What Is the U.S. Debt Bubble and How Could It Affect You?

What in the world happened?  There we were with the DOW over 14,000, U.S home prices were close to their all time highs, and consumer and commercial credit was flowing as freely as honey on a hot summer day.  Seemingly overnight, things weren’t so sweet anymore.  It felt like the proverbial rug was pulled out from under us, but in fact, we have been setting ourselves up for this multi-bubble fall over many, many years.  It began with our decision in the early 1980’s to run large government deficits, these 6 co-linked bubbles have been growing bigger and bigger, each working to lift the others, all booming and supporting the U.S. Economy

Here are the six co-linked bubbles, some have popped, others have yet to:

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The Real Estate Bubble, The Stock Market Bubble, The Private Debt Bubble, The Discretionary Spending Bubble, The Dollar Bubble, The Government Debt Bubble.

The National Media does an exceptional job of sugar-coating the state of our economy, our job at at Critical Financial is to keep you informed of what can and will eventually happen with respect to these bubbles.

Here are a list of ways in which these bubbles are affecting your pocketbook on a daily basis:

 

  • The current governmental approach to its debt is to keep interest rates low and to print more money. This has consequences for the average American:  As more money is printed, your salary goes down in real value, as do your savings. If enough money is printed, inflation could jump to a point where you will need to severely cut back on gas, food and other necessities.  Case in point…German Hyperinflation in the 1930’s
  • The print-money approach to the debt bubble will continue to drive up prices of items that you buy every week, from gasoline to eggs. That is because your dollars are worth less to the makers of these products. As the governmental debt continues to grow ($16 trillion and counting), prices of common items will continue to grow with it.  This is especially bad news for those on a fixed budget, i.e Social Security.
  • The U.S. debt also impacts your retirement plans, perhaps drastically. You can probably count on reduced benefits and dollar amounts that buy fewer goods and services, a true double whammy. That means that you will need to take your retirement into your own hands more than ever. It also might mean that you will need to work longer before you retire.
  • As for personal debt, as homes continue to foreclose in your neighborhood, the value of your home will either slip or stay stagnant. This will slow the recovery of millions of Americans that are under water on their home values and force them to alter their plans. This will force them to hold on to their homes for several more years, when they would rather move and downsize.
  • Student loan debt is skyrocketing, forcing many families to look at alternatives for higher education. The U.S. debt bubble might determine where your children attend college. Dreams of going to a prestigious school might yield to reality—the local community college, then State U. for the final two years.
  • Credit card debt will continue to hamstring many families, and if you own a small business the reluctance of Americans to whip out their cards these days will hurt your profits. In addition, it is harder to obtain a loan for your small business than in previous years, making it more difficult to expand. If you own a business or have a vital stake in one, you have no doubt whatsoever that the U.S. debt bubble affects your enterprise every day of the year.

And what if these remaining bubbles burst? It’s hard to say what will happen exactly, but every single person in the country will immediately feel the impact, from currency being seriously devalued to goods instantly costing much more than usual. This is what has happened in countries around the world, such as Greece and Spain. Developing world countries have often forced their citizens to accept serious devaluation of currencies. We will feel that sting, too, in the coming years when the US debt bubble bursts.  In future posts we will discuss these bubbles in greater detail!

 

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