some guy in lebanon

Update: Please note that this is a follow-up article to a previous post, “The Coming American Diaspora.”

To begin what is really an extended diatribe, consider this quote from Nathan Gardels’ interview with George Soros on Friday:

U.S. influence will wane. It has already declined. For the past 25 years, we have been running a constant current account deficit. The Chinese and the oil-producing countries have been running a surplus. We have consumed more than we produced. While we have run up debt, they have acquired wealth with their savings. Increasingly, the Chinese will own a lot more of the world because they will be converting their dollar reserves and U.S. government bonds into real assets. That changes the power relations.

The powershift toward Asia is a consequence of the sins of the last 25 years on the part of the United States.

Soros makes a few very interesting points throughout this interview, namely a “roadmap,” if you will, for international Central Bank mobilization against the financial crises, including:

• The government needs to recapitalize the banking system by buying equity stakes in banks.
• We must reform the mortgage system in the U.S., minimizing foreclosures and renegotiating loans so that mortgages are not worth more than houses. Stemming foreclosures will cushion the fall of housing prices.
• Europe has to fix a weakness of the Euro by creating a safety net for its banks. While initially resisting this, they have now found religion and done it at their meeting in Paris on Sunday.
• The IMF must deal with the vulnerability of countries at the periphery of the global financial system by providing a financial safety net. This is also in the works. The Japanese have already offered $200 billion for this purpose.

What exactly are the ramifications of this roadmap?

This roadmap has four major consequences for people in their 20′s and 30′s (Gen X and Gen Y) in this country – all of which are inevitable, because Soros’ roadmap is exactly what the industrialized nations are going to do.

1. The United States’ recapitalization of banks will lead to less risk-taking in the financial industry for the next 20-30 years. The government will not allow for cowboy loan sharking such as ARM and/or Sub-Prime loans with its endless red-tape, a likely Democratic reform-minded majority in Washington, and the public’s quickly slimming tax-rolls. What does this mean for Gen X and Y?
   • Kiss your plans for owning a home goodbye in the next 15-25 years. You will not be able to amass enough worthy credit history to own anything that would sustain a two-child family until you’re in your late 30′s or early 40′s. If you cannot understand the weight of this, you’re not paying attention. Home ownership for a family in one’s early 30′s is the American dream, and with the enormous conservatism that is about to enter the financial markets thanks to the many bailouts currently in the works, that dream is officially slipping away. Raising children in apartments will be on the rise, which will only prolong the problem in two ways:
     • First, raising children is expensive, and the market is slowing, so salary-increases will be soft even as inflation rises – In other words, once you have kids, it’s going to be harder to build up to a down payment for a house.
     • Second, more children will grow up absent the influence of home ownership – This means less budgeting, less fiscal-responsibility, and more bad lessons for another generation.
   • Another consequence (in an in-exhaustive list) is that for those of you young folk, hot out of your undergraduate or graduate degree, who think that the next frontier for you is a sweet 80-hour-a-week, $100,000 a year Investment-Banking job, shucks. Kiss that dream goodbye as well. While I would normally gloat, I’m actually really concerned with this – An entire generation of young white American males with boundless energy, a lust for money, possessing endless family and business connections that 99% of the population don’t have, and a penchant for risk, will no longer be cruising Lower Manhattan, amped on Adderol and Marlboro Lights. Instead, they’ll be competing for the jobs they hate, but unfortunately those are the jobs that the rest of us in our mid-20′s and 30′s need. Have you ever tried to out-compete one of these little fascists? Good luck with that.
     

     Say Hello to Some Serious Workforce Competition

2. Mortgage Reform will essentially make prisons out of at least a tenth of American homes. Get this:

A bank told you that you could afford a house that you couldn’t afford, and they lent you the money at an interest rate that, in a few years, would be equivalent to loan-sharking. (And they neglected to tell you that little detail) – If the DID tell you rates would get higher, what they told you in the same sentence was that the American housing boom would never end, and that refinancing would be an option as long as (har har) there wasn’t some sort of complete financial meltdown.

SO. You took that money and bought the house, and then two years later you realized you couldn’t afford the house and that you and millions like you were the tip of the spear that was piercing the massive balloon that was the super-heated Western Economy. Shucks.

Now, although it is a nice service, it’s still a problem that the government’s going to step in and re-negotiate your mortgage – the mortgage on the house that you couldn’t afford and likely didn’t really need. We all know that the terms of this little deal guarantee mean that you’re stuck with that house forever, and given the economy and the massive list of houses for sale, you will never sell it.

So a house you couldn’t afford is now one you can sort of afford, thanks to the government, except that you can’t get rid of it. The consequences for Gen X/Y:

• If you’ve bought a house and are now in foreclosure, you will not be able to get out of said foreclosure without either ruining your credit and getting attacked by FoxNews for destroying the world when you declare Bankruptcy, OR, you get a little less of a lousy deal on your home from the government than you did from the bank. If you have a family, you thank God you still have a roof over your head, and you feel badly for the rest of us who will never be able to own a house again in this country. If you don’t have a family, you curse the day that attractive blond from the bank got you to sign those papers for that Adjustable Rate Mortgage.
• Bankruptcy will likely increasingly become fashionable, as those who fall into the latter category realize it probably makes more sense to just walk away then eat what the government’s serving.
• Said bankruptcy will destroy the credit of millions of young Americans, perhaps leading to an enormous commune-movement.

3. Europe is in just as in trouble as America – The only thing they’ve got over us is that their military budgets are essentially zero thanks to our generous defense of Western Europe for the very-expensive past half-century. Hey, but at least Germany can gloat that it hasn’t been properly invaded by a non-American/Soviet foreign power since Gustov the Great, the last time Sweden ever got bored enough to attack another country. Consequences for Gen X/Y:

• Your answer does not lie in Europe. Keep looking East on that map of yours, if you even own one that doesn’t still say USSR on it. I was once lectured at a Finance Meeting by a woman in charge of a global Accounts Payable division who admitted she didn’t know where Russia was, and could barely speak English, let alone a foreign language.
• Your answer does not lie in an country financially indebted to America or Europe, such as a good portion of the Middle East (Egypt, Israel, Jordan), and most of Africa.

4. The IMF’s answer, as is the IMF’s answer to everything, is to come up with a paltry sum for developing nations with too many strings attached. There will not be enough money to bail out most countries whose economies are not already standing upright. Consequences for Gen X/Y:

• Most semi-Developed nations rely on enormously-leveraged positions that are propped up on global supply chains that require those very economies to remained enormously leveraged. If it sounds circular, it’s meant to be. The IMF and the World Bank are the primary instruments of this arrangement. Those countries will have enough problems employing their own people, let alone Americans who don’t speak foreign languages and know nothing about foreign cultures.

Conclusions

If you’re an American looking for the next economic frontier, recognize the following: There will be no credit industries to make a fast buck on in the West. Those industries are only now developing in the East. Where will be the world’s largest airport be, come 2010? Qatar. What is arguably the world’s best capitalized nation? China. Which country has already survived a major land-value crash and has emerged with key-lessons learned? Japan. What are the consequences of the current global financial system? Permanent volatility, until the problem is rooted out.

What is the key problem in the global financial markets? The over-heating-effect of Western credit and securities schemes.

You know it’s a problem when an entire economy exists on credit. I know – many economists disagree with that statement, but if Soros is correct, it is essentially inevitable that the Market will over-correct (read: recession) every few decades (or less). If that’s the case, only highly-regulated economies will survive them. On the flip side, if economies do not overheat and thus inevitably recess, the result is zero-growth.

Neither advanced socialism, advanced fascism, or advanced capitalism hold the key – there likely is no key. If you’re an American between the ages of 23 and 39 (that may be a conservative estimate) you’re essentially on your own. Don’t count on loans for cars, homes, or any other major purchases. If you don’t have the cash on hand, you aren’t buying, and we’re far past the days of $30,000 homes. Don’t count on credit cards financing your bi-weekly $100 bar-tabs. Don’t count on entering middle-class society. There’s two options open to you – well-capitalized Eastern Nations, or energy-rich nations of Eurasia, Latin America, and the Middle East.

The end result of this little rant of mine is that if you’re in that age bracket, it’s time for you to pack your bags and head East or South. There are economies in this world that will easily survive this crises without major protectionist reforms. If you’re young and American, that means you’re motivated, educated, and you think outside the box.

You are a member of a gilded generation, but no longer a citizen of a gilded age. You assume the world should be just, fair, and balanced. And that’s a good thing.

It’s time you start spending your energy on the world – and whereas that used to be an idealistic position, if Soros is correct and the Western World’s governments are about to institute reforms that will eliminate your ability to enter the American workforce with any semblance of a guarantee of a roof, a job, healthcare, or upward-mobility, it seems that there is an enormous market-based reason why its time for you to pack your bags, learn a new language, and get the heck out of dodge. To summarize:

• You don’t want to compete with the hotrod I-Bankers, about to be unleashed into the unemployment lines.
• You won’t be able to afford to buy a house, or you lack the credit to ever do so.
• You won’t be able to run to Europe.
• There are only a limited number of options.

One final note – Soros did have one silver-lining statement:

“But then, I’m afraid, there is the fallout in the real economy, which is now gathering momentum. At this point, repairing the financial system will not stop a severe worldwide recession. Since, under this circumstance the U.S. consumer can no longer serve as the motor of the world economy, the U.S. government must stimulate demand. Because we face the menacing challenges of global warming and energy dependence, the next administration should direct any stimulus plan toward energy savings, developing alternative energy sources and building green infrastructure. This stimulus can be the new motor for the world economy.”

It seems Green Energy may just be the driving force of the next economic world-order. Too bad all those Indians and Pakistanis have a trillion degrees in nuclear physics. And anyways, Gardels followed that up with this little zinger:

“At the end of the day, won’t we be looking at a vastly different global financial landscape? The U.S. will decline as the top power. It will have, along with parts of Europe, socialized banks and loads of debt. Communist China will be the new financial power globally, flush with capital and a major investor in the West.”

To which Soros replied, as we already know,

“U.S. influence will wane. It has already declined. For the past 25 years, we have been running a constant current account deficit. The Chinese and the oil-producing countries have been running a surplus. We have consumed more than we produced. While we have run up debt, they have acquired wealth with their savings. Increasingly, the Chinese will own a lot more of the world because they will be converting their dollar reserves and U.S. government bonds into real assets.

That changes the power relations. The powershift toward Asia is a consequence of the sins of the last 25 years on the part of the United States.”

The Dao that can be experienced is not true;
The world that can be constructed is not true.
The Dao manifests all that happens and may happen;
The world represents all that exists and may exist.
-Dao De Jing