For years, due to US dollar hegemony, a tremendous US appetite for consumption and a masqueradingly sound banking/financial system, our economy was very fortunate to have had the privilege of absorbing nearly 80% of the world’s excess savings. This foreign savings was recycled back through our system, allowing for the creation of new loans, provided the fuel for increased consumption and it permitted us to live far beyond our means.
Recently however, many foreigners (who previously wouldn’t have given second thought to investing their savings in the US) were burned with what they thought were “can’t-lose” investments and the falling dollar has exacerbated their losses… I imagine it will take a long, long time for many to forget the deliberate deceptions that led to their losses and I expect to soon see a large portion of these massive savings inflows diminish.
The eventual loss of this foreign savings component, when coupled with the seizure in global credit markets and increasing financial write-downs/losses, has a good chance of snowballing into a major crisis that could potentially impact each and every one of us in a very serious way.
Some feel the final endgame to our party of excess will be hyperinflationary in nature, whereas others fear a future of stagflation or hyper-stagflation; many more feel deflation and depression will result (personally, I think it will be a combination of the above), but regardless, whatever the outcome, I think we can all agree that it has the potential to be very bad.
With that said and understanding that major change is on the horizon, what can we expect the social implications to be? Almost certainly, consumer spending will fall and layoffs will increase but will we eventually see:
Widespread homelessness of entire families
I don’t think any of us really know, but depending on the severity of the situation, I imagine absolutely anything is possible.
Last January, as food-for-thought, I wrote a couple of articles that touched on some of these issues in a little more detail. I hope you have the time to read.
The first one Maslow’s Hierarchy of Needs and the U.S. Economy discusses our five levels of shared basic human needs and how, (w/Katrina as an example) when man has lost all hope and becomes desperate to feed his family, survival becomes the dominant need -- nothing remains sacred... Ethics, Values, Morals and the social fabric of society is thrown out the window.
The second post, American Wake Up Call! discusses my view of America's future. I personally believe we will encounter significant struggles for the next 20-30 years, but think this hardship will make us a better people and the decades of struggle will be followed by a stronger nation.
I hope this info helps you to ponder what our future could potentially hold and assists you in any effort that (1) you may take to secure your family’s future and (2) you may take to help us become a better Nation.