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As we enter 2019, the U.S. national debt continues to grow, approaching $22 trillion with global Government debt sitting at $72 trillion.

It seems like the 21st century is hitting the U.S. with a debt “haymaker,” according to CNBC (emphasis ours):

U.S. debt began accelerating at the turn of the 21st century. The total jumped 85 percent to $10.6 trillion during former President George W. Bush’s two terms, another 88 percent to $19.9 trillion under President Barack Obama and has risen 10 percent during the first two years of President Donald Trump’s term.

And even though the U.S. economy may be growing, the sustained annual deficit exceeds $1 trillion. This is concerning economists, including Chairman Powell:

I’m very worried about it… It’s a long-run issue that we definitely need to face, and ultimately, will have no choice but to face.

If a recession hits (and signals are potentially pointing towards one), then having that amount of sustained deficit could be devastating.

And since the Fed is partially responsible for creating this debt problem, it seems odd for Powell to call it a “long-run” issue when it’s more of a “right-now” issue.

According to a recent CNBC article, normally when the deficit is expanding, the “Fed would be lowering rates”. But they aren’t. In fact, rates have been on a steady rise for the last few years.

At the global level, the picture isn’t much better. Debt has reached record levels, double what it was in 2007.

This is “leaving many countries poorly positioned for financial tightening as global interest rates begin to move higher,” says James McCormack, Fitch’s global head of sovereign ratings, in a statement.

Powell and other economists have every right to be concerned, because both debt and deficit spending may be spiraling out of control.

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

“Real” Inflation Expected to Rise – Hedge Your Bets With Gold

January 19, 2019

“Real” Inflation Expected to Rise – Hedge Your Bets With Gold

hedge against real inflation with gold

Some are under the impression that gold’s performance in the U.S. is not as good as it should be, considering we had a rather uncertain year last year.

In the U.S., even economists who favor the dollar gold price might be blind to an upcoming rise in the financial power of the precious metal.

That, and real inflation may become a better gauge to see just how well this measuring stick is doing. Though revealing it at the federal level may send the market into a panic.

The “Dollar as Yardstick” Problem

According to Ross Norman at Sharps Pixley, using the dollar’s strength to measure net worth in the U.S. could give you the impression that we have a “strong dollar.” But that yardstick shrinks as inflation eats into it. This means using the dollar as a “yardstick” for measurement isn’t consistent.

Using inflation as a gauge for shrinkage can give you a decent picture of how “strong” or “weak” the dollar’s measure is, assuming you’re using an accurate gauge.

As Norman explains (emphasis ours):

Measuring our net worth in local currencies, we might be rather pleased with ourselves – smug even. However we chose to ignore the fact that the yardstick is not a constant … it is shrinking and sometimes really quite fast. It’s the natural corrosive effect of inflation. Knowing this, governments give us a gauge for yardstick shrinkage to use such as RPI or CPI, to reassure you that the shrinkage is minimal… and then lie about it.

For those who don’t know some of the terms Norman uses, the CPI is the Consumer Price Index, which is compiled by the Bureau of Labor and Statistics (BLS) and used by agencies like the Fed. The Retail Price Index (RPI) is essentially the same thing, but based in the UK.

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

We’re Reaching the Beginning of the End of the Pension Fund Crisis

January 17, 2019

We’re Reaching the Beginning of the End of the Pension Fund Crisis

pensions unstable
Photo by Bank of England | CC BY | Photoshopped from original

The pension crisis has been escalating for quite some time, and accounting for pension shortfalls seems next to impossible for state governments.

The shortfall between pension assets and liabilities is a major problem. But another problem may be spelling the beginning of the end for public pensions altogether.

The Beginning of the “End”

Typically, public pensions assume a 7-percent discount rate so they need to generate a return higher than that. But according to Bloomberg, they aren’t getting those returns often enough.

The Bloomberg article states that the average returns for pension-fund-like portfolios have only generated returns of 7 percent or greater for 50-year periods twice since 1871.

The article continues, saying the problem is worse because of two primary reasons:

“Cumulative returns are lower than the averages.”
“An extended period of bad returns cannot be made up even with astronomical returns later.”

For example: Over a 50 year period, if a fund were to have zero returns in the first 15 years, and goes broke, it wouldn’t matter what it did (or could do) after that. If that seems obvious, that’s because it is.

And this example applies even if a fund started in June 1949 and earned an average of 7.99%, according to Bloomberg. Even if the pension is fully funded, “there is no chance existing assets are enough to pay already-contracted liabilities.”

If that sounds dire, once the base of assets start to decline it’s game over, because shrinking assets can’t keep paying increasing liabilities. And according to Pew Research, they have been in decline since 2016.

So worrying about the next 50 years is “pointless”, says Bloomberg:

Worrying about the next five decades is pointless, because there’s also no chance the current system will survive long enough to discover what the next 50-year average returns will be.

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

The Crash Of The “Everything Bubble” Started In 2018 – Here’s What Comes Next In 2019

January 10, 2019

The Crash Of The “Everything Bubble” Started In 2018 – Here’s What Comes Next In 2019

everything bubble

In 2018, a very significant economic change occurred, which sealed the fate of the U.S. economy as well as some other economies around the globe. This change was the shift of central bank policy. The era of stimulus and artificial support of various markets, including stocks, is beginning to fade away as the Federal Reserve pursues policy tightening, including higher interest rates and larger cuts to its balance sheet.

I warned of this change under new Chairman Jerome Powell at the beginning of 2018 in my article ‘New Fed Chairman Will Trigger Stock Market Crash In 2018’. The crash had a false start in February/March, as stocks were saved by massive corporate buybacks through the 2nd and 3rd quarters. However, as interest rates edged higher and Trump’s tax cut cash ran thin, corporate stock buybacks began to dwindle in the final quarter of the year.

As I predicted in September in my article ‘The Everything Bubble: When Will It Finally Crash?’, the crash accelerated in December, as the Fed raised interest rates to their neutral rate of inflation and increased balance sheet cuts to $50 billion per month.

It is important to note that when we speak of a crash in alternative economic circles, we are not only talking about stock markets. Mainstream economists often claim that stocks are a predictive indicator for the future health of the wider economy. This is incorrect. Stocks are actually a trailing indicator; they crash long after all other fundamentals have started to decline.

Housing markets have been plunging in terms of sales as well as prices. The Fed’s interest rate hikes are translating to much higher mortgage rates in the wake of overly inflated values and weaker consumer wages. .

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

2018 in Review: Pension Problems, Hawkish Rate Hikes, and Piles of Debt

December 31, 2018

2018 review

2018 in Review: Pension Problems, Hawkish Rate Hikes, and Piles of Debt

A lot happened in 2018, and while it would be a challenge to cover them all, there are three big trends that appear to have defined this year economically. And, each of them had an impact on retirees, investors, and the overall U.S. economic picture.

Here’s a review of 2018 in light of each of these three, impactful trends…

Corporate and Public Pensions Are Sinking Fast

On a local level, a public pension “Hurricane Harvey” hit a small town in Illinois. The city that once had over 20% unemployment, and property tax rates over 5%, had a major pension shortfall. Ultimately, this small town didn’t know how to make ends meet.

But the pension problem isn’t limited to this one small corner in the U.S.

New Jersey has its own pension conundrum too. Their plan back in April was to tax everything and raise enough revenue to cover their shortfall. This month, it appears they aren’t doing too well, according to a Volcker Alliance study:

It’s a math test that New Jersey, Illinois, and even Texas are nearly failing: How to pay for billions of dollars in unfunded liabilities for public-employee pensions and retiree health care.

All in all, states topped $1.4 trillion in underfunded pensions, according to the most recent data available. The story got even more dire worldwide when Sovereign Man reported a pension savings gap approaching $400 trillion. This amount is more than 20 of the world’s largest economies.

This is indeed a crisis. And it could become a crisis for everyone else, whether you have a public pension or not. Especially, if services get cut or tax dollars for a federal bailout are needed. Plus, if tax dollars are needed to rescue failing pensions, there are a whole host of other consequences for lawmakers following that bailout “script.”

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

Murky 2019 Could Be In Store for U.S. Economy Thanks to Fed’s Monetary Policy

December 31, 2018

murky 2019 thanks to fed

Murky 2019 Could Be In Store for U.S. Economy Thanks to Fed’s Monetary Policy

December 19 marks the day the Fed may have decided it’s going “all in” on the idea of a “strong U.S. economy.”

The Fed locked in an increase of the Federal Funds Rate from 2.25% to 2.40%, and it will increase the primary credit rate to a full 3.00%. These December increases were pretty much anticipated back in early November.

The increases came in spite of commentary by Jeffrey Gundlach from Doubleline, who said the Fed shouldn’t have raised rates:

I don’t think they should… The bond market is saying there’s no way the Fed should be raising interest rates.

From here on out, things get murky, and that uncertainty could very well set the tone for 2019.

Let’s start with the Fed’s now-infamous “dot plot,” below (sourced from their December projections document):

fomc dot plot

As you can see in the “dot plot” above, chances are Federal Fund rates will be soaring over 3 percent in 2019. In 2020, there is still a good chance rates will soar even higher, nearing 3.75 percent. It also looks as though rates will stay at or above 3 percent for the foreseeable future.

That means credit is about to get (and stay) more expensive. Growth is likely to slow down, and the cost of commodities could rise dramatically.

In fact, according to the Bureau of Labor and Statistics, food and most energy prices are already on the rise (emphasis ours):

Food prices increased 1.4 percent for the year ended November 2018. Prices for food at home increased 0.4 percent, while prices for food away from home rose 2.6 percent. In November 2018, prices for cereals and bakery products rose 1.3 percent, the largest 12-month increase among the six grocery store food groups.

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

Historic Debt Is At The Core Of Our Economic Decline

December 7, 2018

Historic Debt Is At The Core Of Our Economic Decline

debt at core of economic decline

From Brandon Smith

As I predicted just after the 2016 presidential election, a sordid theater of blame has exploded over the state of the U.S. economy, with fingers pointing everywhere except (in most cases) at the true culprits behind the crash. Some people point to the current administration and its pursuit of a trade war. Others point to the Federal Reserve, with its adverse interest rate hikes into economic weakness and its balance sheet cuts.

Some blame the Democrats for doubling the national debt under the Obama Administration and creating massive trade and budget deficits. And others look towards Republicans for not yet stemming the continually increasing national debt and deficits.

In today’s economic landscape, the debt issue is absolutely critical. While it is often brought up in regards to our fiscal uncertainty, it is rarely explored deeply enough.

I believe that economic crisis events are engineered deliberately by the financial elite in order to create advantageous conditions for themselves. To understand why, it is important to know the root of their power.

Without extreme debt conditions, economic downturns cannot be created (or at least sustained for long periods of time). According to the amount of debt weighing down a system, banking institutions can predict the outcomes of certain actions and also influence certain end results. For example, if the Fed were to seek out conjuring a debt based bubble, a classic strategy would be to set interest rates artificially low for far too long. Conversely, raising interest rates into economic weakness is a strategy that can be employed in order to collapse a bubble. I believe that it is what launched the Great Depression, it is what ignited the crash of 2008, and it is what’s going on today.

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

Chairman Powell Talks Out of Both Sides of His Mouth

December 3, 2018

Chairman Powell Talks Out of Both Sides of His Mouth

jerome powell talks rates

In a speech on Wednesday, Federal Reserve Chairman Jerome Powell stated that he had a “neutral” outlook on rates. According to a CNBC article, he was quoted:

Interest rates are still low by historical standards, and they remain just below the broad range of estimates of the level that would be neutral for the economy — that is, neither speeding up nor slowing down growth.

But CNBC notes that, as recently as October, Powell’s was indicating that rates were “a long way from neutral.” Could the change in tone simply be public relations damage control?

It’s important to note that rates may still be “low” by historical standards, but only if you include 35+ years of interest rate history. However, if you look at just this century, rates are headed towards the highest levels since 2007 (see chart below). And keep in mind there’s a good chance that we’ll see one more rate hike in December, as the Fed has alluded to in their November meeting statement.

rates on a rise

In response to Powell’s “neutral” language, the Dow Jones jumped 617 points. This represents its biggest one-day gain since this March, according to CNBC. Of course, the Dow has rebounded two other times since October 3, only to lose those gains each time.

Another strange part of Powell’s statement was the indication that the Fed’s “neutral” rates were “neither speeding up nor slowing down growth.” His analysis is odd, because CPI inflation has been on the rise for the last several years (see red arrow):

FRED cpi

And yet, the Dow jump and Powell’s “neutral rate” statement oddities somehow aren’t the strangest items from Wednesday’s speech.

Seems the Fed Want to “Have It Both Ways”

The Fed issued a stark warning about a potential trifecta that could impact the economy. Their warning reads:

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

Rates on Their Way to 10-Year High After Hawkish Fed’s Recent Meeting

November 22, 2018

Rates on Their Way to 10-Year High After Hawkish Fed’s Recent Meeting

hawkish fed meeting

Round and round we go, where the hawkish Fed stops, nobody knows…

There was a bit of tension in the markets last week. This tension stemmed from a prediction that the federal funds rate would be well on its way to a decade high even if the Fed did nothing at their November meeting.

Well, that concern has been justified. In a statement issued after the meeting, the Fed kept their funds rate at 2 – 2.25%, the same range after their September meeting.

But nothing in their statement indicated changes in their plan for another rate hike in December and three more in 2019.

In fact, a CNBC article points to a quarter point increase in December. Assuming this happens, that would send the funds rate to its highest since 2008 (see chart below):

us fed funds rate

The primary credit rate remained steady at 2.75%, according to the Fed statement. That is, until December’s anticipated rate hike.

Another CNBC article published just before the meeting statement was released had a telling statement (emphasis ours):

In recent weeks, financial markets have been gripped by worry and volatility, and some analysts think that in its statement Thursday the Fed may take note of that anxiety as a potential risk to economic growth.

The “No comment” response by the Fed didn’t seem to acknowledge this anxiety.

But the market sure seems to be in a state of worry. Since October 3rd, the Dow Jones has lost 1,566 points as this is written (even after modest recovery).

And the Yield Curve Keeps Flattening

In July, the Fed stopped highlighting the yield curve as an indicator of an imminent recession. Instead, they swept it under the rug.

But according to Patti Domm, the market is still paying attention to it:

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

Paul Volcker’s Fed Criticism Hints at Potential Recession

October 29, 2018

Paul Volcker’s Fed Criticism Hints at Potential Recession

paul volcker federal reserve

From Birch Gold Group

In the 1980’s, amidst out-of-control inflation, former Fed chairman Paul Volcker employed a controversial economic strategy of high interest rates to combat the issue.

In that case, the economic band-aid, dubbed “The Volcker Rule”, worked.

Volcker is 91 now, and as reported in the New York Times, his respect for the Fed is “all gone.” In a recent interview about his memoir, not only did Volcker take the opportunity to travel down memory lane, he also lambasted the Fed’s “2 percent rate target”:

“I puzzle at the rationale,” he wrote. “A 2 percent target, or limit, was not in my textbook years ago. I know of no theoretical justification.”

With a laugh, he told me that he believed the policy was driven by fears of deflation. “And we haven’t had any deflation in this country for 90 years!”

During the interview, he also made an eerie blanket statement summarizing his thoughts about the U.S., the Fed, and the economy.

He stated clearly, “We’re in a hell of a mess in every direction”. Talking about the stability of banks later in the interview, Volcker revealed an unsettling thought (emphasis ours):

They’re in a stronger position than they were, but the honest answer is I don’t know how much they’re manipulating.

He finished the interview saying, “We need stronger supervisory powers”. It’s tough to disagree with that.

Especially after the Dow dropped 1,400 points two weeks ago, and a slight recovery dropped dramatically again this week, the worry in the markets is clear.

On October 3, the Dow sat at 26,828. Market optimists were singing the praises of a market on the way to the top. But things have turned around dramatically.

Today, the Dow closed at 24,984, for an overall drop of 1,844 points in only 22 days. It has lost almost everything it gained in 2018.

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

The World Is Quietly Decoupling From the U.S. – And No One Is Paying Attention

October 9, 2018

The World Is Quietly Decoupling From the U.S. – And No One Is Paying Attention

Blind faith in the U.S. dollar is perhaps one of the most crippling disabilities economists have in gauging our economic future. Historically speaking, fiat currencies are essentially animals with very short lives, and world reserve currencies are even more prone to an early death. But, for some reason, the notion that the dollar is vulnerable at all to the same fate is deemed ridiculous by the mainstream.

This delusion has also recently bled into parts of the alternative economic movement, with some analysts hoping that the Trump Administration will somehow reverse several decades of central bank sabotage in only four to eight years. However, this thinking requires a person to completely ignore the prevailing trend.

Years before there was ever an inkling of a trade war, multiple nations were establishing bilateral agreements that would cut the dollar out of trade. China has been a leader in this effort, despite it being one of the largest buyers of U.S. Treasury debt and dollar reserves since the 2008 crash. In the past few years, these bilateral deals have been growing in scope, starting small and then expanding into massive agreements on raw commodities. China and Russia are a perfect example of the de-dollarization trend, with the two nations forming a trade alliance on natural gas as far back as 2014. That agreement, which is expected to start boosting imports to China this year, removes the need for dollars as a reserve mechanism for international purchases.

Russia and parts of Europe, including Germany, are also growing closer in terms of trade ties. With Germany and Russia entering into the Nordstream 2 gas pipeline deal despite condemnations from the Trump Administration, we can see a clear progression of nations moving away from the U.S. and the dollar, and into a “basket of currencies”.

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

Banks Sputter After Hawkish Fed Raises Rates

October 3, 2018

Banks Sputter After Hawkish Fed Raises Rates

In March we warned of continued Fed rate hikes. In May, we reported on more rate hikes and their potential impacton stocks. In August, the QT “time bomb” started ticking…

On Wednesday, the Fed raised rates for the eighth time since tightening started. But the KBE Bank ETF — which holds Bank of America and Citigroup among others — failed to rally.

This could be a sign of an alarming trend beginning to unfold.

On CNBC’s “Trading Nation,” equity strategist Matt Maley warned that even though the markets are rallying, the KBE Bank ETF hasn’t:

“The thing that concerns me is that not only has it been stuck in a sideways range as the market has rallied all year but now in the last couple of weeks it’s dropped below its 200-day moving average. This has been key support for the group,” Maley told CNBC’s “Trading Nation” on Tuesday.

You can see the dire trend Mr. Maley alludes to unfolding in the chart below…

After the Fed stopped Quantitative Easing (QE) back in October 2017, three critical revelations happened that can be seen in the chart above:

1. The KBE Bank ETF has dipped close to the 200-day moving average twice, but in recent months has been repeatedly dipping below the average.
2. The KBE Bank ETF has rallied 3 times since October 2017, but each rally has been weaker and doesn’t maintain levels reached since 2017.
3. The black arrows indicate each rally getting more “sideways,” and overall staying sideways after the 3rd rally.

This unfolding trend comes at a time “when things should be positive for the group,” according to Maley’s analysis.

At the time of this writing, all bank share prices in the ETF were still dropping, some over 2%. It’s “boom or bust” for the banks, according to the CNBC report.

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

How the Trade War Helps Hide Central Bank Sabotage Of The Economy

September 19, 2018

How the Trade War Helps Hide Central Bank Sabotage Of The Economy

trade war cover up for Fed

Almost every aspect of the global economic downturn, which started ostensibly in 2007-08 and is still ongoing to this day, can be traced back to the actions and policies of central banks. The Federal Reserve, for example, used artificially low interest rates and easy money to create a supposedly no-risk loan environment. This translated into a vast amount of toxic mortgage debt along with a web of derivatives (Mortgage Backed Securities) attached to that debt.

The Fed ignored all the signs and all the alternative analyst warnings. Agencies like S&P backed the Fed narrative that all was well as they gave AAA ratings to endless toxic market products. The mainstream media backed the Fed by attacking anyone that argued the notion that the U.S. economy was unstable and ready to falter. In that era of economics, the truth was effectively hidden from the public by the system through relatively standard means. Today, things have changed slightly.

Since the 2008 crash, numerous economists and former Fed officials have come out publicly to admit to the culpability of central bankers (sort of). Alan Greenspan first claimed in 2008 that the Fed had “made a mistake” in its analysis and overlooked the potential of a market bubble. Then, in 2013 he came out and admitted all the central bankers KNEW that a bubble was present, but that they believed the markets would self-correct without much damage to GDP or the rest of the economy.

The mainstream financial media went on to blame the Fed for the conditions that caused the crisis, but made excuses for them at the same time. The narrative was that the Fed was blinded by peripheral factors and that it had been ignoring fundamentals. The Central bankers had “painted themselves into a corner” with low interest rates, and had done this unknowingly.

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

Chairman Powell’s Bizarre Statement Ignores the Reality of Price Inflation

September 5, 2018

Chairman Powell’s Bizarre Statement Ignores the Reality of Price Inflation

Inflation has been on the rise since late 2015. According to the Consumer Price Index (CPI) measure, the Fed has typically maintained the “target inflation” rate of 2%.

But official inflation has moved well past that benchmark. It is currently nearing 3% while rising at a consistent and alarming rate (see chart below):

consumer price index

During strong economic growth, this inflationary cycle is common. And if you look only at the numbers on their surface, the illusion of a strong economy is what someone would see.

But all that changes once you look behind the curtain…

The economic outlook is uncertain at best with trade wars, a declining dollar, and a credit market suspiciously following a script from 2008.

And the U.S. economic woes don’t stop there. Corporations are adding to the troubles with what seem to be an act of sleight of hand with certain tax loopholes.

All of these challenges to what appears to be a “strong” economy can bring it crashing down like a pile of bricks.

But despite all this, Fed Chairman Powell delivered a speech on August 24 that contained a disturbing “Wizard-of-Oz”-like message.

“Pay No Attention to the Inflation Behind the Curtain”

Sometimes you have to wonder whether the Fed isn’t telling us something about inflation, or if they’re simply ignoring reality altogether.

Case in point: during the speech delivered by Chairman Powell, he made a rather odd statement (emphasis and paragraph breaks ours):

When longer-term inflation expectations are anchored, unanticipated developments may push inflation up or down, but people expect that inflation will return fairly promptly to the desired value. This is the key insight at the heart of the widespread adoption of inflation targeting by central banks in the wake of the Great Inflation.

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

Iran Sanctions, Emerging Markets And The End Of Dollar Dominance

August 30, 2018

Iran Sanctions, Emerging Markets And The End Of Dollar Dominance

trade war cover up for fed and dollar

The trade war is a rather strange and bewildering affair if you do not understand the underlying goal behind it. If you think that the goal is to balance the trade deficit and provide a more amicable deal for U.S. producers on the global market, then you are probably finding yourself either confused, or operating on blind faith that the details will work themselves out.

Case in point, the latest reports that the U.S. trade deficit is now on track to hit 10-year highs, after a 7% increase in June. This is the exact opposite of what was supposed to happen when tariffs were initiated. In fact, I recall much talk in alternative media circles claiming that the mere threat of tariffs would frighten foreign exporters into balancing trade on their own. Obviously this has not been the case.

Rumors of China committing to trade talks or “folding” under the pressure have been repeatedly proven false. Though stock markets seem to enjoy such headlines, tangible positive results are non-existent. While the world is mostly focused on China’s reactions, sanctions against other nations are continuing for reasons that are difficult to comprehend.

Sanctions against Russia have been tightened in the wake of the poisoning of Sergei and Yulia Skripal in the UK, even though we still have yet to see any concrete evidence that Russia had anything to do with the attack.

And, sanctions against Iran have been reintroduced on the accusation that the Iranian government is engaged in secret nuclear weapons development. And again, we still haven’t seen any hard evidence that this is true.

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

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