U.S. cumulative wealth reaches all-time high

Photo credit: ©istockphoto.com/Craig McCausland

The U.S. total wealth, by far the most extensive in the world, has exceeded the total of $81.8 trillion, overcoming the high point of $80 trillion-plus, just before the “golden age” of the late 1900s and early 2000s, which ended with a financial crash in mid-September 2008.

In comprehending a nation’s total value, it must be understood that it encompasses the totality of tangible household values comprising America’s population of 320 million. It includes the value of all fixed assets, such as homes, the vast U.S. stock market holdings, nonprofit organizations and supporting hard assets, both federal and privately owned.

Also included in this almost incomprehensible total are the vast American resources, such as fossil fuels, rare metals and renewable energy, which is already under development but does not include the unlimited, untapped below-ground natural resources estimated to be more than double the value of reserves.

This most-ever developed extraction technology, which includes hydraulic fracturing (fracking), has only exploited less than 10% of what’s available under the huge square mileage comprising America’s 50 states and territories, with two-thirds of these lands under the control of the federal government.

Even after netting out America’s shrinking private debt and other varied liabilities, lopping off about $2 trillion from the current record $81.8 trillion, an increase of $1.5 trillion over last year’s total, still reigns supreme.

Like any corporate enterprise, of which the United States is the most astoundingly rich entity that the history of the world has ever seen, the existence of such riches depend on the utilization of such God-given largesse by those in charge.

Therefore, the fact that continued unarguably high unemployment and the wastefulness of the nation’s leadership agencies are not allowing the average American to realize the benefits of existing opportunity development that should be made available to all. This means better high-paying jobs and available work plentitude.

With the United States having generated almost one-fourth of the world’s gross domestic product of goods and services through an entrepreneurially independent business system that has allowed America’s valued trillions to be developed in the past, it would border on unacceptable negligence to allow such incomparable values to be misdirected or devalued by incompetent national leadership.

Is stagflation an ominous possibility?

While the debate as to whether inflation or disinflation is the eventual outcome of the current expenditure direction, the denial of stagflation, which occurred during previous economic periods of higher costs within dormant economic growth, is being revived by forward-looking economic pundits.

In my opinion, this is unlikely to happen when the underlying symptoms of stagflation are unveiled. Simply put, this set of circumstances has, in the past, required a dormant economy simultaneous with rising prices. This, in effect, created the worst of two worlds — a no-growth or weakening economy, while prices at both producer and consumer price levels were shooting upward.

This economic nightmare last reared its ugly head during the high inflation, high interest rates of the late 1970s and early 1980s, which preceded a long period of rectification during the Reagan administration and much of the mid- and late 1990s.

What prevents the reoccurrence of this unpleasant alternative is a slow, but halting economic expansion, coupled with a relatively static consumer demand and huge global monetary liquidity, the likes of which the modern economic world has never before witnessed.

The simultaneous occurrence of these factors, both here and abroad, have converged to keep basic interest rates low; while a surplus of labor, commodities and demand at all levels of purchase are relatively restrained.

It increasingly looks as if the absence of the combination of inflation and economic stagnation will likely not reappear. Despite the fact that such lack of stagflation is reassured, the secondary plight facing the U.S. economy — creeping upward inflation within flaccid business/industries employment — is likely to envelope the remainder of 2014 and into the early months of 2015.

This reality, enhanced by lack of decisive U.S. government direction, will only solidify the current trend of forward creep in price increases.

Aluminum pricing

Aluminum, once celebrated as the metallic answer to iron, steel and even plastics, has been in the raw material doghouse for the past five years, as China swiftly became the world’s largest producer for domestic production, previously depended upon by imports from Germany and the United States. This had dropped the bottom out of aluminum pricing, as smelting capacity in China skyrocketed.

This brought the world peak price of May 2011 down by 34%, to $1,820 per metric ton from a previous $2,774. Aluminum production, impacted by the great recession, had exceeded demand since 2007, but seems to have regained momentum since the first of this year.

The expanded curtailment of aluminum smelting capacity is accelerating significantly as recent market prices have made production levels of previous years too costly to maintain.

With China alone having retracted 1.2 million tons of aluminum smelting capacity since the end of 2011, another 2 million tons have constricted in the rest of the world during the same period. Meanwhile, a solid rebound of the automotive industry, both in China and elsewhere, has tightened aluminum availability, with 48 million to 50 million tons last year proving insufficient to satisfy levels of demand by all aluminum-using sources.

Bank of America’s Merrill Lynch division expects supply to fall short of demand by 586,000 tons this year, compared with a surplus of more than one million tons last year. This deficit is likely to increase to 1.1 million tons in 2015 as growth in demand outstrips production. For that reason, Merrill Lynch expects aluminum prices to become higher in 2015.

The financial services firm expects prices to bounce even higher in later 2015 to an average of $2,010 a ton. This is an increase from a current projected average of $1,773 per ton. Predictions call for a rebound back over $2,075 a ton next year, from a projected level of $1,880 per ton later this year.

While it’s a near certainty that both use and prices are on the comeback trail, the impact of China’s reaction will be exceptionally influential as to the extent of volume generated and price improvement within the next 12 months. With Environmental Protection Agency regulations favoring the light metal wherever possible over iron and steel, the extent of aluminum’s higher pricing in the next 12 months will be largely affected by a combination of these factors.

Replicating Japan’s zombie economy

After a “breakout 1980s” decade of gross domestic product that seemed to spiral Japan to the top of the world economy, nothing seemed to stop Japan from achieving the golden cup of global leadership.

After a monumental reconstruction of a World War II-destroyed industrial infrastructure (punctuated by the nuclear destruction of Hiroshima and Nagasaki), nothing seemed to stop the innovative genius of Tokyo spreading its wings throughout both the developed and developing world.

Being high-profiled in sending forth its home-grown managers to run their acquired businesses, it seemed Japan was winning financially, industrially, commercially and acquisition-wise what it had failed to accomplish through its failed military escapades.

Although Japan’s footprints in automotive, computers, electronics and other aspects of technology have been successfully accomplished, its purchase of major real-estate assets and specific American emporiums, as well as major tourist attractions, proved much less remunerative. In most cases, it was a matter of buying high and subsequently selling low.

Japan’s exports continue strong, but its internal growth dynamics seemed to have hit a brick wall as Japan’s 1990s and early 2000s decades came on the scene. Instead, China seemed to have succeeded in a great leap forward, replacing Japan as a strong No. 2 in the gross domestic product sweepstakes to the United States.

Furthermore, Tokyo’s domestic demand economics seemed possessed by a “savings mania” rate that reached a world-high per capita rate of 12%; with the national postal savings agency the main object of the legions of tens of millions of the 100 million-plus household savers. This kept imports down, accompanied by a status quo in the nation’s 20-year gross domestic product of goods and services.

Although the United States also has been stalled by a continuing unemployment, consumer demand and per-capital overhang, the current administration’s policy with increasingly restrictive and obstructionist regulations, plus an enormously expensive national health-care experiment, have helped create an environment of static income and subsequent dormant consumer expenditures.

While energy development has provided an unexpected uptick in the prolific addition of oil, natural gas refining and exports, consumer demand is doomed to restraint under present circumstances.

Whether the surge of energy-related growth is enough to break through the current employment, income and expenditure freeze, the next 60 to 90 days will likely reveal the nation’s future economic direction.