I had planned on posting an economic entry focusing on Capmark/CIT, Gold/Dollar and earnings; however, I need to hold off for one more day.  It looks like something additional may have happened the last several hours that impacts one topic.

A number of articles in the last few months have shown how China is buying up commodities left and right, Niall Ferguson tells us why:

Washington D.C. is too complacent about China’s ability to wean itself off the dollar.

The idea they don’t have anywhere else to go or would shoot themselves in the foot if there were a steep decline in the dollar or appreciation of their currency reassures many people in Washington ‘we can relax’,” he says. “An appreciation of the renminbi may reduce value of their international reserves but increases the value of every other asset the Chinese own,” most notably the commodity assets they have been buying all over the world.

Let’s face it; in a barter system a commodity would have more value than a piece of cloth that has nothing backing it.

I have no real easy way to begin this post, so I will be direct and to the point: The stress on the economy is worse now than it was last year at this point, and I fear the situation will become significantly worse in the very near future.

While I am not an economist, nor do I claim to have any economic knowledge others do not, looking at the data presented in the public domain really makes me to question what is going on in our economy – and – it makes me believe something isn’t right.

The media will point to improving economic numbers, but what is being reported as “improving” is less than encouraging. How about we look at what is improving by focusing on what is NOT improving.

Negative

• Port traffic is down 15% YoY (less goods going in and out)
• Hotel occupancy down 15% YoY
• Auto Sales down to spring 2009 levels after cash for clunkers ended
• Chicago and Dallas manufacturing activity down
• Debit 12T
• Unemployment roughly at 20% when looking at all stats and removing government assumptions
• GDP -.07 for the last quarter
• Dollar falling
• Oil at 72
• New Housing Orders Down

Positive

• Retail sales better than expected
• Higher Consumer sentiment
• Service Sector Grew last month

With all seriousness I have to ask the obvious question – How can economists say that we are currently improving? Just about everything is point to poor economic performance.

Do you happen to remember the trigger for our recession / depression? It was the banking crisis that started in late 2007 and came to a head in 2008. Has that underlying, fundamental, issue been addressed?

No.

Joseph Stiglitz, the Nobel Prize- winning economist, said the U.S. has failed to fix the underlying problems of its banking system after the credit crunch and the collapse of Lehman Brothers Holdings Inc.

“In the U.S. and many other countries, the too-big-to-fail banks have become even bigger,” Stiglitz said in an interview today in Paris. “The problems are worse than they were in 2007 before the crisis.”

…

Stiglitz, former chief economist at the World Bank and member of the White House Council of Economic Advisers, said the world economy is “far from being out of the woods” even if it has pulled back from the precipice it teetered on after the collapse of Lehman.

“We’re going into an extended period of weak economy, of economic malaise,” Stiglitz said. The U.S. will “grow but not enough to offset the increase in the population,” he said, adding that “if workers do not have income, it’s very hard to see how the U.S. will generate the demand that the world economy needs.”

The Federal Reserve faces a “quandary” in ending its monetary stimulus programs because doing so may drive up the cost of borrowing for the U.S. government, he said.

“The question then is who is going to finance the U.S. government,” Stiglitz said.

The potential nail in the coffin is the U.S. debt. Remember the 12 Trillion number above? Yea, that. The Congressional Budget Office is well aware the debt is out of control and has waved the warning flag – the United States may be unable to service its debts.

If the ratio of debt to GDP continues to rise, lenders may become concerned about the financial solvency of the government and demand higher interest rates to compensate for the increasing riskiness of holding government debt. Eventually, if the debt-to-GDP ratio keeps increasing and the budget outlook does not improve, both foreign and domestic lenders may not provide enough funds for the government to meet its obligations. By then, whether the government resolves the fiscal crisis by printing money, raising taxes, cutting spending, or going into default, economic growth will be seriously disrupted.
…
The systematic widening of budget shortfalls projected under CBO’s long-term scenarios has never been observed in U.S. history.

The government is basically telling use that the United States is on the path to bankruptcy, if it is not already there.

Just to recap – The underlying banking issue is not under control, the government debt is nearly unsustainable, and our economic numbers do not point to a turn for the positive.

From my perspective, the economic reality we live in points to the United States sitting on the brink of economic hardship unlike anything this nation has ever faced.  As the US is the largest consumer economy in the world, the collapse would send shockwaves to every corner of the globe.

So, what could be the cause?

Since the banking system is basically bankrupt, and the FDIC is out of money, the collapse of a “too big to fail” bank could easily be the trigger…  As could a massive decline in the price of the dollar… or other world government deciding they will no longer loan money to the U.S. Basically major market event that would stress the financial institution has the potential to be the trigger for the next leg down in this economic cycle.

Such an event could come at any time, and what scares me the most is my fear that the trigger may be sooner than later.

Jim Rogers is a hedge fund pioneer who retired at the age of 37, he is always a great interview and you need to take a listen to what he is talking about now.

If you don’t wish to view the video, here are the highlights:

• Worst recession since WWII in the US
• Could be as bad as the depression because politicians are making big mistakes
• Worried because Mr. Obama wants to tax capital and move toward protectionism
• China will be the great country of the 21st century, no way seen how American will be the great Country of the 21st centry
• America is propping up everyone in sight, which will lead to run away inflation
• American Government needs to let companies fail
• Commodities are in short supply and will continue to over the next 10 years, we will have serious supply problems
• US Dollar is a terribly flawed currency

Here is the full video, if you have 20 mins.