The man who predicted the bankruptcy of General Motors says the government’s financial data isn’t giving an accurate picture of the state of the U.S. economy, and the real numbers show things are much worse than is commonly believed.
The numbers tell us America is in decline, if not outright collapse, writes investment expert Porter Stansberry in the December 2011 issue of Stansberry’s Investment Advisory.
Stansberry says that while he believes the country is headed for a crisis, he is optimistic that Americans eventually “will make the right choices and put our country back on sound footing.”
He says, however, that his conclusions about what is to come will challenge many of his subscribers to re-examine what they believe about their country.
“The facts about America today tell a painful story about a country in a steep decline, beset by problems of its own making.”
Stansberry notes that his readers expect the monthly analysis he has given for the past 15 years to focus on investment opportunities, but December’s issue is unlike any other.
While he realizes it will cause controversy and “spark a wave of cancellations – costing me hundreds of thousands of dollars,” he is “speaking out now because I believe someone must.”
He believes America has arrived at a critical moment in “a long-brewing crisis.”
“Our political leaders, our business leaders, and our cultural leaders have made a series of catastrophic choices,” he says. “The result has been a long decline in America’s standard of living.”
The problems have been papered over for decades with massive borrowing, but with the total debt now close to 400 percent of Gross Domestic Product and American moving from the role of largest creditor to largest borrower, “the holes in our society can no longer be hidden.”
“We’ve reached the point where we will have to fix what lies at the heart of America’s decline or be satisfied with a vastly lower standard of living in the future,” he says.
He explains that the most fundamental measure of the success or the failure of any political system or culture is per capita GDP, which answers the question of whether the pie is getting smaller or larger for each individual.
One problem, he says, is that the U.S. doesn’t have a sound currency with which to measure GDP through time, since the dollar was removed from the gold standard in 1971.
The only way to accurately measure per-capita GDP is “to build our own model,” he contends.
“The need to build our own tools tells you something important – the government doesn’t want anyone to know the answer to this question,” writes Stansberry.
If per-capita GDP were based on a real-world currency, such as gold, or on a basket of commodity prices, instead of the paper-based U.S. dollar, the analysis would show America is in a steep decline, he says.
He uses the sale of cars as an example of evidence that shows real per-capita wealth peaked in the late 1960s.
The lowest median age of the U.S. fleet was in 1969, at only 5.1 years, he points out. Even as recently as 1990, the median age was only 6.5 years. But in 2009, the median age of a registered vehicle in the U.S. was almost 10 years.
“Rich people buy new cars,” he argues. “Poor people do not.”
Most importantly, he says, the data verifies “something I know many of you have felt or perceived for many years.”
“You’ve seen the decline of your neighborhoods,” he says. “You’ve gone years without being able to earn more money in your job. Or you’ve seen your purchasing power decrease to the point where you’re now substituting lower-quality products on your grocery list for the brand-name products you used to buy.”
Because so many can’t make it, they’ve decided to “fake it,” he says, pointing out average college student now graduates with $24,000 in debt. By his late 20s, he has racked up more than $6,000 in credit card debt. Meanwhile, median earnings for Americans aged 25-34 is $34,000 is $38,000.
Older Americans are also more reliant on credit card debt than ever before, he notes.
He says the decline of America “is primarily a decline of our culture.”
“We have lost our sense of honor, humility, and the dedication to personal responsibility that, for more than 200 years, made our country the greatest hope for mankind,” he says, adding America has “become a country of people who believe their well-being is someone else’s responsibility.”
As an example, he points to the report of U.S. Treasury Secretary Henry Paulson, the former CEO of Goldman Sachs, holding a secret meeting with the top 20 hedge-fund managers in New York City in late July 2008. The meeting took place about two weeks after he testified to Congress that Fannie Mae and Freddie Mac were “well-capitalized.”
“I knew for a fact that what Paulson told Congress wasn’t true,” Stansberry writes.
Paulson reportedly told the billionaire investors that Fannie and Freddie were a disaster that would would require an enormous, multibillion-dollar bailout and a U.S. government takeover, wiping out the shareholders.
“It seems like everyone in our country has lost his moral bearing,” Stansberry says, “from the highest government officials and senior corporate leaders all the way down to schoolteachers and local community leaders.”