Despite the greatest government rescue operations of all time, the U.S. economic recovery has been one of the weakest in history. Most Americans continue to suffer through tough times. And new dangers loom.
Indeed, the pattern of the past 15 years is now clear: First a great speculative bubble … then a great bust … followed by massive government stimulus, bailouts and money printing … and then … still another, even greater bubble.
Invariably, when the dust settles from each bubble-and-bust cycle, some people make fortunes. But millions of average hard-working people lose their jobs, sink deeper into debt, and even risk abject poverty.
Right now, a series of time bombs, planted years ago, are beginning to explode all over the world.
Fourteen years minus three months ago, a small group of terrorists attacked the very heart of our nation. They killed almost 3,000 people. They caused at least $10 billion in damage.
They set off a tragic chain of events that have continued to ricochet through time, with a tremendous cost in life — and treasure: The U.S. invasion of Iraq. The fall of Saddam Hussein. The emergence of al Qaeda in Iraq. And now, the rise of the Islamic State, the most brutal, most powerful terrorist organization of all time.
This chain of events has greatly weakened our nation’s leadership in the world. It has propelled our government to spy on us. And it has now brought us around full circle to the danger of larger terrorist attacks than 9-11.
At the same time, in parallel to the global war on terror, we’ve also had a global war on financial crises.
Fifteen years and six months ago, well before al-Qaeda’s first attacks on America, our tech stocks began to crumble, only to crash even further after 9-11.
Over $5 trillion in equity value was wiped out. Our entire economy was temporarily paralyzed. And that crisis also set off a tragic chain of economic events that continue to ricochet through time: Radical interest-rate cuts by Fed Chairman Greenspan.
A great housing bubble — and bust. The implosion of major Wall Street firms. The emergence of a deadly debt crisis. And the most risky and largest Fed money-printing operation of all time, under Fed Chairmen Bernanke and Yellen, pumping $4 trillion into the U.S. banking system.
This chain of events has been a big factor in the recovery of the American economy. But it has also propelled many investors to take unprecedented risks. And it’s likely to bring us around full circle to the brink of another, potentially bigger, financial crisis.
The global war on terror. The global war on financial crisis. Two parallel and powerful historical sequences that are gaining momentum and reaching a crescendo.
But they are only two of the global crises now smoldering and spreading globally. So let me show you some maps that tell the story in a nutshell.
Here are all the countries of the world today where the Islamic State has conquered territory, has mounted massive brutal attacks on the local population or has successfully enlisted affiliate organizations that conquer and attack — much of the Middle East, North Africa and Asia. And that’s just the Islamic State.
These are the countries involved in some kind of civil or international wars. Look at how the red has virtually taken over the globe.
And while we’re talking about red ink, here are the countries burdened with heavy debts and big deficits, many of which they will never be able to pay. That includes all of North America, most of Europe, plus the two most populous countries of the world — China and Japan.
All this sounds very bad, doesn’t it?
Well, it is. But there’s also a silver lining, especially for the United States. Of all the countries on all these maps, the only one that combines a powerful military, a stable government, a huge economy and, most important, giant liquid financial markets is the United States.
Despite America’s big debts, government gridlock, and past stumbles, it is now viewed as the last remaining large safe haven on the planet.
As a result, the geopolitical and financial troubles overseas are driving huge amounts of money into U.S. markets. In fact, based on data from the IMF and OECD, total foreign ownership of U.S. assets rose from $16.6 trillion in 2009 to nearly $27 trillion in 2014. That’s a total of $10 trillion that has flowed into U.S. investments from abroad.
Again, remember the great sequence of events of our times:
Extreme easy money in the 1990s, leading to a tech bubble and the Great Tech Wreck …
Even more extreme easy money in the early 2000s, leading to the housing bubble and the Great Debt Crisis …
And now, the most extreme easy money of all time, leading to an unprecedented bubble in bond markets and government debt, the subject of my column next week.
Good luck and God bless!