The Falling Dominoes of American Dominance

“How did it all come to this?”

It’s a question we’ve asked ourselves many times along this Coast-to-Coast Correction Tour. The answers are everywhere…in Wickenberg, Arizona…Livingston, Texas…Lake Charles, Louisiana and here along the border of Mississippi and Alabama…

More on all that in a second. But first, the “noise.”

The Dow Jones Industrial Average managed to eke out a 19-point victory yesterday – a triumph that landed the index about 700 points below its one-month high of 10,700, set back on August 9. The market looks to be rolling over. The government’s “stimulus” effect is wearing off and investors are just now coming to realize that demand – probably for the next two years…and maybe much longer – has already been borrowed and spent. What now, they ask themselves.

Gold sank a few bucks yesterday, but still sits above $1,235 an ounce as we write. The dollar index slumped back below 83.

Meanwhile, unemployment remains at multi-decade highs. The Feds, as usual, do their part to worsen the situation. They keep the system on life-support, extending benefits out 73 weeks (beyond the state’s usual 26 weeks) for the increasingly large bulge of workers who make their way from newly laid-off to long-term, jobless drifters. Even with last week’s decline, the four-week average for initial jobless claims rose to 486,750 – the most since November 2009.

The housing sector, which has led the nation out of seven of the last eight recessions, is now acting as an anchor. New home sales fell 12.4% in July to the lowest level in nearly a half-century, the government reported Wednesday. Sales of previously occupied homes fell to their lowest level in 15 years after a popular homebuyer’s tax credit expired at the end of April. According to the Mortgage Bankers Association, one in 10 American households with a mortgage are at risk of foreclosure this summer. In some states – Nevada, New Mexico, Arizona – that number would be a welcomed improvement.

We remember our first visit to this country, back in the year 2000. It was an eye-opening experience. Having grown up in Australia, we had always dreamed of visiting Washington DC, the power center of the free world, of taking a subway ride in New York City and eating a Philly cheesesteak (whatever that was).

“What must the kids be like in America?” we wondered of our fellow Generation Xers. After all, they were in line to inherit the greatest, most powerful nation on earth. Movies, sports stars, TV shows, fashion… Everything “cool” seemed to come from the United States. When we played video games in primary (elementary) school, all our friends wanted to be the American team. Kids who had never even been to places like Pittsburgh or Atlanta came to school in Pirates and Braves sports caps.

By the time we actually made it to the US, after a year in London, we were at least old enough to realize that Empires don’t last forever. Sure, the US was at the top of its game right now, we reasoned, but that won’t always be the case…

In the first summer of the new millennium, an American family we were staying with in Baltimore kindly took us to see the nation’s Capitol. We wanted to see the Lincoln Memorial and the statues of men, heroes, like Thomas Jefferson. Walking alongside the reflector pool in the afternoon heat, we asked our host family how long they expected the Age of American Dominance to last.

“We’re not going anywhere just yet,” was the response. “We have the greatest military and the strongest economy in the world.”

What would they say now, we wonder, one decade, two wars and the worst economic crisis since the Great Depression later.

“Bridge Out” reads a sign just off the Interstate on the way to Meridian, MS. Trucks carrying huge chunks of earth move slowly around the construction pit. Men, shuffle from one foot to the other, leaning on shovels and smoking cigarettes. Residents from a nearby housing project look on from their front yards.

“Putting America to Work” reads another sign. “Project Funded By The American Recovery and Reinvestment Act.”

The most powerful nation of the 20th century, once the envy and dream of people from around the world, is getting busy…digging holes.

Joel Bowman
for The Daily Reckoning