mailto:dave@lafn.org Back to my HomepageI wrote this article over a 13 year period and haven't yet polished it. It was originally only about capital flight from the U.S. So it still needs more work which I may not find time for. Over this period my understanding of the problem improved (I hope) and thus newer parts of it are more current than older ones.
Today in 2006, the United States Economy is seemingly in prosperity but actually is in grave danger of eventual financial collapse. There are a number of public commentators who have pointed this out (but not so bluntly) such as Paul Krugman, Robert Reich, and Stephan Roach. But they don't harp on the subject. On the other hand, James Kunstler has presented doomsday scenarios of disaster due to future scarcity of oil in his book "The Long Emergency" and on his website: Clusterfuck Nation by Jim Kunstler. This name should give you a clue that he engages in shock and hyperbole, but that may be what's needed to wake people up to the looming crisis.
Financial collapse has been predicted in the US by various doomsayers for well over a decade, but it hasn't happened yet. But as time goes by the economic situation deteriorates at an ever accelerating rate. Exports from the US are only a little more than half the imports while balanced trade would require that exports equal imports. And it's getting worse, month by month and year by year. Debt is at record levels and rapidly increasing -- both household debt and government debt. This sort of thing can't go on forever. And when it eventually comes to a halt there will be likely be a very hard landing, perhaps even a crash landing resulting in a severe depression which may last for decades if not almost forever.
The current phony prosperity in the U.S. is not being primarily fueled by us making things of value but by us consuming vast quantities of imports that we can't pay for. More precisely, to pay for our imports we borrow money from foreigners or sell our assets to them. This pays for a little over a third of the what we import while our exports of both goods and services help pay for the remaining 2/3. This would be even worse if it were not for our surplus in services. Look at the labels on goods in stores and you'll see that most of the manufactured goods we buy are no longer "made in USA". And even what is "made in USA" often contains foreign components.
When you buy a foreign made import in a retail store, not all the money you spend goes to foreigners. A significant portion of the money you put down stays in the U.S. since it pays for the cost of operating retail stores, transporting goods, profits, taxes, etc. If all the money we spend on imported goods left the US, we might likely have already suffered financial collapse by now. The US dollars that do get to foreigners are much more than what they want to spend buying goods made in the U.S. So if the dollars aren't spent here, what happens to them? The foreign-held dollars, representing what we pay foreigners for goods, flow back to the US to buy our stocks and bonds, especially government bonds. So with foreigners helping finance the operation of our government, taxes may be reduced, giving the consumer more money to spend on imported goods. Thus, foreigners buying our stocks and bonds provide foreign exchange for us to spend on imports.
So when you buy imported goods for cash (not on credit) and say to yourself that you aren't going into debt to pay for them, think again. Some of the money you spent is money that you have because your taxes are reduced because foreigners loaned the government money to pay what you should have paid in taxes. But you may think: Maybe the government did go more into debt so that I could buy this, but it's the government's debt, not mine. Well, who is responsible for paying off the government's debt? You are! And we all are! Of course the government debt may never be paid off should the government suffer financial collapse and repudiate the debt but this course of action may be more painful in the long run than actually paying off the debt.
There has been much written about these (and related) problems in both books, magazines, newspapers, and the internet. The books and some internet websites are more of an alarmist nature than what one finds in newspapers and magazines. But there is real cause for alarm.
But what seems to be lacking in all this literature is the failure to cover the big picture in it's entirety. This includes the problem of depletion of natural resources in the US such as oil, and comparing a possible forthcoming depression to past historical events such as the great depression of the 1930's, Russia's economic catastrophe in the 1990's, etc. The deindustrialization of U.S., including the loss of engineering know-how and patents, needs coverage too including the severe difficulties to be faced in possible reindustrialization of the U.S.
There is so much to cover that it likely requires at least a new, well researched book. Even the subtopic of deindustrialization could fill a book by itself. This article is by no means long enough nor comprehensive enough to adequately cover this topic.
As of early 2008, claims being made that we are now in a recession have hit the front pages of the mainstream media. This could be the start of financial collapse. And writing about this, plus a lot more of related material, is finding its way onto the Internet. The rate of publication of books on the topic seems to be expanding. So there will be a lot more to be added to these lists in the future.
The Great Bust Ahead: The Greatest Depression in American and UK History is Just Several Short Years Away. This is your Concise Reference Guide to Understanding Why and How Best to Survive It, by Daniel A. Arnold, 2002. (Only 64 p. long w/large print. Bases entire argument on demographics extrapolated from past trends. Likely not worth looking at.)
The Second Great Depression by Warren Brussee. Bangor, ME: Booklocker.com, 2005.
America's Bubble Economy: Profit When It Pops by John David Wiedemer, Robert A Wiedemer, Cindy S Spitzer. John Wiley & Sons, 2006.
America's Financial Apocalypse: How to Profit from the Next Great Depression by Mike Stathis. AVA Publishing, 2006.
Crash Proof: How to Profit From the Coming Economic Collapse by Peter Schiff and John Downes. John Wiley & Sons, 2007.
The Downwave : surviving the second great depression by Robert C. Beckman. New York: E.P. Dutton, c1983. Portsmouth : Milestone Publications., [ca. 1992]
Financial Reckoning Day: Surviving the Soft Depression of the 21st Century, by William Bonner, 2003.
Empire of Debt: The Rise of an Epic Financial Crisis, by William Bonner, 2005.
The Approaching Winter: The Next Great Depression, by Don Braby. (Paperback, 100 pages Published by author) 2005.
Collapse: How Societies Choose to Fail or Succeed, by Jared Diamond, 2006. About collapse of ancient and modern societies due to depletion of resources, etc. Not about financial collapse but the reader can make inferences.
Exporting America: Why Corporate Greed Is Shipping American Jobs Overseas, by Lou Dobbs, 2004.
The Coming Generational Storm: What You Need to Know about America's Economic Future, by Laurence J. Kotlikoff, 2005.
How to Profit from the Next Great Depression by John L. King New York : New American Library, [1989], c1988
The Coming Economic Collapse: How You Can Thrive When Oil Costs $200 a Barrel by Stephen Leeb, 2006.
The Coming Economic Collapse of 2006: Trends, Predictions, & Prognostications for 2004-2006 and Beyond by Michael Wells Mandeville.
Financial Armageddon : protecting your future from four impending catastrophes, by Michael J. Panzner, 2007. One of the better books on the subject but focuses on the financial sector and not on the overall problem. The scenario of initial deflation followed by inflation he presents needs contention, since the initial deflation may only happen for real estate while other goods inflate.
The Confiscation of American Prosperity: from right-wing extremism and economic ideology to the next great depression by Michael Perelman. New York: Palgrave Macmillan, 2007. This is a well documented but biased academic book covering mainly the topics of income inequality and the failure of academic economists to propose solutions to real problems. It presents a lot of history too. But it doesn't go into the important topics like excessive debt, the housing bubble, etc. nor does it discuss land rents which is a major cause of income inequality. It implies that economic growth is good while not addressing the problems of overpopulation and non-renewable resource depletion.
Running On Empty: How The Democratic and Republican Parties Are Bankrupting Our Future and What Americans Can Do About It, by Peter G. Peterson, 2004.
American Theocracy: The Peril and Politics of Radical Religion, Oil, and Borrowed Money in the 21st Century, by Kevin Phillips, 2006. (Perhaps one of the best books, but about half of the book is devoted to blaming the religious right for our predicament which is not the crux of the problem).
America the Broke: How the Reckless Spending of The White House and Congress are Bankrupting Our Country and Destroying Our Children's Future, by Gerald J. Swanson, 2004.
The Coming Crash in the Housing Market: 10 Things You Can Do Now to Protect Your Most Valuable Investment, by John R. Talbott, 2003.
The U.S. government has many statistics of interest. They are mostly kept by the Bureau of the Census and the Bureau of Economic Analysis (BEA). Much of it has been placed on the Internet. While they may not be as easy to read as other sources that utilize them, you know that you are getting information directly from the source.
See
Balance, Exports-Imports 1960-
Foreign Trade Deficit - Index to Historical Series
U.S. International Transactions 1970-2000 - USA Census
The imbalance of trade, including services, is becoming worse each year and if current trends continue it will amount to over a trillion dollars per year in a couple of years. The US remains a net exporter of services which includes spending by foreign tourists in the US and income from US-made software and movies widely used (or seen) in foreign lands. See Services. We import services when we spend money visiting foreign countries or use telephone answering services in foreign countries.
But our surplus in services is far too low to make much of an impact in our huge deficit in goods. During the early 1990's the surplus from services cut the good deficit roughly in half. But in 2005 it only reduced the goods deficit by about 8%.
How long have foreign trade deficits been going on? In the 1960's we had a trade surplus. Although there was a deficit in services (we imported more than we exported) it only reduced the surplus in goods by roughly 1/4. Then in the early 1970's the deficit appeared but it alternated: one year would be a deficit and the next year a surplus. When there was a deficit, it was only a few percent of our exports. Then in 1977 the deficit took a large jump reaching 18% of exports. Fortunately, by 1980 the deficit was only several percent of exports. But then in 1983 it jumped to 22% of exports and by 1985 it was 45% of exports. But it came down again, and by 1991 was only 5% of exports. Then the trade deficit drifted up again, reaching 35% of exports by 2000 and 50% of exports by 2003. In 2006 it was over 50%.
The trade deficit includes both good and services. And the U.S. has had a surplus in services since around 1970. The trade deficit would be significantly worse if it were not for this service surplus. For 2006, the trade deficit was 52% of exports but the deficit for goods only (not counting services) was 82% of goods export. In other words for goods, we not only import what our exports enable us to buy, but also imported an additional 82% which we can't pay for by exporting. We must "pay" for this 82% by borrowing from foreigners, selling them our assets, and running a surplus in services.
There's another component to the "balance of payments" or "current accounts". That's international investment income payments. Americans earn profits from foreign investments and foreigners also earn profits from investments in the United States. In the past, America earned more income from abroad than they paid to foreigners so this tended to help improve the trade deficit. In 2007 these income payments still showed a modest surplus in favor of the U.S. but as foreign investments in the U.S. expand due to the trade deficit, this surplus may unfortunately be expected to soon disappear.
It's sometimes claimed that we are now service economy and thus manufacturing isn't that important to our survival. But actually, the service sector depends on the declining production sector to support it. Most of our "GNP" (Gross National Product) is in the service sector of the economy and this sector has been growing while the manufacturing sector is declining as goods formerly "made in USA" are replaced by imports.
In order to live we must produce real goods, especially food, clothing, and shelter. This also includes the materials necessary to repair clothing and shelter. Some things we produce are not essential, but can be traded (or sold) for more essential goods (food, clothing, and shelter). Even if we are thrifty and keep things for a long time, they will eventually need replacement or repair. And even repair requires production of repair parts.
With modern technology, people who produce things create much more value in material goods than they themselves need. Thus their contribution to production (after exchanging it via money for other material goods) is shared with the non-working population (retirees, children, housewives, inmates in various types of institutions etc.). Production workers' production is also shared with people they employ directly and indirectly in the service sector. The owners of the capital often get a share too.
What is the service sector? If you hire a mechanic to work on your car or a plumber to work on your home, you are directly employing someone in the service sector (for a brief period of time of course). Sales clerks, doctors, lawyers, ministers, and janitors are also in the service sector. Our taxes support many people in the service sector such as teachers, policemen, soldiers, bureaucrats, etc. Many occupations belong to both the service sector and the production sector. When a plumber repairs a pipe in a factory he is working in the production sector. When he repairs a pipe in your home he is working in the service sector. Government statics tend to overcount people in the service sector and would likely count the plumbing repair in a factory as a service if the plumber is not employed by the factory.
A rich person may support several people in the service sector while a poor person may support only a small fraction of a person in the service sector. On average, each person directly requires less than one other person in the service sector since otherwise there would have to be an infinite number of persons in the service sector. For example, if each and every person required one other person in the service sector to provide them with services you would have the following impossible situation: person-1 requires service person-2; person-2 in turn requires person-3 (in the service sector); person3 requires person-4, etc. There is no end to this series, resulting in an infinite number of people in the service sector which is clearly impossible.
As shown above, people working in the service sector also need others in the service sector to provide services for them. If every person required 2/3 of a person in the service sector then it is trivial to show that there will be twice as many people in the service sector as in the production sector. Each production worker requires 2/3 of a service worker, but that 2/3 of a service worker in turn needs the services of 4/9 (2/3 x 2/3) of a service worker and so on ad infinitum. The total number of service workers engendered by the production worker is thus the sum of an infinite (but convergent) geometric series which is equal to 2 in this case. Since incomes are far from equal, such a simple example is far from realistic but it does illustrate the general concept.
As productivity increases, each production worker can support more service sector employees. Computers and automation contribute to increased productivity. However, fossil fuel energy resources are being depleted at a rapid rate. As a result, energy becomes more costly which tends to decrease productivity. Reducing pollution also tends to decrease productivity (at least in the short run). Thus one can't assume that in the future we are bound to increase our productivity in production so that we can employ even more people in the service sector.
My article on Human Energy Accounting provides a more detailed discussion regarding the special role played by service workers. In conclusion, the booming service sector can't be sustained unless there is a substantial production sector to support it.
In the early 1990's I believed in free trade, meaning that the U.S. and other countries should not impose tariffs to impede the free exchange of goods in foreign trade. I believed in the model presented in most freshman economic textbooks showing that each country should specialize in what it does best. If one country is good at growing apples and another good at growing bananas, then they should exchange apples for bananas without any tariffs to restrict such trade. Elementary economic textbooks show that everyone is better off this way.
Unfortunately, the economic textbooks I read (including ones I looked at recently) don't consider the case of the transfer of capital from one country to another. In this case it can mean poverty (and even homelessness in the country that is losing capital.
This section will analyze extreme cases in order to gain an understanding of what tends to happen when the actual situation is not so extreme. Consider the following extreme example: Suppose that the population of a country consists of production workers (manufacturing, mining, agriculture), service workers, and dependents. Dependents include retired people receiving pensions since the other working people need to support them. The owners of production facilities are included under "production workers" even though some of them don't do any actual production work. Likewise for the owners of service facilities. Production workers are subdivided into manufacturing and non-manufacturing productions workers. Non-manufacturing production workers would include farmers, miners, and oil extraction workers.
Assume that 10% of the manufacturing workers in this hypothetical country own all of the capital used in such manufacturing such as factories. This means that the remaining 90% of manufacturing workers are dependent on the capital of the rich 10% for their livelihood. Assume that all of this capital is readily mobile and can be transplanted to foreign countries where wages are low and where capital will garner more profit. If it is so moved to foreign countries, then the 90% of manufacturing workers that don't own the capital are deprived of their means of existence.
Not only that, but the people in the service sector which depended on the above 90% in the manufacturing sector are also out of work. Only the rich 10% of manufacturing "workers" that own the capital are better off since they now make more profit on it. They will also be able to support a larger service sector on their higher profits. But by no means will they be able to employ the huge service sector that lost their jobs due to the 90% of manufacturing workers loosing their jobs.
If this extreme example were the U.S., then nothing is produced in the US anymore and the profits made by the 10% are used to pay for imported foreign goods for these 10% and what remains of the service sector. The vast majority of Americans are unemployed or underemployed and the 10% that make income from their ownership of capital (now deployed in foreign countries) just don't have enough income to pay sufficient taxes to support the masses of unemployed with sufficient benefits or welfare. Thus the huge number of unemployed will have to do something drastic to survive such as be willing to work for the low wages close to that of third world countries so that capital will return to the US. These wages are so low that many workers will have to live in slum housing under crowded conditions or be homeless as is currently the case in many poor countries today. Crime is likely to be high. Even revolution is a possibility.
Of course the above scenario is extreme and will likely not happen here. But to a certain extent, some of it is already occurring. This example clearly shows that if one moves capital out of the US, then US workers become poorer. It is sometimes said that laid-off manufacturing workers should obtain jobs in the service sector, and many of them have done so. But the previous chapter showed that as capital is exported, there is less real income from manufacturing to support the service sector. Thus if such a laid-off manufacturing worker does obtain work in the service sector, it is likely to result in someone else loosing a job in the service sector and/or in depressing wages in the service sector.
In a way, the above scenario is overly optimistic because in reality, foreigners own U.S. investments and take interest and profits out of the US resulting in the net value of profits returned to the U.S. from the foreign investments of rich Americans is now negative. More on this later.
If someone is not doing a good job and gets fired, someone else normally gets the job and there is no change in employment. Now suppose that due to an increase in productivity, someone is laid off. If the productivity increase is due to buying machinery to replace the worker, then jobs are created due to the work of manufacture and design of such machinery. But suppose that the person is laid off due to figuring out how to be more efficient without having to buy any more machinery. In this case production costs drop, and if the industry is competitive, prices (on average) should drop also. The lower prices mean that the public has more money to spend buying other goods and services and this gives someone else a job. If the industry is monopolistic, government regulation is supposed to force the lowering of prices when costs drop. Even if the cost savings go entirely to the owners in the form of increased profit, the owners now have more money to spend which should result in the creation of another job. Another outcome could be that due to lower prices, people decide to work less since they need less money. Someone may actually quit their job who doesn't really need to work and thus provide a job opening for someone who does need to work.
The above analysis is obviously oversimplified. Actually some combination of all of the above outcomes may take place due to someone losing their job due to productivity improvements. One also needs to consider wage rates. If a high wage worker gets laid off the savings may be enough to hire two or more lower paid workers. Exactly what the economic impact occurs when a certain person loses a job is unknown but one may attempt to estimate the approximate probability distribution of various possibilities. When you read here that a new job is created, it actually means that there is a significant probability that a job will be created. It is also possible that no new job will be created or that more than one new job will be created (including part-time jobs).
What this implies is that productivity improvements which directly result in someone losing their job are likely to create a job somewhere else and thus be socially beneficial since more is being produced with less labor. Society now has more income to spend, hopefully on improving the quality of life such as more leisure time, more teachers, etc. Unfortunately the increased income might be spent on vices such as drugs and gambling. But hopefully it will be more wisely used.
Now let's look at what happens if someone is laid off due to moving the capital and machinery one works with out of the country resulting in hiring a foreigner working in a foreign country to do the same work for much less pay. If the price of the manufactured good drops, then consumers have some more money to spend in the service sector. But what happens to the money that is sent abroad to pay for the foreign made good? The US dollars that the foreigners get goes right back to the US to create a job here (or does it?). Actually much of this money comes back as loans to the U.S. and for buying our assets. But (contrary to current reality) assume that foreign trade is in balance and that the money comes back to the U.S. to buy our manufactured products.
Since capital has left the US there may be a lack of suitable capital in the US to create this new job. If the person laid off could sell his/her services to the foreigners who hold the US dollars, then a new job might be created here. But it's real goods that are readily exportable and not services.
What is likely to happen is that the person laid off winds up without work and almost ceases to consume. This reduction in consumption frees up capital machinery to permit it to be used for making goods for export which are then sold to the foreigners for the US dollars they hold. The net result is that there is one more American unemployed and there is less production of real goods in America since the capital to produce them has been shipped abroad. Americans consume less of what is made in U.S.A. and foreigners consume more of it.
Even though the unemployed person may still consume some due to charity ,welfare, or unemployment insurance, others have to reduce their consumption in order to pay for these handouts. Thus America is worse off due to the transfer of capital out of the US. Of course the service jobs that depended on the income of this production worker are also lost. Note that the following has happened: exports and imports have increased but production in the US has decreased and someone (or a fraction of a person) is out of a job. Thus the claim often made that capital flight to foreign countries helps increase our exports is true and while one expects that an increase in exports will lead to an increase in employment, the opposite result is obtained. The increase in exports comes at the expense of a decrease in consumption inside the US and not from an increase in production.
As capital leaves the country, more of the capital that remains is put to work making goods for export that foreigners will enjoy. If this process were to be carried out to an extreme degree, eventually almost all production would be for export. If a plant is producing almost entirely for the export market, it become very enticing to move that plant abroad near its markets. Once all production is so moved the extreme example where nothing is made in the USA anymore (presented in the first part of this article) becomes true.
One may wonder how a new job is created when someone is laid off due to productivity improvements. Doesn't this also require new capital investment? The answer is "not necessarily" since the new job may be in the service sector where little new capital may be required.
In the past, unstable foreign governments in the third world, the threat of revolution there, and the existence of the second world (the Communist Block) which we didn't trust to invest in, deterred foreign investments by Americans. Events such as the taking over of US Oil Companies in Mexico in the 1930's took a long time to forget. Today the situation has changed and foreign investment is much more attractive. If some U.S. companies in an industry are able to produce goods in foreign countries at less cost, then the rest of the industry is forced to do the same in order to compete, all at the cost of American jobs.
The richness of America was due to the production of real goods which we both consumed and traded with the rest of the world. An unemployed individual can't just go into business and manufacture goods (or grow food) in a competitive manner without a great deal of capital. Thus most of us are dependent on using the capital of the rich to supply our livelihood. This is true also for the service sector since such jobs depend on the surplus produced in the production sector. It's thus desirable that this capital (and new capital made to replace it) remain in the US.
How can this be done? One way is the restriction of foreign trade such as tariffs. This has a downside since it tends to keep out foreign goods of high quality and allow US manufacturers to neglect quality, efficiency, and technological innovation. Another way to encourage capital to remain in America is lower wages. Although this hurts the workers whose wages are reduced, it may be better than no job at all or a possibly lower paying job in the service sector. Lower wages in a competitive industry also means lower prices so that others obtain benefits from these lower wages. Another beneficial effect is the reduction of (or elimination of) inflation.
Is there any way to simply prohibit the moving of capital from the US to foreign countries? This is not easy since one method of moving it today is to simply let the plant and machinery wear out or become obsolete and then ship new modern machinery abroad or buy it from abroad. Would we want to restrict the export of newly made capital goods to other countries? Probably not, since much of our exports consist of such goods. One way to decrease the outflow of capital is by taxation. Taxing profits made in foreign countries at a higher rate will discourage the foreign investment which engenders such profits.
One problem has been the low rate of savings (and currently a negative savings rate) in the US. If we are to invest in America, we need to save up money to make these investments. High income people that have much more income than they need to live on often don't need much encouragement to save. One way to encourage savings by moderate income persons is to exempt a certain amount of interest/dividend income from taxation.
Another way is by "forced savings" where the government taxes money away from workers and saves it. We already have such a tax known as Social Security, except that most of the money the government takes in for it is used to pay benefits to others and is not saved or invested. Even the surplus money remaining isn't really invested either since it is used to finance government debt. If Social Security had not been so generous in the past to retirees, it would have accumulated a huge investment fund which would have resulted in more capital (and jobs) in America.
Another policy that would help would be the reduction in world population so that there would not be the huge surplus of labor in foreign countries that drives down the wage rate.
Like the causes of the great depression in the 1930's, a major cause is debt: all kinds of debt including underfunded obligations for future pensions and health care benefits, especially Social Security and Medicare. But there's a lot more to it than just crushing debt: waste and inefficiency, overpopulation, gross inequalities of income and wealth, industrial decline, and depletion of non-renewable resources. They are all interrelated.
The gross inequalities of income and wealth has greatly exacerbated the consumer and mortgage debt problem. A more egalitarian distribution of income would allow many more people to buy things for cash rather than credit, and allow them to pay off their debts faster. See Perelman's book for examples of just how bad the inequality is in the U.S. So a major cause of debt is not just that many people are spendthrifts, it's that they have insufficient wealth due to extreme income and wealth inequality. Bear in mind that excessively high rents and home prices exact high payments from lower income people to higher income people, and are a thus a major source of such above-mentioned inequality.
If we were not overpopulated, there would be more land per person which would mean lower rents and mortgage debt. There would also be less consumption and depletion of natural resources such as oil. However, a smaller population might tend to be more wasteful per person and this would need to be avoided.
Included under waste is the Iraq war and government subsidy to biofuels that likely take more energy to produce than they yield. See Human Energy Accounting. Population in the U.S. is so high that it requires energy-intensive agriculture to feed the people and imported oil to transport them. The U.S. is now dependent on many foreign made goods since the industries that once made these goods in American have shut down. Oil production has declined (due to depletion) to the point where almost 2/3 of our oil is imported
So the causes of collapse are multifaceted and it's not just one factor, like the housing bubble that's causing it. A major overall cause is the failure of understanding of the problems by the public and politicians, including both the left and right wings. It was only a few fringe groups, such as "Negative Population Growth", that dealt with bits and pieces of the problem. Even the work of conservation organizations was often counter-productive. They often supported mass-transit when it wasn't clear if it would actually save any energy. See Does Mass Transit Save Energy. Organizations such as the Sierra Club failed to oppose the increase in population due to immigration.
The situation is much worse than it was on the eve of the 1929 stock market crash that led to the great depression of the 1930s. Then the U.S. had vast reserves of oil underground, it's industries were intact, and its lower population could be supported on far less fuel. While there was excess domestic debt in 1929, there was nothing like the extreme burden of foreign debt and trade imbalance like exists today. Thus the collapse is likely to be much more severe than the depression of the 1930's
The housing bubble collapse which got worse in 2007 could herald the start of much larger collapse. It may take a few more years beyond 2007 until the full impact of the housing bubble popping manifests itself.
One symptom of impending collapse is the decline in the US dollar in value vs. the Euro. Eventually the Euro could become the world's currency with less need (and demand) for dollars. As the Euro increases in value, Europeans who invested in the US find they have lost money and are inclined to pull out of US investments, driving the dollar still lower with respect to the Euro. The situation will be much worse if the dollar also steeply declines in value relative to Japanese and Chinese currency.
At the same time, the higher prices of foreign goods due to the weakened dollar, results in less imports (good) but the U.S. government must both raise taxes and interest rates in order to get people to loan it money and keep the government going. The result is less consumption and stag-flation. Higher interest rates mean less business expansion.
Higher prices mean less retail sales and less service sector employment leading to higher unemployment. There would likely be a contraction of consumer credit and more bankruptcies and foreclosures. Depression in the US means the US imports less, causing worldwide depression. But it would be much more severe in the US than elsewhere due to the huge debts and trade imbalance. Except that some countries that are in the about same predicament as we are would suffer about the same such as the UK and Australia. Gold soars in price. Banks would tend to fail due to lending long (at low interest) and borrowing short (at high interest). However, many banks have securitized their loans so that other investors and funds take the risk. The government has to raise interest rates to be able to borrow more money to bail out the banks, etc. but the resulting high interest rates fuel inflation which makes the situation worse.
So we would have a full fledged inflation-depression (sometimes called "stagflation") to contend with. To get out of it, we would need to greatly increase manufacturing and the export of manufactured goods. But that would be very difficult due to the loss of our manufacturing plants and engineering know-how. Even patents held by foreigners could pose problems. So such a depression might become permanent. During the depression of the 1930's, the US had vast natural resources on reserve such as oil to help get us out of the depression. We also had a lot of closed factories which could be restarted. Today we have little such reserves to fall back on. The US would become a large impoverished has-been nation such as Russia is today --or worse.
The U.S. has a significant surplus in services. Much of it is due to foreign tourists for which the U.S. provides lodging (hotel), food, and transportation services. Foreign tourists spend their foreign money in the U.S. and provide the U.S. with some foreign currency when they exchange their money for dollars. This foreign currency helps the U.S. buy foreign goods. If you visit tourist attractions in the U.S. such as the National Parks, you will see a lot of these foreign tourists spending their money on U.S. services.
Another service where the U.S. has a surplus is computer software, mainly Microsoft's monopoly. But in some foreign countries there is much interest in switching to the use of free Linux software, especially in countries which are more critical of U.S. policies. But due to secrecy, Linux software is not fully functional on all hardware.