Is Gerald Celente Right About the "Crash of 2010?"

Two of the must read sites I peruse every day posted a video of trend forecaster, Gerald Celente where he predicts “the Crash of 2010 is going to happen.” I found it interesting these sites didn’t make any comments about what Celente said, but just posted the video with a few highlighted quotes from him.

I don’t mind making comments on what Celente said as I don’t agree with everything he claims in this video interview (see video below).

Some Background: Gerald Celente Has a Good Track Record

Celente is known for his accurate predictions.  From his website;  “Celente and the Trends Research Institute are credited with forecasting many major trends, including the “Panic of ’08,” the collapse of the Soviet Union, the laste two recessions, the dot-com meltdown, the 1997 Asian currency crisis and the 1987 stock market crash.”

Here is Celente’s latest prediction calling the “Crash of 2010.”

My 3 Criticisms of Celente

My point in critiquing Celente is on the timing of his “crash” prediction, not on whether or not there will be a crash.  He will probably take credit for predicting the crash no matter when it occurs, but the reality of it happening in 2010 is a mystery to me, barring any external influences (like WWIII).

I also take issue with his simplistic concept of bringing production (manufacturing) back home” and his “slave labor” comment which I’ll address first.

1.  Celente’s Claim of “Slave Labor”

IMO, what Celente is doing by calling other countries wages “slave labor” is putting his U.S. onus upon the other country. Sure, compared to the minimum wage of the U.S., this wage might be considered slave labor, but realize the cost of living in many of these Asian countries is no where near that of the U.S.

In China, the GDP per capita (PPP) is $6,500 not $1 a day like Celente claims.  Only 2.8% in China are below the poverty line.  Of course that represents over 36 million people out of the 1.3 billion which is no small amount, but China’s GDP per capita is twice that of  the Philippines.

In the Philippines, a country worse off than China, the minimum wage is about $5 a day.  People work at SM (Shoe Mart) and sit around all day in a department store hoping they get a customer or two.  They actually have a very small section of the store they represent and are happy making their $5 a day.  With that $5 a day they can buy the necessities, food (rice is the mainstay nourishment) and have some left over for other things.

There are some who may, on an hourly basis, make less than $5 a day, like many maids/cooks that haven’t really been educated.  They might make make $50 a month, but they are live-in maids and get fed and have a place to sleep.

• Full-time live in maids make $50 – $100 a month.
• A Driver, $200 a month.
• A one hour massage is $7 – $10 an hour.
• Manicure and Pedicure $4 – $10
• Golf instructor lesson $10
• Caddy for 18 holes $4 (I felt guilty and always gave them $10 for lugging my clubs around)

These are just some examples for the wages paid in the Philippines…

Labor is inexpensive in the Philippines and one can live like a king or queen with an income that would be considered poverty here in the U.S.  In my forthcoming book, “Fed Up!” I’ll be recommending people who are struggling to live on Social Security payments here in the U.S. to look into the Philippines to retire and enjoy a better quality of life.  Most people in the Philippines speak English versus moving to a different lower cost of living country where communication in a foreign language may present a problem.

The one thing most of these people in the Philippines who make $5 a day or $50 a month have in common is they are happy.  No one could survive on that type of income here in the U.S.  It doesn’t make sense for Celente to put that onus upon them and call it “slave labor,” especially when the Chinese are doing better than the $1 a day income Celente claims they make on average.

One other claim Celente makes is that China ranks 104th in GDP per capita (it’s really ranked 127th), but this point is really only relevant in comparing how nice it is for U.S. citizens with our higher incomes.  But it doesn’t take into account the lower income of the citizens of China is spent on a lower cost of goods and services in China.  The Chinese don’t have to make as much as we do in the U.S. to have a good quality of life.  Celente is comparing apples to oranges.

2.   Celente: “Build an internal manufacturing capability”

It would be great to build an internal manufacturing capability here in the U.S. and provide more jobs to the 10% (govt. numbers) of unemployed.  But at the wage rates of those here in the U.S, compared to the wage rates of China, something has to give in order for these U.S. companies to be competitive.

Why do people shop at Walmart?  Answer: Because the cost of goods are lower than most other places.  Why are the costs of good lower?  Answer: Because Celente is right, the wages are lower in China.

If we build an internal manufacturing capability as Celente suggests, at the higher wage rates of the U.S. labor force, how are those U.S. companies going to compete with China’s wage rates?  Answer: They can’t.

So what has to give in this globalized world where every country is fending for themselves to be competitive is the fact Chinese wages would have to rise and American’s wages would have to fall.

So if Celente wants to bring these manufacturing companies here and all the while we maintain free trade among nations, without Smoot Hawley type tariffs imposed, the lifestyle of the average American employee will decline with their wage rate.  But will the Chinese change anything? The reason you are paying less for things is because of the Chinese.

The U.S. needs China.  China doesn’t need the U.S.

The $46,400 GDP per capita will have to meet the Chinese $3,600 per capita at some happy medium in order for the U.S. manufactures to be competitive if one is comparing the U.S. to China.  What’s the reality of that occurring anytime soon?

China exports 17.7% of their goods to the U.S. while taking in 5.5% in imports from the U.S.  While China can get 92.8% of their goods from other countries, the U.S. would have to get their telecommunications equipment, motor vehicle parts, office machines, electric power machinery, clothing, medicines, furniture, and toys from somewhere else.  And just wait till the Chinese enter our car market.  How can the government and UAW owned GM compete with those, let alone Ford?

Again, something has to give if the U.S. were to start producing things again and be competitive.  Sure the U.S. is competitive in some areas where free markets are thriving like with Apple (although I had a phone I bought from Hong Kong that was similar to the iPhone about 4 years before the iPhone appeared on the scene).

But the U.S. is now an 80% service society.  The companies that do manufacturing in the U.S. will never be able to compete with the foreign companies unless they have carved out a niche or represent a product that fulfills a time requirement that foreign competitors couldn’t duplicate.

Yes, there are the Google’s and other internet companies that are thriving…it’s not a black and white issue.  And yes, I realize that many of these companies in China are just U.S. subsidiaries taking advantage of the cheap labor as Celente points out.  But does anyone think those companies will stop producing in China and bring those plants to the U.S.?  Really?  I mean really? (Saturday Night Live humor)

Like the people of the Philippines, this reduction in salaries occurring across the nation doesn’t mean your quality of life has to be lessened.  One must only learn to live within their means and maintain self sufficiency while working (this may mean looking into extra (legal) sources of income) and in retirement to have a nice quality of life.  Of course one has to invest wisely to achieve such.  More on that in the weeks ahead…

3.  Celente; “Crash of 2010”

Yes, things are pretty bad here in the U.S.  Yes, they will get worse. But I don’t think we’re going to crash in 2010 like Celente expects.

• The dollar is in an up trend for 2010.
• Gold is in a down trend for 2010.

The economy and GDP are recovering here in the U.S., but of course only the government spending aspect of GDP is pushing the consumer spending, business spending and trade numbers higher.  This is only temporary.

China and Japan aren’t going to dump their treasuries when the U.S. Dollar is moving higher.  They won’t do that until the Dollar Index heads south of the March 2008 lows of just under 72 (or the 2009 low of just above 74).

The U.S. has hundreds of more billionaires than any other country.

A few of those billionaires combined can manipulate things just as Warren Buffet did in helping out Goldman Sachs by working a sweet deal for his shareholders (I’m not a conspiracy theorist, but this is reality.  Buffet alone proved he can have an impact).  Also remember the Fed is still relevant…for now).

Conclusion

I agree with Celente, the Austrians and Mish Shedlock on the negative consequences of government spending eventually bringing down the economy, but I don’t see it happening as quickly as Celente does.

GDP can’t keep growing fueled by government spending alone, however, Obama has a few more trillion to spend to stimulate the economy in 2010 as his self imposed spending freeze begins in 2011 (I’ll believe it when I see it).

As long as the U.S. Dollar continues it’s upward trend, and barring any unforeseen “external influences,” 2010 might just be a “muddle through” year (to use Financial Advisor John Mauldin’s former terminology) with both ups and downs in the market.

In the meantime, people in other countries are happy with their slave wages they are receiving and life goes on.  It’s people in the U.S. that have to adjust to what our government/unions/politicians/ have done…

To clarify my big picture thinking, I always say, “a holder of physical gold, cares not that it falls to $700 or lower on its way to $2,000 and higher.”

You keep your gold or (buy gold if you haven’t already) because of those “external influences.”