The US Is Bankrupt From Top To Bottom — Only A Total Realignment of Its Economy Can Save It
Recently, various countries stopped using the US dollar as a reserve currency and for international trade and instead started trading in their own currencies. The impact of this has been earth-shattering for the US economy, leaving aside the US investors and businesses.
Unused dollars flowing back to the US skyrocketed inflation and forced the Federal Reserve to raise interest rates. This had the effect of ending the zero-interest economy that the US got so used to in the past 50 years. This had a double effect:
1 — It made US interest-based investment tools more attractive than the stock market, causing an exodus away from the overvalued stocks that were riding on the zero-interest economy and shaking the entire job market in the US, leading to mass layoffs as companies tried to float their stocks by cutting their expenses.
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2 — It tanked all the institutions that bought heavily into US treasuries from earlier interest rates as those earlier bonds have become unrealized losses.
This second effect caused the biggest bank crashes since 2008, with some banks that silently folded up being bigger than the banks that sunk back in 2008.
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The situation remains unchanged, as gigantic banks sit on enormous unrealized losses as of today.
There is no way out of this — either the US govt. would have to bail out these banks with immense cost to the US taxpayer and as a result, to the US society, or these banks would need to go under, taking the entire US economy down with them.
The US is trying to force other countries to bail it out like how it happened in 2008.
China: The Power Behind the $700 Billion Bailout
If China does what it did in 2008 and keeps buying more US bonds, the US can float its economy through government spending. However, all the indicators show that the opposite will happen.
What is behind the 40% drop in China’s U.S. Treasury holdings?
A reason why the US is constantly taking hostile actions against China and ramping up pressure is this — to force them to stop dumping US bonds and instead make them buy to get them to prop up the US economy. But all indicators show that there is no scenario in which this would happen. China is investing in other countries that are its trade partners and moving to trade with the Yuan instead.
So, the US economy at the top, represented by the ‘Wall Street’ paradigm is currently insolvent, whereas…
The Main Street Is Even Worse…
The economic impact of this situation has been far greater on Main Street even before the major US banks started crashing and burning. The slowing down of the economy, the large-scale layoffs, and bleak forecasts caused Main Street to start cutting spending to float.
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However, the amount of cost-cutting done does not seem to have bailed out Main Street as delayed payments and defaults started to skyrocket.
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Main Street doesn’t have a way out of the hellish, overpriced US landscape that got fat on a low-interest economy, causing the over-inflation of all prices and costs ranging from rent to food supplies even as the layoffs cripple their income. So there’s no relief on the horizon for the economy from the domestic demand either.
Voodoo Economics Is Over — Its Time For A New Paradigm
The Reaganite financial voodoo economics that floated on the reserve currency status of the US, creating a zero-interest economy that allowed the US to print dollars without inflation and literally monetized the entire world’s economic activity to fatten itself, is over. There is no scenario in which the US can force the dollar to become the international reserve currency again. The expectation that things would go back to ‘normal’ after the current string of wars that the US pulled out of nowhere with the hopes of a Hail Mary is unfounded.
Now that SWIFT alternatives have been implemented by other superpowers, ending the control of the US on international trade and therefore breaking the monopoly of the US dollar, other countries will keep on trading in their own currencies regardless of how the current string of conflicts end. The economic paradigm that rode on the zero-interest, cash-awash, inflated, and outright scammy financial economy will not return.
The only way out of this is a total realignment of the US economy to make it stand on firm economic activity that actually creates economic value instead of bloating on uncontrolled amounts of cash entering the market — just like how the economies in the rest of the world that do not ride on magic money have been running all along. The expectation that the magic-money economy will return must be discarded and capital must be directed to things that will actually create results.
This means making actual investments in infrastructure, education, manufacturing, services, and the well-being of society through economic activities and companies that produce actual, tangible value instead of printing magic money through financial shenanigans.
In the process, things that really matter may be addressed, and new horizons may be broken into. Any of such breakthroughs would create actual, tangible value multiples more than the hot air that the US economy used to produce.
This is inevitable. There is no alternative scenario. The only question is whether the US can get its act together and realign its economy in a planned fashion to minimize the damage and maximize the benefits, or it ends up having to do it clumsily after crashing down and burning.
For the former to happen, both Wall Street and Main Street must come to terms with how things actually are now and start changing things from the top and the bottom.
