Art welcomes Joseph Meyer, a Wall Street professional and industry arbitrator, for a sobering look at the financial state of the nation. Meyer lays out alarming figures on consumer debt, now at 9.3 trillion dollars, and warns that 18 percent of after-tax income goes just to servicing existing household debt. He describes a manufacturing base hollowed out by outsourcing, noting that Walmart alone has become China's eighth largest trading partner, and projects oil reaching 65 dollars a barrel within three years.
The two examine a chain of vulnerabilities from record federal deficits and rock-bottom savings rates to the possibility that foreign bond buyers could lose confidence in the dollar. Meyer warns that rising energy costs and stagnant job creation could trigger a cascade affecting housing, transportation, and everyday grocery prices, painting a picture of an economy sustained more by perception than by fundamentals.
Key Moments
$31 trillion in debt and the foreclosure scenario: Meyer states America's total debt is approximately $31 trillion - three times GNP - the largest debt load any nation has ever carried, and explains that if foreigners stop buying U.S. bonds, banks could re-evaluate creditworthiness and call mortgages even from homeowners current on payments.
15 million manufacturing jobs lost; Walmart is China's 8th largest trading partner: Meyer reports the U.S. has lost 15 million manufacturing jobs since 1986 (2.7 million in just the last three years), shrinking the manufacturing workforce from 25% to 10%. Art reacts to Meyer's claim that Walmart is China's 8th largest trading partner.
Oil to $65 a barrel and $4 gasoline: Meyer predicts oil will hit $65 a barrel within three years and U.S. gasoline will eventually reach $4 a gallon, blaming peak oil, no new U.S. refineries in 15 years, and rising demand. Art recalls 1970s gas-line fistfights.
Dow 3000 / Gold $3000 by 2014-2015: Meyer says only 1% of Americans own gold or silver and forecasts a secular bear market that bottoms in 2014-2015 with one ounce of gold buying the Dow at roughly 3,000 each.
Warren Buffett shorting the dollar: Art asks whether Warren Buffett is betting against the U.S. dollar. Meyer confirms Buffett has been short the dollar for some time, holds about $35 billion in cash, and has a sizable silver position.