The Baby Boomer Mirage is Fading Fast

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FUTURE TRENDS – THE BABY BOOMER MIRAGE IS FADING FAST Page 1 of 42 The U.S. Baby Boomer mirage has been kept the importers of “stuff” into the United States with positive trade deficits happy, as shown in the two tables below,. That is coming to an end. China, Europe, Japan, and Mexico have benefitted greatly from Joe Sixpack and Mary Spend-a-Lots propensity for foreign “stuff”. They like the Japanese and German automobiles. They also like foreign electronics, among other things that Americans used to manufacture. Figure 28, “U.S. Gross Public Debt”, shows what the global economy has done for Uncle Sammy - $20 Trillion and rising fast. Of course, many are just as bad or in worst shape than Uncle Sammy, but the American “Elites” bought into the liberal socialist agenda of a “New World Order” with the ultimate goal of lowering Americans citizens to the worldwide lowest common denominator. Imports/ Exports/ Trade Deficits of the United States in 2014 ($Millions) Country Exports Imports Trade Deficit China 123,676 446,754 343,078 European Union 276,142 418,754 142,059 Germany 49,363 123,260 73,897 Japan 66,827 134,004 67,117 Mexico 240,249 294,074 53,825 Canada 312,421 347,798 35,377 Saudi Arabia 18,705 47,041 28,336 Ireland 7,806 33,956 26,150 Italy 16,968 42,115 25,147 South Korea 44,471 69,518 25,047 India 21,608 45,244 23,636 Malaysia 13,068 30,420 17,352 France 31,301 46,874 15,573 Thailand 11,810 27,123 15,313 Taiwan 26,670 40,581 13,911 Switzerland 22,176 31,191 9,015 Israel 15,083 22,962 7,879 United Kingdom 53,823 54,392 569

Transcript of The Baby Boomer Mirage is Fading Fast

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The U.S. Baby Boomer mirage has been kept the importers of “stuff” into the United States with positive trade deficits happy, as shown in the two tables below,. That is coming to an end. China, Europe, Japan, and Mexico have benefitted greatly from Joe Sixpack and Mary Spend-a-Lots propensity for foreign “stuff”. They like the Japanese and German automobiles. They also like foreign electronics, among other things that Americans used to manufacture. Figure 28, “U.S. Gross Public Debt”, shows what the global economy has done for Uncle Sammy - $20 Trillion and rising fast. Of course, many are just as bad or in worst shape than Uncle Sammy, but the American “Elites” bought into the liberal socialist agenda of a “New World Order” with the ultimate goal of lowering Americans citizens to the worldwide lowest common denominator.

Imports/ Exports/ Trade Deficits of the United States in 2014 ($Millions) Country Exports Imports Trade Deficit

China 123,676 446,754 343,078 European Union 276,142 418,754 142,059 Germany 49,363 123,260 73,897 Japan 66,827 134,004 67,117 Mexico 240,249 294,074 53,825 Canada 312,421 347,798 35,377 Saudi Arabia 18,705 47,041 28,336 Ireland 7,806 33,956 26,150 Italy 16,968 42,115 25,147 South Korea 44,471 69,518 25,047 India 21,608 45,244 23,636 Malaysia 13,068 30,420 17,352 France 31,301 46,874 15,573 Thailand 11,810 27,123 15,313 Taiwan 26,670 40,581 13,911

Switzerland 22,176 31,191 9,015 Israel 15,083 22,962 7,879 United Kingdom 53,823 54,392 569

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U.S. Balance of Trade in 2015 ($Billions)

Product Imports Exports Difference +/-

Electronic equipment $332.9 $169.8 -$163.1

Machines, engines, pumps $329.3 $205.8 -$123.5

Vehicles $283.8 $127.1 -$146.7

Fuel $201.2 $106.1 -$95.1

Pharmaceuticals $86.1 $47.3 -$38.8

Medical, technical equipment $78.3 $83.4 +$5.1

Furniture, lighting, signs $61.2 $11.5 -$49.7

Gems, precious metals $60.2 $58.7 -$1.5

Organic chemicals $52.1 $38.8 -$13.3

Plastics $50.2 $60.3 +$10.1

Aircraft/Spacecraft $35.3 $131.1 +$95.8

Total of all trade $2.309 Trillion $1.51 Trillion -$799

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The main thing the U.S. “working class” lost sight of as they got on the liberal bandwagon for the global economy and elected U.S. Presidents who accommodated the agenda is that their higher paying manufacturing jobs were disappearing right and left. What was “filling in the income gaps” was a combination of low paying service jobs in combination with the welfare state and the promise of Federal cradle to grave care of the masses in exchange for freedom.

Obama promised change. Figure 29, “U.S. Labor Participation Rate”, and Figure 28, U.S. Gross Public Debt”, show the kind of change that results from his promises, and more “after taste” is still on the way. How you like it Joe and Mary? Well the “Last of Mohicans” didn’t like it. The arithmetic majority of demoralized dependents still want it. However, now we have a businessman for President, and not a paid-for politician/rainmaker. The businessman knows that manufacturing is what built the post-world war II dominance.

If Uncle Sammy is to achieve any semblance of future greatness, manufacturing is what must return to Suburbialand. Nevertheless, the damage caused by the last President and his inept Congress is irreparable. Trump will try to repair the damage and just the effort, even if he doesn’t bring America back to Post WII glory, may save what’s worth saving – freedom to succeed or fail without the divine right of the King hanging over you. The divine right of the bureaucracy is just as bad. Freedom and the possibilities (not the guarantees) it brings was the American dream since post Declaration of Independence, and it was the American way until FDR decided to save the poor working class. Thereafter, the slow buildup of the welfare state began and so did the increasing dependent class.

Post WWII Uncle Sammy could afford a little socialism. Heck, we didn’t have any competition. Figure 32, “U.S. Car Production” and Figure 33, “U.S. Steel Production” shows what happens when you retire early from the world rat race. Manufacturing jobs started disappearing in the early 1980s. The post WWII buildup transformed into the “Baby Boomer Mirage”. Figure 22, “U.S. Manufacturing Employees”, clearly shows the transition. The Vietnam War put a tear in Uncle Sammy’s iron coat. The Arabs new found oil power in the 1970s put another tear in his coat. Finally, it was “the computer age” care of Bill Gates and his growing “silicon valley” bunch that became the new economic engine of America – with the help of McDonald’s and Wal-Mart. This engine only drove the “siliconers” and the Waltons to extraordinary wealth. It didn’t help the Middle Class.

The new services economy doesn’t work that well, does it Joe and Mary? The way it has worked since 1979 is the illusion of middle class wealth that was real Post War II was kept alive by increasing amounts of debt. You see, it was no longer about production; it was about consumption. It was no longer about saving, it was about spending. And the Gates, and Buffets, and Waltons took advantage of this trend. It’s the American way, why not?

Foreign countries with their Post WWII rebuilt economies were more than willing to keep Joe and Mary spending money they didn’t have. Buy it on sale and finance it. We’ll loan you, just keep

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buying. Figure 23, “Gross Federal Debt as Percentage of Gross Domestic Product”, shows that is exactly what happened. It started in 1979 with the oldest Baby Boomers 36 and the youngest 19 (The Fourth Turning definition of Baby Boomers 1943-1960). That’s about where you Millennials (1982-2002) are right now.

First it was automobiles and then it was houses that became the Baby Boomer “soup-du-jour”. Figure 7, “Three-Month Treasury Bill”; Figure 8, “Bank Prime Loan Rate”; Figure 9, “Four-Year Auto Loan rate”; and Figure 10, “30-Year Mortgage Rate”, show the interest rates were kept low and lower to keep Joe and Mary indulged and in debt. If it was new, it was part of the Boomer lifestyle. If it was a few years old, it was thrown in the landfill. In the meantime, Uncle Sammy had wars to fight. Also, we made all these promises so we needed more bureaucrats. You all have a good time now while we solve all these problems for you! That’s all you have to say if you are a politician.

By 2000, the game was over, but George W. was a fun loving Boomer growing up and he learned from his Dad that secrecy and manipulation were the name of the game. He had a former gold-bug turned Keynesian by marriage, Alan Greenspan, to keep the mirage in focus, at least until he was out of the house. So it bubble blowing time. The first bubble, the “housing bubble”, was a result of the X-Generation trying to duplicate the Baby Boomer Mirage. Too many bad loans and not enough collateral, X-Generation, so try something else. Figure 34, “U.S. Home Ownership Rate” shows that bubble burst, and the home ownership rate will continue to decline.

How about oil and gas? By 2006, we were running low on both. The first bubble almost did Uncle Sammy in. But the powers that be said it was all solved, and now it is time for change, Obama style. The change was going to complete the transformation to a socialist state. It almost worked. The catalyst for change and even more mummification of Joe and Mary’s brains was the shale oil and gas craze. This certainly keeps the Wall Street bunch happy and overpaid. It also keeps the DOE bureaucracy employed by spinning yarns of a new age.

The catalyst, of course, was even more money and even lower interest rates, almost zero. But we are going to raise them as the economy heals! Another key was to get an even bigger bunch of clowns in the Federal Reserve. Figure 1, “M1 Money Supply” and Figure 3, “M2 Money Supply”, show the attempt to revive the junkie with the last injection of monetary heroin; and Figure 2, “M1 Velocity of Money”, and Figure 4, “M2 Velocity of Money”, show the result.

From Federal Reserve Bank of St. Louis website:

Money Velocity

The velocity of money is the frequency at which one unit of currency is used to purchase domestically- produced goods and services within a given time period. In other words, it is the number of times one dollar is spent to buy goods and services per unit of time. If the velocity of money is increasing, then more transactions are occurring between individuals in an economy.

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The frequency of currency exchange can be used to determine the velocity of a given component of the money supply, providing some insight into whether consumers and businesses are saving or spending their money. There are several components of the money supply: M1, M2, and MZM (M3 is no longer tracked by the Federal Reserve); these components are arranged on a spectrum of narrowest to broadest. Consider M1, the narrowest component. M1 is the money supply of currency in circulation (notes and coins, traveler’s checks [non-bank issuers], demand deposits, and checkable deposits). A decreasing velocity of M1 might indicate fewer short- term consumption transactions are taking place. We can think of shorter- term transactions as consumption we might make on an everyday basis.

The broader M2 component includes M1 in addition to saving deposits, certificates of deposit (less than $100,000), and money market deposits for individuals. Comparing the velocities of M1 and M2 provides some insight into how quickly the economy is spending and how quickly it is saving.

MZM (money with zero maturity) is the broadest component and consists of the supply of financial assets redeemable at par on demand: notes and coins in circulation, traveler’s checks (non-bank issuers), demand deposits, other checkable deposits, savings deposits, and all money market funds. The velocity of MZM helps determine how often financial assets are switching hands within the economy.

You can lead a horse to water, but you can’t make him drink, except for the Oil and Gas wildcatter. They’ll drink anything you give them as long as you let them drill, drill, drill! However, don’t expect to get your initial investment back.

The MZM velocity of money, which is the broadest money supply component, shows it was all over for Uncle Sammy a long time ago. See Figure 6, “MZM Velocity of Money”, which shows the Post WWII engine stalled a long time ago. This Baby Boomer Mirage ran on pure debt thereafter.

The latest bubble is about go “boom”, not “pop”. This boom will be heard around the world, and it will end the “Age of Growth” once and for all. Trump is at least going to get the U.S. prepared for the transition from the “Age of Growth” to the “Age of Survival”, even though he and his followers think the U.S. will return to glory days.

A look at the serious nature of this latest bubble is in order to understand the possible aftermath. The gas for blowing up the bubble was provided by more debt, a lot more debt and low interest for that debt. It’s the Baby Boomers going away present for future generations.

Figure 13, “U.S. Public Debt”, shows the increase since 2008. Figure 14, “Gross Domestic Product”, increased, but not like in the past. What did increase bigtime was debt as a percentage of GDP. Figure 16, “Federal Debt Held By Federal Reserve Banks As A Percentage Of Gross Domestic Product; Figure 18, “Federal Debt Held By The Public As A Percentage Of Gross Domestic Product”; Figure 20, “Federal Debt Held By Foreign And International Investors As A

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Percentage Of Gross Domestic Product”, show that all the large holders of debt increased their share of the U.S. economy. Figure 21 shows that the Federal Reserve has blown the last bubble. When it blows up, the shale oil-gas industry goes with it.

Figure 30, “U.S. Employed Persons”, shows the period 2008 to 2016 increased employment, but Figure 31, “U.S” Manufacturing Payrolls” shows manufacturing jobs were about the same as 2007. The jobs created were low paying, part-time service jobs, if you even believe the unemployment data. That’s not what “Made America Great” during the Post WWII period.

Figure 11, “Wilshire 5000 Index”. Shows what else is going down the drain. Whether it is the DOW, Nasdaq, S&P500, or the more inclusive Wilshire 5000, they are all way over valued. When they go, the money that is driving this oil-gas craze goes also. Then “Making America Great Again” is going to have to take on a more realistic tone.

However, Trump needs to continue the following to “Save America”:

• Significantly reduce the bureaucracy. (20% reduction is not enough.) • Leave the United Nations (This organization is nothing but another Uncle Sam money

drain and a platform for Globalists) • Start chipping away at the welfare system (We can’t afford it. Domestic jobs must be

created concurrently.) • Raise the retirement age. (Even the old people who can walk and talk will have to work.) • Reestablish a real border against illegal immigration. (People will need to work again at

whatever is available.) • Demolish business inhibiting legislation. (If ever innovation was needed, it will be after the

crisis begins.) • Stop subsidizing losers. (It will survive if it is the lowest cost alternative.) • Open up exploration of oil and gas (But don’t subsidize it any way. Increased price will

reduce demand naturally.) • Lower taxes across the board. (That coordinates with demolishing the bureaucracy.) • Renegotiate the debt with foreign holders. (If not, than default on the debt. The future is

going to be about a lower standard of living for Joe and Mary anyway.) The U.S. is going to have to be self-sufficient in the future. Whatever is still the U.S. will have to produce what it consumes, and no more than that. I have said the following in one of my posts before the election:

At least Trump tells the partial truth. We can't save Europe, we can't save Japan, we can't save South Korea, and we shouldn't even try to save Saudi Arabia. We will be lucky to save ourselves.

To save ourselves, we need to start manufacturing our own “stuff”. Five countries benefit from our “conspicuous consumption” habit. From “Countries That Purchase the Most U.S. Imports” by Karen Waksman, Updated September 08, 2016:

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Top 5 Countries That Import U.S. Products

The following is a list of the top 5 countries importing U.S. products and services on an annual basis. According to the most recent data available from the U.S. Census Bureau and other U.S. government sources, the following countries make the largest amount of purchases. Considering the geography, no one should be shocked that Canada is the number one importer of U.S. goods. However, the vast array of the types of products being shipped to these countries does surprise many of those not familiar with US foreign trade trends.

1. Canada

Even with the global automotive industry in decline, the top U.S. product imported by Canada is usually automotive-related, including accessories and parts.

Machinery and electronic equipment usually come next, while oil and plastics, medical and technical equipment and air crafts follow after. In 2015, Canada imported $280 billion dollars’ worth of US goods. That amount is equivalent to 18.6% of the United States' overall exports.

2. Mexico

With all the media attention U.S. trade with China receives, it may come as a surprise that Mexico still imports more U.S. goods and services than the far more populous country of China.

In 2015, Mexico imported $236.4 billion worth of US goods, the most being in machinery, electronic equipment, and like Canada, automotive-related goods.

3. China

China comes a distant third in importing of US goods compared to Canada and Mexico. China’s number one import is usually air crafts and computer accessories, parts, and peripherals. Part of this is related to the computer assembly industry, but also includes sales to Chinese retailers and end-users. In 2015, the import of US products amounted to $116.2 billion or 7.7% of the United States' overall exports.

4. Japan

Typically, the primary import of American goods to Japan is civilian aircraft(s). However, medical and technical equipment also equal to about the same amount in the types of products exported to Japan from the US. Machinery and electronic equipment follow suit, with $62.5 billion or 4.2% of the US' overall exports in 2015.

5. United Kingdom

With the U.S. travel market facing tough times, the aviation industry turned to the international market.

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Like Japan, the U.K.’s primary import from “across the pond” was civilian aircraft. Following this were chemicals and primary resources (such as metal for manufacturing), then electronic equipment and then pharmaceuticals. In 2015, America's exports to the UK amounted to $56.4 billion or 3.8% of the United States' overall exports.

The only country we need to significantly trade with is Canada. Why? To put it bluntly, we need their heavy oil to run the refineries as long as they last. Hopefully, Americans will wake up soon and start decreasing their driving mileage and increasing their fuel economy. The only way to do that is to eventually drive much smaller American made automobiles and trucks with a larger contingent of electrics. However, electrics are not the answer to maintaining any semblance of the past. Natural gas consumption will play an increasing role in electric power production so expect the price of electricity to increase everywhere significantly and the availability to decrease.

What about China? Forget China. They have a bigger economic bubble than the U.S., and their debt situation is far worse. They made an effort to become the new world power, but it’s too little, too late for them. Figure 23, “West Texas Intermediate Crude Oil Price”, shows that the price of oil has made two trips above the $100 mark. Both times caused severe slowdowns in the world economic pace.

The last attempt at holding the crude oil price above $100, which lasted for a couple of years, finally killed the China boom. Figure 26, “Global Price Index For All Commodities”, shows how the price for all commodities followed the price of oil up twice and now down twice in the last 10 years. China’s building bust, as shown in Figure 27, “Global Price of Iron Ore”, has significantly slowed the industrial buildup that China hopes will move the U.S. off the world monetary throne.

China has more severe problems than the U.S. The overbuilt infrastructure is unaffordable to the populace. The state controlled economy is so loaded with debt that there is no way expansion can continue for long. If the Chinese should in some way get their motor running again, it will be once again killed by rising oil and gas prices and lower world demand for everything. Their internal economy can’t keep their motor running.

Just stay out of China’s way because we are on the same planet. We need to concentrate on solving our own problems and protecting our own borders, which will be a formidable, expensive task. Once all these U.S. natural gas consumers come on line, the price of natural gas will be headed back above the $10 per MMBtu mark that was exceeded twice in the last 11 years. See Figure 24, “Henry Hub Natural Gas Price”.

The Age of Growth is ending and the Age of Survival is beginning. Adapt or die!

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FIGURE 1

M1 MONEY SUPPLY

THE FATAL INJECTION OF

MONETARY HEROIN

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FIGURE 2

M1 VELOCITY OF MONEY

THE FATAL INJECTION OF

MONETARY HEROIN DIDN’T GIVE THE JUNKIE A NEW

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FIGURE 3

M2 MONEY SUPPLY

THE FATAL INJECTION OF

MONETARY HEROIN

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FIGURE 4

M2 VELOCITY OF MONEY

THE FATAL INJECTION OF

MONETARY HEROIN DIDN’T GIVE THE

JUNKIE A NEW HIGH

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FIGURE 5

MZM MONEY SUPPLY

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FIGURE 6

MZM VELOCITY OF MONEY

THE ENGINE STALLED A LONG

TIME AGO

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FIGURE 7

THREE-MONTH TREASURY BILL

THE FATAL INJECTION OF

MONETARY HEROIN

Baby Boomer Mirage

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FIGURE 8

BANK PRIME LOAN RATE

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FIGURE 9

4-YEAR AUTO LOAN RATE

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FIGURE 10

30-YEAR FIXED RATE MORTGAGE

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FIGURE 11

WILSHIRE 5000 INDEX

THE FATAL INJECTION OF MONETARY HEROIN

DIDN’T GIVE THE JUNKIE A NEW HIGH, BUT IT HELPED THE WALL STREET WILD

BUNCH

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FIGURE 12

TOTAL U.S. POPULATION

START PRACTICING BIRTH CONTROL SOON,

AND YOU MIGHT MAKE IT TO 2060

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FIGURE 13

TOTAL PUBLIC DEBT

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FIGURE 14

GROSS DOMESTIC PRODUCT

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FIGURE 15

FEDERAL DEBT HELD BY FEDERAL RESERVE BANKS

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FIGURE 16

FEDERAL DEBT HELD BY FEDERAL RESERVE BANKS AS A PERCENTAGE OF GROSS DOMESTIC PRODUCT

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FIGURE 17

FEDERAL DEBT HELD BY THE PUBLIC

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FIGURE 18

FEDERAL DEBT HELD BY THE PUBLIC AS A PERCENTAGE OF GROSS DOMESTIC PRODUCT

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FIGURE 19

FEDERAL DEBT HELD BY FOREIGN AND INTERNATIONAL INVESTORS

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FIGURE 20

FEDERAL DEBT HELD BY FOREIGN AND INTERNATIONAL INVESTORS AS A PERCENTAGE OF GROSS DOMESTIC PRODUCT

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FIGURE 21

GROSS FEDERAL DEBT AS PERCENTAGE OF GROSS DOMESTIC PRODUCT

(In 1979 Baby Boomers are age 36 to 19 Years Old)

Baby Boomer Mirage

Post WWII ERA

The Last

Bubble

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FIGURE 22

U.S. MANUFACTURING EMPLOYEES

(Bill Gates Starts Microsoft in 1975)

Baby Boomer Mirage

Post WWII ERA

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FIGURE 23

WEST TEXAS INTERMEDIATE CRUDE OIL PRICE

(Two Trips Above $100 a Barrel Have Caused Economic Slowdowns)

World Economic Destruction

Range

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FIGURE 24

HENRY HUB NATURAL GAS PRICE

(Prior to the Shale Gas Craze, Price Made Two Trips Above $10 Per MMBtu)

U.S. Economy Non-Performing

Range

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FIGURE 25

U.S. AVERAGE REGULAR GASOLINE PRICE

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FIGURE 26

GLOBAL PRICE INDEX FOR ALL COMMODITIES

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FIGURE 27

GLOBAL PRICE OF IRON ORE

China Boom

China Bust

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FIGURE 28

U.S. GROSS PUBLIC DEBT

MODEL OF HOW THE FEDERAL RESERVE, NEO-CONS, CRONY

CAPITALISM, AND THE WELFARE STATE CAN

COOPERATE

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FIGURE 29

U.S. LABOR FORCE PARTICIPATION RATE

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FIGURE 30

U.S. EMPLOYED PERSONS

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FIGURE 31

U.S. MANUFACTURING PAYROLLS

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FIGURE 32

U.S. CAR PRODUCTION

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FIGURE 33

U.S. STEEL PRODUCTION

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FIGURE 34

U.S. HOME OWNERSHIP RATE