January 6, 2016 2:41 PM
From: Strategic Investment

By:  Charles Del Valle

The Myth of U.S. Economic Resilience

If you pay too much attention to the economic “happy talk,” you might think Americans are doing pretty well right now.

Yet a recent study from Bankrate.com showed that 63% of Americans have so little money saved up, they wouldn’t be able to financially handle a $500 “emergency” such as a car repair or hospital visit.

This isn’t the only study showing how dire Americans’ financial situation has become. The website GOBankingRates.com found that 62% of people it surveyed had less than $1,000 in their savings account.

And a larger study by the U.S. Federal Reserve found that 57% of Americans who had savings before the financial crisis had used up most or all of what they had by the middle of 2015.

This isn’t what you’d expect from an economic recovery that has supposedly been going on for years.

Rather, what this recession did was reduce the share of wealth held by middle class families to just 43% (compared with 62% in 1970.)

Clearly, the middle class is getting smaller. And a strong middle class was precisely what used to make America such a resilient country.

Keep this in mind when you hear the talking heads discuss how America will somehow dodge the global recession.

At this point, when you look at the U.S. economy, the only thing supporting it is the service sector. Services make up more than two-thirds of our economy, so this is a good thing.

But that said, the latest reports show the service sector slowed in December to its worst pace in 17 months.

Certainly not a good sign.

In terms of manufacturing, it’s so bad in the U.S. that you would think we’d be in a recession. In November alone, factory orders dropped 4.2%. That’s the 13th consecutive drop. In fact, when you look at a longer-term chart, you’ll find factory orders have been flat for more than five years now.

This goes a long way toward explaining why our economic recovery hasn’t felt like one.

So no matter what some analysts like to pretend – the U.S. economy is not insulated from what goes on around the world. The pervasive weakness of the emerging markets has had the result of making the dollar more valuable. This, in turn, makes U.S. exports more expensive.

Sure enough, the latest trade data for December show U.S. exports falling to their lowest level since 2012.

Is it any wonder factory orders are down? Nobody is buying our stuff anymore!

A stronger dollar also has a negative effect on companies with overseas operations, because their foreign profits are worth less in U.S. dollars.

This will eventually lead to shuttered operations and layoffs, likely inside the United States.

So while the effect may be slow, a global recession will certainly have a nasty effect on our own economy — especially since China is slowing down even more.

Earlier today, China allowed its currency to weaken to its lowest rate in nearly five years. China is doing this to try to spur more export growth, but it just shows how weak the Chinese economy really is.

From CNBC:

China’s slowdown is expected to hit its domestic housing market hard — as well as nearby markets in Asia favored by wealthy Chinese buyers. Price growth in Shanghai is expected to fall by more than half, from 10 percent in 2015 to 4 percent in 2016. Hong Kong is expected to see prices fall by 5 percent, making it the worst performing market, followed by Singapore, where prices are expected to fall 3.3 percent in 2016.

Once global real estate prices start crashing, expect foreign money to start vacating markets like the U.S. I know that the housing market on the West Coast has been supported by foreign money.

But if foreign real estate begins to crash and foreign investors begin to cut losses and raise cash – it’s only a matter of time before that translates to more home sales domestically and a drop in demand.

That will be yet another nail in the U.S. economic coffin. And it’s one of the big stories we’ll be following this year.

Have a great week!

We have to get these people out of office or we are not going to make it.

kommonsentsjane