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The economy has hit a wall and is now sliding down it. I don’t care what bullish propaganda may or may not be bubbling up in the headlines from the financial media and Wall Street, the hard numbers I look at everyday show accelerating economic weakness. The fact that my view is contrary to mainstream consensus and political propaganda reinforces my conviction that my view about the economy is correct.

As an example of the ongoing underlying systemic decay and collapse conveyed by this week’s title, it was announced that General Electric would be removed from the Dow Jones Industrial Average index and replaced by Walgreen’s. GE was an original member of the index starting in 1896 and was a continuous member since 1907.

GE is an original equipment manufacturer and industrial product innovator. It’s products are used in broad array of applications at all levels of the economy globally. It is considered a “GDP company.” GE was iconic of American innovation and economic dominance. Walgreen’s is a consumer products reseller that sells pharmaceuticals and junk. Emblematic of the entire system, GE has suffocated itself with poor management which guided the company into a cess-pool of financial leverage and hidden derivatives.

As expressed in past issues (the Short Seller’s Journal), I don’t put a lot of stock in the regional Fed economic surveys, which are heavily shaded by “hope” and “expectation” metrics that are used to inflate the overall index level. These are so-called “soft” data reports. But now even the “outlook” and “expectations” measurements are falling quickly (see last week’s Philly Fed report). The Trump “hope premium” that inflated the stock market starting in November 2016 has left the building.

…click on the above link to read the rest of the article…

How To Best Prepare Yourself For The Coming Financial Crisis

June 20, 2018

How To Best Prepare Yourself For The Coming Financial Crisis

Many financial analysts believe the United States economy is in a dire situation. Peter Schiff, who accurately predicted the 2008 recession has come out and declared we will all live through another Great Depression, only this time, it’ll be much worse than before. But there are ways to prepare for such an event, and we’ve gathered some helpful tips and tricks to help make the process a little more smooth.

“The bad news is, we are going to live through another Great Depression and it’s going to be very different. This will be in many ways, much much worse, than what people had to endure during the Great Depression…This is going to be a dollar crisis.”

“When you are talking about the magnitude of the debt we have, that extra money [raising interest rates] is big. That’s going to be a big drain on the economy to the extent that we have to pay higher interest to international creditors…a lot of this phony GDP is coming from consumption, while the average American who is consuming is deeply in debt and they are going to impacted dramatically in the increase in the cost of servicing that debt…given how much debt we have, and how much debt is going to be marketed the massive increase in supply will argue for interest rates that are higher.” -Peter Schiff

According to Financial Times, it is becoming clear that the global monetary policy is now caught in a debt trap of its own making. Continuing on the current monetary path is ineffective and increasingly dangerous. But any reversal also involves great risks. It stands to reason that the odds of another crisis blowing up continue to rise.

…click on the above link to read the rest of the article…

America’s Greatest Crisis Upon Us…Debt to GDP Makes It Clear

June 18, 2018

America’s Greatest Crisis Upon Us…Debt to GDP Makes It Clear

America in the midst of its greatest crisis in its 242 years of existence. I say this based upon the US federal debt to GDP (gross domestic product) ratio. In the history of the US, at the onset of every war or crisis, a period of federal deficit spending ensued (red bars in graph below) to overcome the challenge but at the “challenges” end, a period of federal austerity ensued. Until now. No doubt the current financial crisis ended by 2013 (based on employment, asset values, etc.) but federal spending continues to significantly outpace tax revenues…resulting in a continually rising debt to GDP ratio. We are well past the point where we have typically began repairing the nation’s balance sheet and maintaining the credibility of the currency. However, all indications from the CBO and current administration make it clear that debt to GDP will continue to rise. If the American economy were as strong as claimed, this is the time that federal deficit spending would cease alongside the Fed’s interest rate hikes. Instead, surging deficit spending is taking place alongside interest rate hikes, another first for America.

The chart below takes America from 1790 to present. From 1776 to 2001, every period of deficit spending was followed by a period of “austerity” where-upon federal spending was constrained and economic activity flourished, repairing the damage done to the debt to GDP ratio and the credibility of the US currency. But since 2001, according to debt to GDP, the US has been in the longest ongoing crisis in the nations history.

But what is this crisis? The chart points out the debt to GDP surges in order to resolve the Revolutionary war, the Civil War, WWI, and WWII. But the debt to GDP surges since 1980 seem less clear cut. But simply put, America (and the world) grew up and matured, but the central banks and federal government could not accept this change.

…click on the above link to read the rest of the article…

Transformation of consciousness

June 11, 2018

Transformation of consciousness

Excerpt from the Worldview Dimension of Gaia Education’s online course in Design for Sustainability

“The materialistic consciousness of our culture … is the root cause of the global crisis; it is not our business ethics, our politics or even our personal lifestyles. These are symptoms of a deeper underlying problem. Our whole civilization is unsustainable. And the reason that it is unsustainable is that our value system, the consciousness with which we approach the world, is an unsustainable mode of consciousness.”

— Peter Russell (Lazlo, Grof, & Russell, 1999, p.5)

Many people who have lived relatively conventional and successful lives within the Westernized industrial growth society, that has spread across the planet in the wake of economic globalization and the neoliberal “free”-market agenda, have recently woken up to a feeling of having raced at full tilt aiming for success and getting ahead, only to find out that the goals they were perusing, once reached, seemed shallow, meaningless, and forced them into a life-style or into keeping up a persona that they really felt unhappy with.

Why does this irrational behavior pattern prevail throughout the consumer society? (image)

The last of the economic shock waves that have rippled through the global system in 2008 as a result of the so-called sub-prime mortgage lending put in question whether this experience is in fact an isolated experience of some people, or much rather, the realization that our entire society and its guiding aims has been steaming all engines ahead into an altogether undesirable direction. Both individuals and the western ‘financial success driven’ society as a whole seem to find themselves in a situation described by Joseph Campbell as “getting to the top of the ladder and finding that it stands against the wrong wall.”

…click on the above link to read the rest of the article…

Nomi Prins: Central Bank-Inspired “Major Credit Squeeze” Will Trigger Next Crisis

June 9, 2018

Nomi Prins: Central Bank-Inspired “Major Credit Squeeze” Will Trigger Next Crisis

For all the talk about tapering (in both the US and Europe), the Federal Reserve has actually done remarkably little to reduce its balance sheet. And in an interview with Macrovoices Erik Townsend, former Wall Street executive Nomi Prins expands upon some of the same themes she covered in her latest book, “Collu$ion: How Central Bankers Rigged the World”.

As Prins reminds us early on, the Fed and other central banks have expanded their balance sheets by more than $20 trillion, and despite all the chatter about withdrawing stimulus and letting its balance sheet roll off, the Fed’s balance sheet has only shrunk from $4.5 trillion to $4.3 trillion.

Central bankers, Prins argues, like to pat themselves on the back for avoiding what many feared would be runaway inflation resulting from low interest rates and quantitative easing. But of course, they did create inflation, just not the kind that could be reflected by CPI:

But the reason the markets went up and didn’t see through that is not because they believed this wasn’t an act of desperation (I think), but because there was just free money being handed out. It’s sort of like if you’re a drug addict, and you know at some point you’ll be clearheaded if you just get off the drugs and get your act together and move forwards, that’s one way to do it.

Or if someone is supplying you with lots of drugs then it just works and everything else, well then you’ll take them. And this is what happened. The Fed was that sort of supplier of last resort and a lender of last resort of capital for the market.

…click on the above link to read the rest of the article…

Banking System Has Huge Problem – Peter Schiff

June 4, 2018

Banking System Has Huge Problem – Peter Schiff

Money manager Peter Schiff says even though Deutsche Bank is the most systemically dangerous bank in the world (according to the IMF), that is just the tip of severe global financial problems. Schiff explains, “I think it’s a problem, and it’s not just Deutsche Bank. Deutsche Bank could be the weak link of a chain. If you remember back to when we had the financial crisis (2008). First, you had the sub-prime mortgages blowing up, and everybody was like don’t worry about it. It’s contained. I said it’s not contained, it’s just showing up first in the sub-prime market because these are the weakest mortgages. The entire mortgage market has a problem. I think the banking system has a huge problem because it’s lived off of the life support of artificially low interest rates. As that is removed, it’s like pulling the plug off of someone who has lived off life support. The irony is you have so many analysts that think higher rates are good for the banks. . . . Low interest rates saved the banks. You can’t have it both ways. It can’t be low interest rates helped the banks, and high interest rates will help the banks. It’s one or the other. I think higher interest rates are going to crush the banks. I think it’s going to destroy the value of their loans and their collateral. It’s going to lead to defaults . . . All those banks that we’re too big to fail in 2008 are much bigger now, and it’s going to be a lot more difficult to bail them out.”

Schiff issues a stark warning, “This is not going to end well, and I don’t think the Fed is going to be able to save us again. If you get it wrong this time, you’re done. You are down for the count. You just can’t hold and hope.

…click on the above link to read the rest of the article…

Why Is The Mainstream Media Suddenly Buzzing About “Another Global Financial Crisis”?

June 3, 2018

Why Is The Mainstream Media Suddenly Buzzing About “Another Global Financial Crisis”?

All of a sudden, the mainstream media is starting to sound a lot like The Economic Collapse Blog. Throughout the Obama years, the mainstream media in the United States always seemed extremely hesitant to suggest that difficult economic times may be ahead, but now talk of “another global financial crisis” seems to be all over the place. Is this because they truly believe that one is coming, or is it just another angle that they can use to attack Donald Trump? In any event, it is undeniable that evidence is mounting that big trouble could be right around the corner. European financial markets are already in meltdown mode, a major international trade war has just erupted, the worst “retail apocalypse” in modern U.S. history is accelerating, and our debt problems continue to grow with each passing day. Normally the mainstream news is much more subdued than I am about all of this stuff, and so I was very surprised to see reporter James Pethokoukis come out with an article entitled “Here comes another global financial crisis”…

Investors are increasingly worried that an escalating political crisis in Italy could lead to a populist, euroskeptic government taking power. As a result, there’s rising uncertainty about whether the country might eventually abandon the euro currency zone or default on its giant debt pile. To make things worse, the Trump administration continues to toy with the idea of a trade war with Europe and China. That would be the last thing the global economy would need if the Italian situation deteriorates further. Debt crises and trade wars are a toxic combination.

And remember, this comes just days after George Soros ominously declared that “we may be heading into another major financial crisis.”

So what has changed?

…click on the above link to read the rest of the article…

Peter Schiff: ‘The Fed Is Like Mr. Magoo! We Are Headed For A Massive Financial Crisis’

April 27, 2018

Peter Schiff: ‘The Fed Is Like Mr. Magoo! We Are Headed For A Massive Financial Crisis’

Peter Schiff has been saying that even though the stock market is on a slow downward slide, the biggest problem is actually in the bond market. Last week, Schiff warned us to be wary of the calm before the storm, and this week, he said most, including the Federal Reserve, are oblivious to the upcoming crash.

Yields have risen to levels not seen since before the 2008 crash. More significantly, the yield curve is flattening, according to Schiff.

According to Seeking Alpha, Schiff pointed out, if you go back to the Second World War and look at average bond yields, these low rates are an aberration. They’ve been low for a long time, but they aren’t going to stay low forever. And yet the market seems to think it’s going to go on for another 30 years.

“Clearly, the market assumes that interest rates on 10-year government bonds are going to stay just barely over 3% for the next 20 or 30 years. I mean, that is crazy. Why would anybody think that?”

Just consider the deficits as well. The federal government is running $100 billion per month budget deficits – and this is during a supposed economic expansion. What’s going to happen when we hit a recession? And of course, rising interest rates just compound the problem. As Treasuries come due, the government has to replace them with higher interest rate bonds. This expands the deficit even further.

Also compounding the problem is the money printing scheme the Federal Reserve has taken to. Why in the world would any rational person assume inflation will remain low?

…click on the above link to read the rest of the article…

The Deflation/Inflation Debate

April 20, 2018

THE DEFLATION/INFLATION DEBATE

“Naïve inflationism demands an increase in the quantity of money without suspecting that this will diminish the purchasing power of the money.” ― Ludwig von mises, The Theory of Money and Credit

It is hardly surprising that with equity indices stalling, the financial community is increasingly worried that the long, steady bull market is coming to an end. Naturally, this makes investors look for reasons to worry, and it turns out that there are indeed many things to worry about.

In fact, there are always things to worry about. Ever since the Lehman crisis, the Four Horsemen of the Apocalypse have been casting long shadows across the financial stage. But as financial assets have continued to rise in value over the last nine years, bearish fund managers, spooked by systemic risks of one sort or another and the perennial threat of a renewed slump, have been forced to discard their ursine views.

As often as not, it is not much more than a question of emphasis. There is always good news and bad news. As an investor, you semi-consciously choose what to believe.

There are causes for concern, of that there is no doubt. Mostly, they arise from the consequences of earlier state interventions on the money side. Governments are slowly strangling private sector production with increasingly rapacious demands on taxpayers and have been resorting to the printing press to finance the shortfalls. In reality, there is a finite limit to government spending, because it impoverishes the tax base. Yet governments, with very few exceptions, seek to conceal this truism by increasing spending and budget deficits even more. In this, President Trump is not alone.

Bankruptcy is the end result. And don’t believe the old saw about how governments can’t go bust. They can, and they do by destroying their currencies, as von Mises implied in the quote above.

…click on the above link to read the rest of the article…

It’s Pure Math – We’re Headed for a Train Wreck – Bill Holter

April 12, 2018

It’s Pure Math – We’re Headed for a Train Wreck – Bill Holter

Financial writer and gold expert Bill Holter says China has a lot of weapons to fight a trade war with the U.S. China could stop buying Treasury bonds (as it reportedly already has done). It could sell Treasury bonds. It could slash the value of the Yuan, or something much simpler could happen such as a failed delivery of physical precious metals. Holter says, “If what has happened so far in the first three months of the year were to continue for the full year, you would be over three billion ounces (of silver). That is not deliverable.”What happen when the world figures out that three billion ounces of physical silver cannot and will not be delivered to the buyers? Holter explains, “That’s called an old fashion run on the banks. It will be a run on the entire system. You would have a run on every metals exchange, and you would probably have runs on many physical commodities. Confidence throughout the whole system would break. You would basically show the western fractional reserve system is a fraud and has been for many, many years. . . . Can London deliver a billion ounces, or two billion ounces or three billion ounces of silver? The answer to that is no.”

So, when does this all blow up? Holter says, “I think this whole thing has a very good chance of blowing this year.”

There are a variety of financial trip wires, according to Bill Holter, such as thousands of sealed criminal indictments that will be unsealed in 2018. Holter also points out the explosion of global debt. Holter charges, “It’s now $237 trillion. The amount of debt grew by $21 trillion globally over the last 12 months. That’s roughly 10 %. How much did global GDP grow? 2% or 3%, I mean that is totally unsustainable.”

…click on the above link to read the rest of the article…

Dissecting the Madness of Economic Reason

April 9, 2018

Dissecting the Madness of Economic Reason

David Harvey’s latest book provides a riveting reading of Marx’s Capital and a trenchant critique of a political and economic system spiralling out of control.

A decade after the financial crisis of 2008, global capitalism remains in dire straits. Despite central banks providing a steady diet of low interest rates and pumping over $12 trillion of new money into the world economy through quantitative easing, growth remains anaemic, even as debt levels in many countries are back on the rise and inequality rapidly spirals out of control. Secular stagnation now goes hand in hand with the emergence of new speculative bubbles in stocks and housing, raising fears that fresh financial turmoil and further debt crises may only be a matter of time.

With mainstream economics clearly incapable of providing a satisfactory account of capitalism’s inherent tendency towards crisis formation, the past decade has seen a resurgence of interest in the work of Karl Marx, undoubtedly the most astute observer of the system’s internal contradictions. Perhaps no other living scholar has played a more important role in this renaissance of Marxist theorizing than David Harvey, the geographer whose many books and celebrated online course on Capital weaned a new generation of students and activists on an innovative reading of Marx’s critique of political economy.

In his new book, Marx, Capital, and the Madness of Economic Reason, Harvey provides a concise introduction to Marx’s theoretical framework and a compelling argument for its increasing relevance to the “insane and deeply troubling world in which we live.” Fleshing out a number of ideas first presented as part of a lecture series at the City University of New York, where he is Distinguished Professor of Anthropology and Geography, the book is characteristic of the “late Harvey”: incisive in its analysis, sweeping in its scope, accessible in its style and laced with profound insights on the madness of the economic system under which we live.

…click on the above link to read the rest of the article…

Surviving The Next Great Depression

April 8, 2018

Surviving The Next Great Depression

Numerous economists and investors are warning of another great financial crisis to come but few people want to listen to them. No crisis is ever exactly like the last one and the next great depression will be different from the last one. In the last depression those who had money were in a good financial position to ride it out but the next depression will see those with fiat money drowning in it as it becomes worthless.

Very few Americans have any significant savings today. Most live on credit and those with savings have it stored in financial instruments that will be wiped out as the bankers collapse the system to hide the theft they have been involved in for decades. Those who think they will retire with their IRA, pensions or social security will suddenly find them all gone never to return leaving them with no means to care for themselves.

The west line has moved to Asia. This means that North America is no longer the shipping center of the world. The consequences of this for Americans will be disastrous. This means our economy in the future will be smaller and slower and will result in a standard of living far below what it currently is.

Those that own very few assets free and clear will become the new homeless as they become jobless and default on all of their credit obligations. All of the social safety nets that exist now to keep people fat and happy will fail leaving mobs of people to roam the streets to seek out what they need to survive. One only has to look at Venezuela today to see where this will all lead.

…click on the above link to read the rest of the article…

The Next Crisis Will Be The Last

April 6, 2018

The Next Crisis Will Be The Last

It is an interesting thing.

Throughout the last four decades there is a direct link between the actions of the Federal Reserve and the eventual economic and market outcomes due to changes in monetary policy. In every case, that outcome has been negative.

The general consensus continues to be the markets have entered into a “permanently high plateau,” or an era in which asset price corrections have been effectively eliminated through fiscal and monetary policy. The lack of understanding of economic and market cycles was on full display Monday as Peter Navarro told investors to just “buy the dip.”

“I’m thinking the smart money is certainly going to buy on the dips here because the economy is as strong as an ox.”

I urge you not to fall prey to the “This Time Is Different” thought process.

Despite the consensus belief that global growth is gathering steam, there is mounting evidence of financial strain rising throughout the financial ecosystem, which as I addressed previously, is a direct result of the Fed’s monetary policy actions. Economic growth remains weak, wages are not growing, and job growth remains below the rate of working age population growth.

While the talking points of the economy being as “strong as an ox” is certainly “media friendly,” The yield curve, as shown below, is telling a different story. While the spread between 2-year and 10-year Treasury rates has not fallen into negative territory as of yet, they are certainly headed in that direction.

This is an important distinction. The mistake that most analysts make in an attempt to support a current view is to look at a specific data point. However, when analyzing data, it is not necessarily the current data point that is important, but the trend of the data that tells the story.

…click on the above link to read the rest of the article…

Crisis Struck 10 Years Ago: What’s Changed?

April 2, 2018

Crisis Struck 10 Years Ago: What’s Changed?

The financial crisis and the massive federal response reshaped the world we live in. Or did it?

The Wall Street Journal has an interesting infographic series of 25 charts entitled 10 Years After the Crisis.

Here’s eight of the 25.

Median Income Barely Up

Forget averages. The median is what counts most.

Real median wages fell in 7 out of the last 11 years! For details, please see Imaginary Wage-Inflation Conundrum.

My discussion pertains to “wages”. The WSJ referred to “household income”.

Public Debt Triples

The MMT crowd says “We owe it to ourselves”.

Credit Rating Agencies

The guys that rated everything AAA in 2007 are still in charge of things.

Fannie Mae

They promised to unwind Fannie Mae. What happened?

More Ways To Invest

More ways to invest in fewer companies. Who can possibly find fault with that? The casino is open!

Revolving Doors Still Functioning

The revolving door concept still works.

Gotcha!

Batting one out of a thousand is arguably better than expected.

Wealth Distribution Trends

Who couldda possibly thunk that might happen when you bail out the banks, lower interest rates to zero, foreclose on millions of homes, send no one to jail, and promote inflation?

No one could possibly have predicted this result.

The Looming Mortgage Liquidity Crisis

March 30, 2018

THE LOOMING MORTGAGE LIQUIDITY CRISIS

Every 10 years or so there is a banking crisis. We are due. However, the furthest thing from most people’s minds with the Trump boom is a banking/financial crisis, except for a few folks at the Brookings Institution, who just released a paper entitled “Liquidity Crisis in the Mortgage Market.”

You Suk Kim, of the Federal Reserve Board; Steven M. Laufer, who also labors on the Federal Reserve Board along with Karen Pence, plus, Richard Stanton of the University of California, Berkeley, and Nancy Wallace, also of University of California, Berkeley, to give away the punchline from their paper’s abstract, write, “We describe in this paper how nonbank mortgage companies are vulnerable to liquidity pressures in both their loan origination and servicing activities, and we document that this sector in aggregate appears to have minimal resources to bring to bear in a stress scenario.”

John and Joan Q. Public believe the 2018 mortgage business is like George Bailey’s Building & Loan in “It’s a Wonderful Life.” People deposit money, bankers lend it out, keeping the mortgage on their books. Easy Peasy.

As the folks from Brookings point out, it’s not that easy in these dark days of financial engineering. George Bailey’s handshake, promise and maybe a few words on a document to be signed by the borrower which meant simply, “I’ll pay you back,” has become a financial instrument, to be traded and hypothecated by faceless financial bureaucrats, each one taking a sliver of profit off the top.

Everyone remembers the crash of 2008 and plenty explanations have been posited. What the writers for Brookings explain is,

The literature has been largely silent on the liquidity vulnerabilities of the short-term loans that funded nonbank mortgage origination in the pre-crisis period, as well as the liquidity pressures that are typical in mortgage servicing when defaults are high. These vulnerabilities in the mortgage market were also not the focus of regulatory attention in the aftermath of the crisis.

…click on the above link to read the rest of the article…

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