts: Three-fifths of the jobs that were lost in the U.S. since the Great Recession paid middle income wages. However, three-fifths of those that have since been created now pay low-income wages. And, according to the Bureau of Labor Statistics, median household income is below 1999 levels.

So how can the trend be reversed? As I see it, the only way — for the U.S., or any nation for that matter suffering economic decline — is for those nations with the physical and natural resources to do so, to manufacture and produce what it can domestically and only import what it must. For example, in the U.S. some 70 percent the GDP is consumption based. With a balance trade deficit of $550 billion in 2012, that’s an unsustainable equation. No nation can consume more than it produces. That’s another reason why America’s national debt is $16.7 trillion and growing.

The United States Federal Reserve central bank warned that it will slow the flow of cheap money to support economic growth. Break down for us what this means for the U.S. and the global economy at large.

This cheap-money, low-interest-rate experiment is unprecedented in modern history and without it, not only would there be no semblance of recovery, the U.S., and ultimately the global economy, would tank. Don’t believe me, listen to what Fed Chairman Ben Bernanke told the House Financial Services Committee on July 17: “If we were to tighten (monetary policy), the economy would tank.”

So that’s the trend line. For nearly five years, the U.S., Europe and even China have been propping up their weakened economies by pumping in trillions of dollars, euros and yuan in stimulus, bond buying and low interest rates schemes to help keep their economies growing. When the cheap money flow stops and interest rates go up, the global economy goes down.

China’s growth has slowed considerably. In fact, the International Monetary Fund’s economists in July stated: “While China still has significant buffers to weather shocks, the margins of safety are diminishing.” Do you agree? What does this mean for the global economy?

Yes, I agree. China is exporting and importing less. They have a housing bubble that, despite government efforts to deflate it, keeps growing. And they have a looming debt crisis. They too built a boom economy on easy money loans of questionable value. When the global equity markets began to sharply decline in mid-June, another factor driving them down besides the fear of Fed tapering, was that the Chinese government was not going to bail out troubled lenders.

Faced with the prospects of further market turmoil, the government reversed course. And in mid-July, China’s central bank relaxed controls on bank deposit rates, which is essentially a loose monetary policy.

The employment market — particularly for higher paying, career-driven jobs — is in a sustained slumber? Where is this trend headed? Are there any bright spots?

Again, look at the jobs being created in the U.S.: waiters, bartenders, ambulatory services, home health aides, hospitality sector and temporary jobs comprise the majority as higher paying manufacturing jobs continue their decline. Without strong domestic industrial production, the trend line for living wage jobs will continue its decline.

The brighter future is in health care. For those with open minds and a dedication for excellence, there will continue to be professional opportunities in that field as society ages and health concerns grow.

Also, for the entrepreneurial set, designing new millennium education systems to replace the old models and for the tech-minded anything in cyber-security, to name a few.

For the common investor, what are the biggest concerns? And where are the opportunities?

What is a “common investor?” Back in the old days, people who didn’t want to take risk but wanted to make a safe return on their money had a quaint habit of opening a savings account at a bank and getting interest on it. But since December 2008 the Fed has held the rate banks charge one another for overnight loans near zero … and zero is what they can expect to get back from the banks today if they put their extra cash into savings. So, in effect, people are being forced to play the equity markets in hope of getting a return on their “investment.”

Speaking only for myself (I do not provide financial advice), gold and real estate are my two main investments.

As for the biggest concerns: market volatility. In this environment of economic uncertainty, markets are susceptible to sudden shocks.

Give us a short answer to this big question: What is the current trend line for economic globalization and what does it mean for average citizens?

More financial, industrial and retail multi-national consolidation resulting in less entrepreneurial, small business opportunities.

What are the new, even slow moving, economic growth opportunities you see emerging around the globe?

The new, biggest and slowest moving growth opportunity is alternative energy. Not wind, solar, geothermal or bio-fuels, but something as revolutionary as the discovery of fire and the invention of
the wheel. If scientists could hurriedly make an atom bomb under the pressures of World War II, they could, I believe, invent game changing new energy devices. Not only would it be an economic game-changer, it would be a geopolitical one as well since oil-rich nations would no longer be vital to national security interests.

As you look ahead to 2014, are you overall more or less pessimistic about the global economy than you were a year ago?

It’s not a question of optimism or pessimism, but more about policies and initiatives. If interest rates go up and the money pumping slows, the global economies will weaken. And then there are the wild cards that no one can predict: terror, war, natural disasters and/or manmade ones, that can, in an instant, change the course of the future.

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