America – Driving Toward Third World Oblivion

My predisposed thoughts about third world countries include the following: high unemployment, a growing number of government bureaucrats (who hold the best and most secure jobs), rich and poor with little or no middle class, high levels of debt, dependence on foreign imports, and a chronically weak currency.  Unfortunately, all of these characteristics are now attributable to the U.S.

The middle class in the U.S. is quickly disappearing.  Because the wealthy don’t need jobs and the poor have a plethora of government programs to fall back on, the Middle Class is hardest hit by rising unemployment.  Today’s official rate of 9.7% only tells part of the story.  The real unemployment rate, the one that also counts those who have stopped looking for jobs and those who have part-time jobs when they need full time ones, is now 17%!

Since 1978, the average private sector wage earner (supervised employees) is 15% worse off in terms of purchasing power of that wage.  Meanwhile, over that same time period, the corporate executive is 155% better off.  Americans have every right to be upset with the multimillion dollar bonuses paid to executives whose companies had to be bailed out by the taxpayers and to those who sit smugly on Wall Street believing that they are actually worth it.

Another recent study revealed that the average wage of the average U.S. worker was $49,935 in 2008.  That same measure for a federal employee was $79,197.  This gap, now almost $30,000, has increased from less than $13,000 just nine years earlier.  In addition, federal employees have much better benefits, and those benefits are guaranteed.

The average debt per capita in America is now $187,000.  If we include the entire contingent liabilities that are not counted as debt but could easily become so, this number could rise to as high as $565,000 per capita.  In 1957, this debt was only $4,000 per capita.  Sure, we’ve had inflation, but if we look at these statistics in terms of their percent of GDP, today’s debt is 2.7x what it was then.  In terms of income, American consumers owe 121% of their annual incomes, up from 60% in 1982.  My colleague likens this debt to serfdom of the Middle Ages where the serf owed more to the Lord than he could possibly ever pay back

Over the past 18 years (as forecast by Ross Perot in the 1991 Presidential campaign), our manufacturing base has been transplanted to other parts of the world (Perot’s “giant sucking sound”).  Today, like many third world countries, we import many manufactured products and parts and are now more than ever dependent on foreign oil.

Finally, by deficits that were unthinkable even two years ago, our government continues to reduce the value of the U.S. dollar relative to other currencies and gold. Since we hold our wealth in dollars, the debasing of our currency is a stealthful robber.

Is America third world?  Probably not yet.  But it appears that we have embarked on a path that will take us there in the not too distant future.  There are profound implications of these trends including a reduction in economic growth and the ability of the population to pay taxes.  The financial implications will continue to be a weakening U.S. dollar.  Investors, beware!

Robert Barone, Ph.D.