Yesterday’s strong numbers on retails sales and today’s weak data on industrial
production, which reveals a third consecutive month of falling output from
our nation’s factories, mines, and utilities, show that Americans continue
living well beyond their collective means. In addition, today’s increase
in consumer sentiment reflects the continued willingness of Americans to
go deeper into debt to purchase imported products. Increasing consumption
and decreasing production will result in further increases in American’s
enormous current account and merchandise trade deficits. How long will America’s
foreign creditors continue the greatest “vender financing” scheme
the world has ever seen? How long will America’s thrifty and productive trading
partners continue to extend credit to profligate, non-productive Americans?
How long before the world realizes that the de-industrialized American economy
is no longer capable of producing enough exportable consumer goods to pay
off its enormous external liabilities? I believe the answer to these questions
is “not much longer.” The American consumer, like the proverbial
Emperor, truly has no clothes (unless, of course he imports them). It will
not be long before the non-American producer finally acknowledges his nudity,
and the dollar bubble will finally burst. When that happens U.S. consumer
prices and interest rates will spiral upward, stock and real estate prices
will collapse, unemployment will soar, and the U.S. economy will enter a
prolonged recession as it enters a new era of savings, self-sacrifice and
under-consumptions, and begins a long and painful process of re-industrialization.