Fed Inflation Expectations, Gold Strengthens; Jim Rickards: War on Gold, China Collapse, & War w/ N. Korea

Welcome to this week’s Market Wrap Podcast, I’m Mike Gleason.

Coming up we’ll hear a wonderful interview with Jim Rickards, author and well-connected global finance insider. Jim shares his thoughts on the ongoing War on Cash, the developing War on Gold and how that will play out, and talks about the ticking time bomb in the Chinese economy and what it means for the U.S. stock market. Don’t miss my amazing recent conversation with Jim Rickards, coming up after this week’s market update.

Precious metals markets rallied strongly this week as the Federal Reserve released the minutes from its most recent policy meeting.

Markets are continuing to price in a likely rate hike in December. Yet even as the Fed sounds a nominally hawkish tone on interest rates and balance sheet normalization, Fed officials are also sending out dovish signals on inflation.

The central bank’s preferred inflation indicator is the “core” Personal Consumption Expenditures index. The PCE has been running persistently below the Fed’s 2% target and shows no signs of hitting that target before the Fed’s December meeting.

Janet Yellen and company face the conundrum of trying to push inflation rates higher while simultaneously wanting to raise interest rates and trim the Fed’s balance sheet.

Federal Reserve Bank of Chicago President Charles Evans reiterated this week that policymakers are committed to higher inflation rates. He also said he would be willing to push inflation above the 2% target.

Charles Evans (Chicago Fed): Getting inflation up to 2% is something that’s very important, and moving inflation expectations up by just talking about it, making sure. We’re willing to go above 2% if that actually happens, because we’ve got a symmetric inflation objective. That’s my opinion. We do have a symmetric inflation objective. I think we should be willing to push inflation above 2%, because we should be spending some time above 2% just like we’ve spent quite a lot of time below 2%.

Richard Clarida (PIMCO).: Chair Yellen has said 2% is not a ceiling it should be something of an average, but since the Fed became an inflation targeter, inflation has been below 2%, I think every month now for going on six years, so I think Charlie Evans has a good point. In particular, I think if you want inflation expectations to be stable, which the Fed does, then it’s going to have to spend at least some time above 2%.

The inflation trade is back on at least for this week, as the U.S. Dollar Index dropped and metals gained. Gold prices rallied back up to the $ 1,300 level on Thursday and currently come in $ 1,299 an ounce, for a 1.6% gain this week. Silver is registering a 2.7% weekly advance to bring spot prices to $ 17.35 an ounce as of this Friday the 13th recordin0067. Platinum is up 2.8% on the week to $ 945, and palladium is up a whopping 7.9% to $ 997 per ounce.

On Thursday, President Donald Trump signed an executive order championed by Senator Rand Paul to dismantle some elements of Obamacare. The order allows individuals and small businesses to obtain cheaper coverage through association health plans. It also enables them to shop across state lines for better plans.

The market for short-term health-insurance will open up from three months previously to one year going forward. These short-term plans lack the full slate of benefits required of regular plans and can be obtained at a relatively cheaper cost.

So will Trump’s executive order lower healthcare costs for most Americans? Probably not. The controversial core of Obamacare is still intact: the individual mandate. The requirement that insurers cover pre-existing conditions will also still be in force, although individual states will have more leeway to allow one-year plans that cater to healthy people who have no pre-existing conditions.

Trump’s executive order is bound to face legal challenges from Democrats. And it still falls far short of the repeal and replace promise that Republicans ran on. That can only be delivered through legislation passed by Congress. Perhaps wavering Senate Republicans will have new impetus to act. Or perhaps after the 2018 elections they will finally obtain a large enough majority to act without having to placate John McCain or Susan Collins.

In the meantime, runaway healthcare inflation will continue to exert pressure on taxes, deficits, and family budgets. Medical costs are underreported in the Federal Reserve’s official inflation gauge, which is one of many reasons why the government reported number keeps coming in so low.

Unfortunately, it’s hard for individuals to hedge against rising medical costs directly. You can hedge food costs by stocking up on non-perishable foods or even buying futures contracts on agricultural commodities. But there are no futures contracts for prescription drugs or health insurance premiums.

Of course, there is the all-purpose inflation hedge of physical precious metals. They tend to perform best when inflation expectations are rising.

We could be on the cusp of that. The Fed clearly wants to boost inflation expectations. Perhaps it will have a surprise in store for markets come December.

Well now, without further delay, let’s get right to this week’s exclusive interview.

Jim Rickards

Mike Gleason: It is my great privilege to be joined now by James Rickards. Mr. Rickards is editor of Strategic Intelligence, a monthly newsletter, and Director of the James Rickards Project, an inquiry into the complex dynamics of geopolitics and global capital. He’s also the author of several bestselling books including The Death of Money, Currency Wars, The New Case for Gold, and now his latest book The Road to Ruin.

In addition to his achievements as a writer and author, Jim is also a portfolio manager, lawyer and renowned economic commentator having been interviewed by CNBC, the BBC, Bloomberg, Fox News and CNN just to name a few. And we’re also happy to have him back on the Money Metals Podcast.

Jim, thanks for coming on with us again today. We really appreciate your time. How are you?

Jim Rickards: I’m fine, Mike. Thanks. Great to be with you. Thanks for having me.

Mike Gleason: I wanted to ask you about a tweet you sent out earlier this month – and for people who want to follow you there, it’s @JamesGRickards – but in that tweet you wrote:

Just informed that Scotia Bank branch is now a gold buyer only. Will not sell to retail clients. Get it while you can. War on gold is here.

Expand on that here, Jim. What did you make of that move and why did you make those comments?

Jim Rickards: Sure. We have a war on cash. I think that’s pretty well known to the listeners, so we see it everywhere. India just abolished its two most popular forms of cash. They literally woke up one day and they said, I think it was the 2,000 rupee note and the 1,000 rupee note, if I’m not mistaken. I believe those are the right denominations. Not worth a whole lot by our standards, worth like $ 15 or whatever. But they were, by far the most popular and widely used, widely circulated bank notes in India. And the government just woke up and said they’re all illegal. They’re worthless. Just like that. Now what they said is, “Now you can take them down to the bank and you can hand them in, and we’ll give you digital credit in your account—oh by the way, the tax inspector’s going to be there asking you where you got the money.” So obviously it was designed to flush out people suspected of tax evasion.

Although, in fact it turned out that there weren’t that many tax cheaters. They were just people who actually preferred money. The preferred cash and they were forced out of the system, forced into this digital system. And there were all kinds of negative repercussions of that. So, there’s a whole country that abolished the most popular forms of cash.

Sweden is very close to cashless. You go around the United States, you might have some, what we call in Philadelphia “walking around money.” I can look in my wallet and there’s probably some 20s and maybe a couple 50s in there, but when you transact, you get paid digitally. You pay your bills with automatic debits. You transfer money with wire transfers. You use your debit card. You use your credit card, etc. You shop on Amazon, you pay with a debit or credit card, etc. maybe PayPal. And I do that. Everyone does that. I’m no different. I’m not exempt from or outside the system.

The point is the dollar is already a digital currency. It’s actually a digital crypto-currency, not that different from Bitcoin. It has a different issuer, but in form it’s really a digital currency. But we’re very far down the road of a cashless society. It wasn’t that long ago, certainly when I was a kid, we had $ 500 bills. And they were in circulation. You’d see one every now and then. Those were abolished in 1968. That left us with the $ 100 bill as our largest denomination. But the $ 100 bill of 1968 is only worth about $ 20 today in terms of relative purchasing power. So, they don’t even have to get rid of the 100, they just have to keep waiting and it’ll be worth about 10 cents in time.

So, the war on cash is underway. That’s partly to set up for negative interest rates. I said earlier that the Fed has not used negative interest rates and has no immediate plans to. That’s true, but they can. There’s nothing stopping them. And of course, other countries have. We’ve seen this in Europe, Switzerland, Japan, and elsewhere. So how does the negative interest rate work? So, you have 100,000 in the bank and the negative interest rate of one percent. You go away for a year, come back, you only have 99,000 left. The bank took $ 1,000 out of your account instead of paying you interest, they take your money as negative interest rate.

Well you say, “Okay, well one of the ways to beat negative interest rate is to take all my cash out… stick it under my mattress or whatever, right?” So you go to the banks, they give you $ 100,000. They give you ten, what they call straps or $ 10,000, a 100 100s with a band around it. That’s one strap. So, they give you 10 of those and there’s your $ 100,000. And you put it away safely, and a year later, you still have 100,000. But your neighbor with the money in the bank, he only has 99 (thousand), because they took 1% interest. So, the way to beat negative interest rates is to go to cash.

So therefore, the leads say, “Well, we might want to use negative interest rates, so we have to get rid of cash before we can go to negative interest rates.” So that’s the war on cash. Now, one of the ways to fight back in the war on cash is to buy gold. Right, so take your cash, buy gold, put that in a safe place. Now even if they eliminate cash, you still have the gold. In theory, even in the world of digital currency you could always sell the gold for a certain amount of digital currency. And you also preserve your value. And for the people they really don’t like, terrorists and tax evaders and others. I mean I’m talking about honest citizens. But for the people the government doesn’t like, they’re already making the migration. Like, “Okay, you want to make it impossible to be a money launderer or impossible to move money around by cash. Let’s just use gold. Good luck tracing that. It’s non-digital.”

By the way, this is already going on in what I call the axis of gold. The axis of gold is Russia, China, Iran, Turkey and North Korea. When North Korea sells missile technology to Iran, they don’t get paid in dollars through Swift. That would never happen. That money would be frozen obviously. The North Koreans really don’t want Russian rubles, what are they going to do with them? They can’t get dollars, because of the state of the U.S. controls the payment system. So, Iran actually pays them with Korean gold, physical gold. Puts it on a plane, they can fly it to North Korea, or maybe North Korea designates someplace else like Russia as a storage place, because they don’t want it in their own backyard. But be that as it may. As I say, Russia, China, Iran, Turkey and North Korea and perhaps others are already settling their payments to each other either for weapon sales or other activities in physical gold.

So, if you have a war on cash people very quickly migrate to gold, which means you have to have a war on gold also. So, one of the reasons I’ve been predicting a war on gold is because I see the war on cash is already here. And if the answer to the war on cash is to go to gold, then if you’re the global power elite, you have to have a war on gold also. So, a lot of these things don’t exist today, but it’s very easy to see limitations on sales, certainly from 1933 to 1975, gold was contraband in the United States. It was illegal for a U.S. citizen to possess gold. With very few exemptions. You could have gold denture fillings, I guess or some gold jewelry, but not coins or bullion. So, you could limit sales, you could put all kinds of reporting requirements on dealers, which don’t exist today. You could put surtaxes on dealer transactions, which don’t exist today, etc. or require licensing, which does not exist today.

There’s a lot of things you could do to make it very, very difficult to buy or sell gold if not impossible. So, my advice to investors is pretty simple, which is the war on cash is here. The war on gold is coming. Why not go get your gold today, put it in a safe place, and then when they shut the door on gold, you’ll be okay, because you’ll have yours. People who are waiting, like, “Oh, I’m just going to wait. I’m going to wait until things get worse. I’m going to wait till the price goes up a lot. What’s the hurry?” My answer is, “By the time you’re ready to move, it may be too late.”

Mike Gleason: Jim, 2018 is setting up to be a pivotal year. You are expecting Chinese officials to keep a lid on their unfolding debt crisis until after the all-important Congress of the Communist Party in China this fall. It is a pivotal gathering in the current party leadership wants badly to put on a good face and avoid turmoil leading up to that event. But you anticipate they will have trouble maintaining control of that situation much beyond the fall. Meanwhile, by next year, Americans should have a better handle on how much of what Trump promised in terms of infrastructure and tax relief might actually come to fruition. It looks like the president has his work cut out for him in Congress. So, as we begin to close here, Jim talk a bit, if you would, about what you think investors should be watching as we move through the next 18 months or so.

Jim Rickards: Well I don’t think there’s much that will happen that you can’t perceive today. Now there are always surprises. I understand that there’ll be terrorist attacks we haven’t anticipated, etc. but a lot of the big things that are going to happen in 2018, you can always see them coming, because this is the kind of analysis I do. It’s complex dynamic systems analysis. In other words, rather than using stochastic equilibrium models, which is what the Fed does or other obsolete models that are linear in nature, I use a complex theory in complex dynamic systems modeling, because I like to say the future’s already here today. It just hasn’t played out yet. In other words, if you understand how a system evolves and you understand something about the initial conditions, you can make some forecasts.

So, for example, one model would be the Mundell-Fleming model, which is sometimes called the impossible trinity. It’s one of the leading models of international monetary economics. And basically, it says there are three things that you cannot have at the same time if you’re a country. You cannot have an open capital account, a fixed exchange rate and an independent monetary policy. you can have two out of three, one out of three, but you can’t have all three. If you try, you will fail. And then the only analytic question is how will you fail and when? But it’s called the impossible trinity for a reason, which is you can’t have it.

Now, and the reason is that has to do with arbitrage. If money can come in and out, and I’m pursuing independent monetary policies, my rates are different than somebody else. But I’m trying to peg my exchange rate. Well, obviously, people are going to flee the jurisdiction where they think the interest rate is going to devalue and go to another currency where the interest rate is higher and the currency is going to appreciate not depreciate. And that’s going to deplete your capital account and cause a foreign exchange crisis. I don’t mean to be glib about the impossible trinity. There are actually good reasons when you look below the surface why it’s true. But just take it for true, but now and again, there’s decades of evidence to support it.

China was trying to do this. They were trying the impossible trinity. If you go back to the middle of 2016, even towards the end of 2016, they were running an open capital account to keep the IMF happy. They were trying to peg to the dollar to keep the United States happy. And they were trying to have an independent monetary policy of low interest rates to prop up their Ponzis and their state-owned enterprises and avoid unemployment. So, they had three good reasons for doing three separate things. But they were trying to have the impossible trinity and as they say in Mundell-Fleming model would say, “You’re going to fail.” And they did fail. They started to fail, which is between late 2014 and late 2016, China lost one trillion dollars in reserves. That was exactly what Mundell would have predicted. The money will run out the door, because they think your fixed exchange rate is not sustainable, because your interest rate policy is too low, etc.

They lost a trillion dollars. If you had extrapolated that. It’s never a very good idea to extrapolate anything. But just as a thought experiment, if you had extrapolated that and further assuming that it accelerates, which historically, they do. China would have been broke by the end of 2017. Now what I said was, that’s not going to happen. They’re not going to let that happen. So, the question is, what are they going to do about it? Well, you had three choices. You could close the capital account, break the peg to the dollar, or raise interest rates. They decided to maintain the peg. They did the other two. They closed the capital account, pretty effectively for the time being. And they raised interest rates in lock step with the Fed.

So, they gave up on two of the three legs, kept the third, which is the peg to the dollar. The yuan has been pretty constant against the dollar lately, which was done to, as we get into late 2016, early 2017 to appease Donald Trump, because remember Donald Trump was the one running around on the campaign trail saying, “China’s the greatest currency manipulator of all time.” While the last thing the Chinese needed was the devaluation. That would have played into Trump’s hands, allowed them to slap on all kinds of trade sanctions and other punitive measures as a result of being labeled a currency manipulator, etc. Trump didn’t do any of that for two reasons.

One, China had maintained the peg, did not devalue further, they actually spent money to prop up the yuan. And two, Trump wanted China’s help on North Korea, so he was willing to play nice in the economic sphere to get help in the geopolitical sphere. Now, both of those things are coming to an end, because they’re not sustainable. And specifically, if you close your capital account – and they have done a pretty good job of that – they stopped the bleeding. But that has an effect on direct foreign investment and portfolio investment in China. Who wants to put their money in if you can’t get your money out? The answer is nobody. So, their investment inflows are drying up. That’s the other side of closing the capital account.

Number two, this monetary tightening is creating a more difficult situation for the state-owned enterprises and other debtors, and China’s just one big credit bubble, one big Ponzi waiting to burst. And three, it’s now become apparent, literally a couple days ago, Trump sent out a tweet saying, “Looks like China can’t help with North Korea, but at least they tried.” Words to that effect. It’s not the exact quote, but it’s close enough. In other words, Trump is signaling that he believes China has failed or will fail to help with North Korea. And I think that’s right. There isn’t really a lot China can do about North Korea without risking war. China can do a lot with North Korea if they risk war. But they don’t want to risk war and therefore, they won’t do much. Therefore, Trump won’t be satisfied and then he’ll turn back to the currency war and other punitive measures that we talked about earlier.

Now why is China doing all this? They’re doing this to keep a lid on the situation, to avoid confrontation, avoid crises until President Xi gets, in effect, anointed or reconfirmed for a second term with certain conditions that make him the new Mao Tse-tung this fall. But once that happens, once he gets that power that he’s looking for, and once it’s apparent that Trump’s going to play hard ball on the trade and currency issues, because China can’t help with North Korea. He will have no further reason to maintain the peg. So, what I expect then is, they will go back to an open capital account. They will cut interest rates. But they’ll reconcile the impossible trinity with a maxi devaluation of the Chinese yuan. The last two times that happened, the New York Stock market crashed. That was August 2015 and January 2016. So, look out below.

It’s going to be interesting times. And then I also expect a war with North Korea in 2018. You can see that playing out now. The war is coming. We’ve been warned by General Mathers. President Trump took the whole Senate up to the White House, basically told them this was going to happen. Orders have already been given. We’re going to give diplomacy a chance and sanctions a chance in 2017, but my estimate is that they will not be fruitful and we’ll go to war in 2018. So, 2018 is set to be a tumultuous year because of the Chinese shock devaluation and a war with North Korea.

Mike Gleason: Well, Jim, once again, it’s been a real pleasure to speak with you, and we certainly appreciate the time. Now before we go, please tell listeners about your latest book, The Road to Ruin as well as anything else you’re working on these days or want folks to know about. And then also how they can follow your work more regularly.

Jim Rickards:Thank you very much, Mike. As you mentioned at the beginning, I’m the editor of Strategic Intelligence, that’s a newsletter from Agora Financial and a couple other newsletters with them. But Strategic Intelligence is our flagship newsletter. My latest book, The Road to Ruin from Penguin Random House, available on Amazon and leading bookstores. That covers a lot of the ground that we’ve covered in this interview. And I’m very active on Twitter. My Twitter handle is @JamesGRickards. It’s about 10% Phillies baseball and random things, but 90% of it is the international monetary systems. So, I hope followers find that helpful. I’m also on another platform called Collide. Just Collide.com. It’s a new platform, but I do weekly commentaries there.

Mike Gleason: Well excellent stuff. We’re grateful as always to have you on and for your time and your incredible insights. We certainly look forward to our next conversation, and I hope you enjoy your weekend and your summer. Thanks very much. Appreciate the time, Jim.

Jim Rickards: Thank you.

Mike Gleason: Well, that’ll do it for this week. Thanks again to Jim Rickards, author of Currency Wars, The Death of Money, The New Case for Gold, and now The Road to Ruin, and also editor of the Jim Rickards’ Strategic Intelligence newsletter, be sure to check those out.

And don’t forget to check back next Friday for the next Weekly Market Wrap Podcast. Until then, this has been Mike Gleason with Money Metals Exchange. Thanks for listening and have a great weekend, everybody.

Precious Metals News & Analysis – Gold News, Silver News




Is Puerto Rico’s Economic Collapse A Ploy By Liberals To Permanently Shift The Balance Of Power In Congress?

Next month, citizens of Puerto Rico are going to vote on statehood, and the absolutely devastating economic collapse that is gripping the island could be enough to push pro-statehood forces over the edge to victory.  Of course Congress has the final say on whether Puerto Rico becomes a state or not, but it is going to be very difficult to deny Puerto Rico’s 3.4 million residents statehood if they strongly insist that they want it.  Needless to say, if Puerto Rico becomes the 51st U.S. state that would greatly benefit the Democrats, because the population of Puerto Rico is very liberal.

Puerto Rico does not get to vote in presidential elections, but they do help select the nominees for both parties.  In 2016, 58,764 votes were cast in the Democratic caucuses held in Puerto Rico, and only 36,660 votes were cast in the Republican primary.  As a state, it is doubtful whether Puerto Rico would send any Republican lawmakers to Washington for decades to come.

So if Puerto Rico becomes a state, the Democrats would add two new senators and probably four or five representatives.

Puerto Rico would be the 30th largest state in the entire country, and so it would instantly have more political power than 21 other U.S. states.

This upcoming vote on June 11th is going to be extremely important, and pro-statehood forces are working very hard to get a positive result.  The following info about the referendum in June comes from Wikipedia

The fifth referendum will be held on June 11, 2017 and will offer two options: “Statehood” and “Independence/Free Association.” It will be the first referendum not to offer the choice of “Commonwealth.” Newly-elected Governor Ricardo Rosselló is strongly in favor of statehood for Puerto Rico to help develop the economy and help to “solve our 500-year-old colonial dilemma … Colonialism is not an option …. It’s a civil rights issue … 3.5 million citizens seeking an absolute democracy,” he told the news media.[30] Benefits of statehood include an additional $ 10 billion per year in federal funds, the right to vote in presidential elections, higher Social Security and Medicare benefits, and a right for its government agencies and municipalities to file for bankruptcy. The latter is currently prohibited.[31]

At approximately the same time as the referendum, Puerto Rico’s legislators are also expected to vote on a bill that would allow the Governor to draft a state constitution and hold elections to choose senators and representatives to the federal Congress.[31]

Over the past decade, Puerto Rico has been suffering through a nightmarish economic recession that never seems to end.  The island was recently forced to declare the equivalent of bankruptcy because it is facing $ 123 billion in debt and pension obligations.  At this moment 46 percent of the residents of Puerto Rico are living below the poverty line, the unemployment rate is 11 percent, and authorities just announced that another 179 public schools will be closing down.

It has been argued that the Obama administration could have done much more to alleviate the economic problems in Puerto Rico but that it purposely chose not to do so.

Why?

Well, the worse economic conditions get in Puerto Rico, the better it is for pro-statehood forces.  Puerto Ricans are being told that becoming a state is the key to Puerto Rico’s long-term economic future, and at this point many are willing to do just about anything to get the economic suffering to end.  The following is a short excerpt from a New York Times article entitled “Amid Puerto Rico’s Fiscal Ruins, a New Push for Statehood“…

A vigorous push for statehood was a central campaign promise of Gov. Ricardo Rosselló, 38, who was inaugurated in January. Next month, he will ask residents to vote, in a nonbinding referendum, for statehood as part of a long-term fix for a commonwealth facing a period of severe austerity that is likely to include shuttered public schools, frozen salaries, slashed pensions and crimped investments in public health. The island remains in the grip of a recession that has lingered for much of the past decade.

Could it be possible that this is what liberals have wanted all along?

Could it be possible that Obama and his minions saw Puerto Rico as a chess piece that could be used to permanently shift the balance of power in Congress?

Of course if Puerto Rico becomes a state that would have implications for presidential elections as well.

In the end, it will be Congress that decides what the fate of Puerto Rico will be, but if the people of Puerto Rico truly want to become the 51st U.S. state it is going to be really hard to deny them that opportunity indefinitely.

Last year at their national conventions, the Democrats and the Republicans both took the position that the citizens of Puerto Rico should be able to make this decision for themselves.  But once faced with a final decision, it is inevitable that many Republican members of Congress would be opposed to statehood.

Personally, I believe that either independence or “free association” would be much better for Puerto Rico, and let us hope that the people of Puerto Rico choose that direction.

But when people are really hurting, they will often grasp any sort of olive branch that is being offered to them, and right now the progressives are really pushing statehood.

Of course for strategists on the left, the goal is not to help the suffering people of Puerto Rico.

Rather, the endgame is complete domination of the U.S. political system by any means necessary.

The Economic Collapse




Former Reagan Administration Official Is Warning Of A Financial Collapse Some Time ‘Between August And November’

If a former Reagan administration official is correct, we are likely to see the next major financial collapse by the end of 2017.  According to Wikipedia, David Stockman “is an author, former businessman and U.S. politician who served as a Republican U.S. Representative from the state of Michigan (1977–1981) and as the Director of the Office of Management and Budget (1981–1985) under President Ronald Reagan.”  He has been frequently interviewed by mainstream news outlets such as CNBC, Bloomberg and PBS, and he is a highly respected voice in the financial community.  Like other analysts, Stockman believes that the U.S. economy is in dire shape, and he told Greg Hunter during a recent interview that he is convinced that the S&P 500 could soon crash “by 40% or even more”…

The market is pricing itself for perfection for all of eternity.  This is crazy. . . . I think the market could easily drop to 1,600 or 1,300.  It could drop by 40% or even more once the fantasy ends.  When the government shows its true colors, that it’s headed for a fiscal blood bath when this crazy notion that there is going to be some Trump fiscal stimulus is put to rest once and for all.  I mean it’s not going to happen.  They can’t pass a tax cut that big without a budget resolution that incorporated $ 10 trillion or $ 15 trillion in debt over the next decade.  It’s just not going to pass Congress. . . . I think this is the greatest sucker’s rally we have ever seen.”

But even more alarming is what Stockman had to say about the potential timing of such a financial crash.  According to Stockman, if he were to pick a time for the next major stock market plunge he would “target sometime between August and November”

The S&P 500 is going to drop by hundreds and hundreds of points sometime over the next few months as we drift into this unexpected crisis. . . . I would target sometime between August and November because that’s when the rubber is going to meet the road on a debt ceiling increase when they are out of cash.  Washington is going to end up in vicious political conflict over what to do about the debt ceiling. . . . It is going to be one giant fiscal bloodbath the likes of which we have never seen.

That really got my attention, because those are the exact months during which the events that I portrayed in The Beginning Of The End play out.

Without a doubt, the U.S. financial system is living on borrowed time, and we cannot keep going into so much debt indefinitely.  In 2017, interest on the national debt will be more than half a trillion dollars for the first time ever, and it will be even higher next year because we are likely to add at least another trillion dollars to the debt during this fiscal year.

Meanwhile, the financial markets just keep becoming more absurd with each passing day.

Just look at Tesla.  This is a company that somehow managed to lose 620 million dollars during the first quarter of 2017, and it has been consistently losing hundreds of millions of dollars quarter after quarter.

And yet somehow the market values Tesla at a staggering 48 billion dollars.

It is almost as if we are living in an “opposite world” where the more money you lose the more valuable investors think that you are.  Companies like Tesla, Netflix and Twitter are burning through gigantic mountains of investor cash without ever making a profit, and nobody seems to care.

Commercial mortgage-backed securities are another red flag that is starting to get a lot of attention

The percentage of commercial mortgage-backed security (MBS) loans in special servicing hit 6.6% to close April, Commercial Mortgage Alert reported, citing Trepp data. The five basis point move higher from March came as the past-due rate on Fitch-rated commercial mortgage-backed securities (CMBS) climbed by nine basis points to end April at to 3.5%.

Both MBS and CMBS rates hit their highest levels since 2015.

During the crisis of 2008, regular mortgage-backed securities played a major role, and this time around it looks like securities that are backed by commercial mortgages could cause quite a bit of havoc.

One of the reasons for this is because mall owners are having such tremendous difficulties.  The number of retail store closings in 2017 is on pace to shatter the all-time record by more than 20 percent, and Bloomberg is projecting that about a billion square feet of retail space will eventually close or be used for another purpose.

So needless to say this is putting an enormous amount of strain on those that are trying to rent space to retailers, and a lot of their debts are starting to go bad.

In 2007 and early 2008, a lot of the analysts that were loudly warning about mortgage-backed securities, a major stock market crash and an imminent recession were being mocked.  People kept asking them when “the crisis” was finally going to arrive, and leaders such as Federal Reserve Chairman Ben Bernanke confidently assured the public that the U.S. economy was not going to experience a recession.

But of course then we got to the fall of 2008 and all hell broke loose.  Investors suddenly lost trillions of dollars, millions of jobs were lost, and the U.S. economy plunged into the worst recession since the Great Depression of the 1930s.

Now we stand poised on the brink of an even worse disaster.  The U.S. national debt has almost doubled since the last crisis, corporate debt has more than doubled, and all of our long-term economic fundamentals have continued to deteriorate.

The only thing that has saved us is our ability to go into enormous amounts of debt, and once that debt bubble finally bursts it will be the biggest standard of living adjustment that Americans have ever seen.

So I don’t know if Stockman’s timing will be 100% accurate or not, but that is not what is important.

What is important is that decades of exceedingly foolish decisions have made the greatest economic crisis in American history inevitable, and when it fully erupts the pain is going to be absolutely off the charts.

The Economic Collapse




Global Collapse: Children Are Literally Starving To Death In Venezuela And Yemen

Venezuela and Yemen were both once very prosperous nations, but now parents are literally watching their children starve to death as the economies of both nations continue to utterly collapse.  Just like so many here in the United States, most of those living in Venezuela and Yemen would have called you completely crazy if you would have warned them that this was going to happen five years ago.  In particular, Venezuela has more proven oil reserves than almost anyone else on the planet, and so to most of their citizens it was unimaginable that things could ever get this bad.  But it has happened, and the collapse that has already begun in parts of South America, Africa and the Middle East will soon spread elsewhere.

When I said that children are literally starving to death in Venezuela, I was not exaggerating one bit.  The following comes from the Wall Street Journal

Jean Pierre Planchart, a year old, has the drawn face of an old man and a cry that is little more than a whimper. His ribs show through his skin. He weighs just 11 pounds.

His mother, Maria Planchart, tried to feed him what she could find combing through the trash—scraps of chicken or potato. She finally took him to a hospital in Caracas, where she prays a rice-milk concoction keeps her son alive.

“I watched him sleep and sleep, getting weaker, all the time losing weight,” said Ms. Planchart, 34 years old. “I never thought I’d see Venezuela like this.”

What would you do if that was your child?

At one time Venezuela had the brightest outlook out of all the economies in South America, but now their economy has contracted by a total of 27 percent since 2013, imports of food have fallen 70 percent, and the IMF says that the inflation rate will hit a staggering 720 percent this year.

Tonight, in major cities all across Venezuela you will find thousands of people rummaging through garbage looking for food.  It has been reported that some citizens have even resorted to eating cats, dogs and pigeons because they are so desperate for something to eat.

According to one survey, among those that said that they lost weight last year, the average amount lost was a staggering 19 pounds.  In the United States that would be a good thing, but in a country like Venezuela that is an absolutely catastrophic number.

Meanwhile, thousands of children are starving to death in Yemen as well

Eyes half open and sunken deep into their sockets, little Jamila Ali Abdu already looked half dead for most of her 12-day stay at the Hodeidah clinic.

Too weak to resist the march of disease and hunger in her war-battered country, the child’s tiny frame was swathed in a bright green shroud and lowered by sobbing relatives into a dusty grave on Tuesday.

The primary cause of the crisis in Yemen is a nightmarish civil war that is not going to end any time soon.

And most Americans don’t realize this, but the U.S. military has contributed to the civil war by conducting airstrikes.  It is essentially a proxy war between Saudi Arabia and Iran, and both sides are absolutely determined to win.

So the suffering in Yemen is only going to intensify, and already a child under the age of five is dying every five minutes

The United Nations warns that a child under five in Yemen dies around every 10 minutes from preventable causes such as starvation, disease, poor sanitation or lack of medical care.

UN chief Antonio Guterres warned last week of “the starving and the crippling of an entire generation.”

Nearly 17 million of Yemen’s 28 million people are deemed “food insecure” by aid groups – and around SEVEN MILLION do not know where they will get their next meal.

Even though you may not believe it right now, what is happening in Venezuela and Yemen is going to happen in the United States someday as well.

So instead of using this time of relative stability for the U.S. economy to party, I would be using it to prepare.

The Economic Collapse




U.S. Auto Sales Plunge Dramatically As The Consumer Debt Bubble Continues To Collapse

One sector of the economy that is acting as if we were already in the middle of a horrible recession is the auto industry.  We just got sales figures for the month of April, and every single major U.S. auto manufacturer missed their sales projections.  And compared to one year ago, sales were way down across the entire industry.  When you add this latest news to all of the other signals that the U.S. economy is slowly down substantially, a very disturbing picture begins to emerge.  Either the U.S. economy is steamrolling toward a major slowdown, or this is one heck of a head fake.

One analyst that has been waiting for auto sales to start declining is Graham Summers.  According to Summers, the boom in auto sales that we witnessed in previous years was largely fueled by subprime lending, and now that subprime auto loan bubble is starting to burst

Auto-loan generation has gone absolutely vertical since 2009, rising an incredible 56% in seven years. Even more incredibly roughly 1/3 of this ~$ 450 billion in new loans are subprime AKA garbage.

In the simplest of terms, this is Subprime 2.0… the tip of the $ 199 TRILLION debt iceberg, just as subprime mortgages were for the Housing Bubble.

I’ve been watching this industry for months now, waiting for the signal that it’s ready to explode.

That signal just hit.

The signal that Summers is referring to is a persistent decline in U.S. auto sales.  It would be easy to dismiss one bad month, but U.S. auto sales have been falling for a number of months now, and the sales figures for April were absolutely dismal.  Just check out how much sales declined in April compared to one year ago for the biggest auto manufacturers

General Motors: -5.8 percent

Ford: -7.1 percent

Fiat Chrysler: -7.0 percent

Toyota: -4.4 percent

Honda: -7.0 percent

For auto manufacturers, those are truly frightening numbers, and nobody is really projecting that they will get better any time soon.

At the same time, unsold vehicles continue to pile up on dealer lots at a staggering pace

Meanwhile, inventory days are still trending higher as OEMs continue to push product on to dealer lots even though sale through to end customers has seemingly stalled.

GM, one of the few OEMs to actually disclose dealer inventories in monthly sales releases, reported that April inventories increased to 100 days (935,758 vehicles) from 98 days at the end of March and just 71 days (681,402 vehicles) in April 2016.

So why is this happening?

Of course there are a lot of factors, but one of the main reasons for this crisis is the fact that U.S. consumers are already drowning in debt and are simply tapped out

Now, a new survey from Northwestern Mutual helps to shed some light on why Americans are completely incapable of saving money.

First, roughly 50% of Americans have debt balances, excluding mortgages mind you, of over $ 25,000, with the average person owing over $ 37,000, versus a median personal income of just over $ 30,000.

Therefore, it’s not difficult to believe, as Northwestern Mutual points out, that 45% of Americans spend up to half of their monthly take home pay on debt service alone.…which, again, excludes mortgage debt.

When you are already up to your eyeballs in debt, it is hard just to make payments on that debt.  So for many American families a new car is simply out of the question.

And it isn’t just the U.S. auto industry that is in trouble.  The credit card industry is also starting to show signs of distress

Synchrony Financial – GE’s spin-off that issues credit cards for Walmart and Amazon – disclosed on Friday that, despite assurances to the contrary just three months ago, net charge-off would rise to at least 5% this year. Its shares plunged 16% and are down 27% year-to-date.

Credit-card specialist Capital One disclosed in its Q1 earnings report last week that provisions for credit losses rose to $ 2 billion, with net charge-offs jumping 28% year-over-year to $ 1.5 billion.

If you didn’t understand all of that, what is essentially being said is that credit card companies are starting to have to set aside more money for bad credit card debts.

Previously I have reported that consumer bankruptcies and commercial bankruptcies are both rising at the fastest rate that we have seen since the last recession.  This trend is starting to spook lenders, and so many of them are starting to pull back on various forms of lending.  For example, Bloomberg is reporting that lending by regional U.S. banks was down significantly during the first quarter of 2017…

Total loans at the 15 largest U.S. regional banks declined by about $ 10 billion to $ 1.73 trillion in the first quarter, compared with the previous three-month period, the first such drop in four years, according to data compiled by Bloomberg. All but two of those banks missed analysts’ estimates for total loans, as a slump in commercial and industrial lending sapped growth.

This is how a credit crunch begins.  When the flow of credit starts restricting, that slows down economic activity, and in turn that usually results in even more credit defaults.  Of course that just causes lending to get even tighter, and pretty soon you have a spiral that is hard to stop.

Just about everywhere you look, there are early warning signs of a new economic downturn.  And just like we saw prior to the great crash of 2008, those that are wise are getting prepared for what is coming ahead of time.  Unfortunately, most people usually end up getting blindsided by economic downturns because they believe the mainstream media when they insist that everything is going to be just fine.

Thankfully, there are at least a few people that are telling the truth, and one of them is Marc Faber.  Just a few days ago, he told CNBC that the U.S. economy is “terminally ill”…

“Dr. Doom” Marc Faber says the U.S. economy is “terminally ill,” and the current outlook doesn’t seem to be improving.

“The U.S. has run a deficit for [so long],” he said Tuesday on CNBC’s “Futures Now.” “The conditions today are more fragile than they were ever before, and unless somebody comes and introduces minus 5 percent interest rates, I think the economy is really not in such a great shape.”

“I’m actually amazed that people are so optimistic,” the editor and publisher of the “Gloom, Boom & Doom Report” added.

I have to agree with Faber on this point.

We are more primed for a major economic downturn and a horrifying stock market crash than we were back in 2008.

It isn’t going to take much to push us over the edge, and with our world becoming more unstable with each passing month, it appears that our day of reckoning is likely to come sooner rather than later.

The Economic Collapse




The Worst Retail Cataclysm Ever: Sears Warns It Is On The Verge Of Collapse As Payless Prepares To File For Bankruptcy

Alarm Clock Abstract - Public DomainMore than 3,500 retail stores are going to close all across America over the next few months as the worst retail downturn in U.S. history gets even deeper.  Earlier this week, Sears shocked the world when it announced that there is “substantial doubt” that the company will be able to “continue as a going concern” much longer.  In other words, Sears has announced that it is on the verge of imminent collapse.  Meanwhile, Payless stunned the retail industry when it came out that they are preparing to file for bankruptcy.  The “retail apocalypse” that I have been warning about is greatly accelerating, and many believe that this is one of the early warning signs that the economic collapse that is already going on in other parts of the globe will soon reach U.S. shores.

I have repeatedly warned my readers that “Sears is going to zero“, and now Sears is officially saying that it might actually happen.  When you file official paperwork with the government that says there is “substantial doubt” that the company will survive, that means that the end is very near

The company that operates Sears, the department store chain that dominated retail for decades, warned Tuesday that it faces “substantial doubt” about its ability to stay in business unless it can borrow more and tap cash from more of its assets.

“Our historical operating results indicate substantial doubt exists related to the company’s ability to continue as a going concern,” Sears Holdings said in a filing with the Securities and Exchange Commission. Sears Holdings operates both Sears and Kmart stores.

In the wake of that statement, the price of Sears stock dipped 13.69% to $ 7.85 a share.

Personally, I am going to miss Sears very much.  But of course the truth is that they simply cannot continue operating as they have been.

For the quarter that ended on January 28th, Sears lost an astounding 607 million dollars

The company said it lost $ 607 million, or $ 5.67 per diluted share, during the quarter that ended on Jan. 28. That compared with a loss of $ 580 million, or $ 5.44 per diluted share, a year earlier. It has posted a loss in all but two of the last 24 quarters, according to S&P Global Market Intelligence.

How in the world is it possible for a retailer to lose that amount of money in just three months?

As I have said before, if they had employees flushing dollar bills down the toilet 24 hours a day they still shouldn’t have losses that big.

This week we also learned that Payless is heading for bankruptcy.  According to Bloomberg, the chain is planning to imminently close at least 400 stores…

Payless Inc., the struggling discount shoe chain, is preparing to file for bankruptcy as soon as next week, according to people familiar with the matter.

The company is initially planning to close 400 to 500 stores as it reorganizes operations, said the people, who asked not to be identified because the deliberations aren’t public. Payless had originally looked to shutter as many as 1,000 locations, and the number may still be in flux, according to one of the people.

Of course these are just two examples of a much broader phenomenon.

Never before in U.S. history have we seen such a dramatic wave of store closures.  According to Business Insider, over 3,500 retail locations “are expected to close in the next couple of months”…

Thousands of mall-based stores are shutting down in what’s fast becoming one of the biggest waves of retail closures in decades.

More than 3,500 stores are expected to close in the next couple of months.

Once thriving shopping malls are rapidly being transformed into ghost towns.  As I wrote about just recently, “you might be tempted to think that ‘Space Available’ was the hottest new retail chain in the entire country.”

The demise of Sears is going to be an absolute nightmare for many mall owners.  Once “anchor stores” start closing, it is usually only a matter of time before smaller stores start bailing out

When an anchor store like Sears or Macy’s closes, it often triggers a downward spiral in performance for shopping malls.

Not only do the malls lose the income and shopper traffic from that store’s business, but the closure often triggers “co-tenancy clauses” that allow the other mall tenants to terminate their leases or renegotiate the terms, typically with a period of lower rents, until another retailer moves into the anchor space.

Years ago I wrote of a time when we would see boarded-up storefronts all across America, and now it is happening.

Instead of asking which retailers are going to close, perhaps we should be asking which ones are going to survive this retail cataclysm.

In the past, you could always count on middle class U.S. consumers to save the day, but today the middle class is steadily shrinking and U.S. consumers are increasingly tapped out.

For instance, just look at what is happening to delinquency rates on auto loans

US auto loan and lease credit loss rates weakened in the second half of 2016, according to a new report from Fitch Ratings, which said they will continue to deteriorate.

“Subprime credit losses are accelerating faster than the prime segment, and this trend is likely to continue as a result of looser underwriting standards by lenders in recent years,” said Michael Taiano, a director at Fitch.

The last time so many Americans got behind on subprime auto loans was during the last financial crisis.

We are seeing so many similarities to what happened just prior to the last recession, and yet most Americans still seem to think that the U.S. economy is going to be just fine in 2017.

Unfortunately, major red flags are popping up in the hard economic numbers and in the financial markets.

The last recession probably should have started back in late 2015, but thanks to manipulation by the Fed and an unprecedented debt binge by the Obama administration, official U.S. GDP growth has been able to stay barely above zero for the last year and a half.

But just because something is delayed does not mean that it is canceled.

All along, our long-term economic imbalances have continued to get even worse, and a date with destiny is rapidly approaching for the U.S. economy.

The Economic Collapse




This Region Of The World Is Being Hit By The Worst Economic Collapse It Has Ever Experienced

South America On The Globe - Public DomainThe ninth largest economy in the entire world is currently experiencing “its longest and deepest recession in recorded history”, and in a country right next door people are being encouraged to label their trash so that the thousands upon thousands of desperately hungry people that are digging through trash bins on the streets can find discarded food more easily.  Of course the two nations that I am talking about are Brazil and Venezuela.  The Brazilian economy was once the seventh largest on the globe, but after shrinking for eight consecutive quarters it has now fallen to ninth place.  And in Venezuela the economic collapse has gotten so bad that more than 70 percent of the population lost weight last year due to a severe lack of food.  Most of us living in the northern hemisphere don’t think that anything like this could happen to us any time soon, but the truth is that trouble signs are already starting to erupt all around us.  It is just a matter of time before the things currently happening in Brazil and Venezuela start happening here, but unfortunately most people are not heeding the warnings.

Just a few years ago, the Brazilian economy was absolutely roaring and it was being hailed as a model for the rest of the world to follow.  But now Brazil’s GDP has been imploding for two years in a row, and this downturn is being described as “the worst recession in recorded history” for that South American nation…

Latin America’s largest economy Brazil has contracted by 3.6 percent in 2016, shrinking for the second year in a row; statistics agency IBGE said on Tuesday. It confirmed the country is facing its longest and deepest recession in recorded history.

Data shows gross domestic product (GDP) fell for the eighth straight quarter in the three months to December, down 0.9 percent from the previous quarter. The figure was worse than the 0.5 percent decline economists had forecast and left the country’s overall GDP down 3.6 percent for the full year following a 3.8 percent drop in 2015.

“In real terms, GDP is now nine percent below its pre-recession peak,” Neil Shearing, chief emerging markets economist at Capital Economics, told the Financial Times.

“This is comfortably the worst recession in recorded history,” he added.

It had been hoped that things in Brazil would be getting better by now, but instead they just keep getting worse.

The number of bankruptcy filings has soared to an all-time record high, and the official unemployment rate has more than doubled since the end of 2013.  The following comes from Wolf Richter

In a stunning deterioration, the unemployment rate in Brazil spiked to 12.6% in the rolling three-month period through January, a record in the new data series going back to 2012, according to Brazil’s statistical agency IBGE. Up from 11.8% in the three-month period through October. Up from an already terribly high 9.5% a year ago. And more than double the 6.2% in December 2013.

Meanwhile, hordes of hungry people are rummaging through garbage cans in Venezuela in order to find something to fill their aching stomachs.

Things have gotten so bad that one of President Maduro’s chief opponents has urged citizens to label which trash bags have food in them so that people that are searching through the garbage can find food scraps more easily

Controversial Priest and opponent to President Nicolás Maduro’s administration Father Jose Palmar posted on social media this week about labeling discarded waste so those looking through it for food can do so more easily and “with dignity.”

Palmar called on Venezuelans to celebrate Lent by identifying bags where food has been discarded for those with no where else to turn. That way, they don’t have to dig through non-edible items to find it.

And previously I have written about how people are so hungry in Venezuela that some of them are actually slaughtering and eating cats, dogs, pigeons and zoo animals.

I keep telling people that this is coming to America, but a lot of people out there don’t want to believe me.

But it is most certainly coming.

Thanks to chronically empty store shelves and severe food shortages, people in Venezuela are losing weight at an astounding pace.  In the United States it would be a good thing if much of the population lost this much weight, but in Venezuela it definitely is not

Three quarters of the country’s population lost an average of over 18 pounds over food shortages in 2016, according to a survey by Venezuelan universities and nonprofit groups. Last year, over 80 percent of foodstuffs disappeared from shelves and many had to get by with one meal a day, Foreign Policy reported.

Venezuela was once South America’s most powerful petrostate. But decades of government mismanagement sent the country into decline. Maduro’s predecessor Hugo Chavez choked the economy with heavy-handed regulations, price controls, and a campaign to nationalize major industries that chased out foreign investments.

Further north, very alarming signs are starting to pop up in Mexico.

It probably won’t happen next week or next month, but there are indications of emerging “liquidity problems” which could precipitate a major debt crisis at some point…

In Mexico foreign investors hold around $ 100 billion of the country’s local-currency government debt, the most for any emerging market economy. That’s almost 20 times what it was 20 years ago. They also hold billions of euros worth of corporate bonds, which are also showing signs of strain, prompting some Mexican business leaders to call for “new programs” to be implemented before the situation causes “a large-scale crisis” among Mexican companies.

The most ominous sign yet came last week when Bloomberg reported sources saying that the Bank of Mexico (or Banxico, as it is referred to) had sought a swap line from the Federal Reserve in case of “liquidity problems,” which immediately triggered furious denials from Banxico. “I can say clearly and unequivocally that we are not in the process of asking for any credit line from any authority,” said the central bank’s governor, Agustin Carstens, who has postponed by six months his departure from the bank, initially scheduled for May.

One of the biggest problems for nations such as Brazil, Venezuela and Mexico is the strength of the U.S. dollar.  During the good times they went into tremendous amounts of debt, and much of that debt was denominated in U.S. dollars.  So when the U.S. dollar becomes stronger, it takes more of their own local currencies to pay that debt back.

And if the Federal Reserve raises interest rates at their next meeting, that will strengthen the U.S. dollar even more and put even more pressure on emerging market economies.

Unfortunately, it appears that this is precisely what the Fed is going to do

Even one small interest rate increase by the Fedcould have a sweeping impact on U.S. and world economies, Komal Sri-Kumar told CNBC on Monday.

“I think they are going to hike” on March 15, Sri-Kumar said on “Squawk Box,” echoing a theory shared by many analysts. “But that is going to prompt capital outflows from the euro zone, especially with the political risk. It is going to increase the capital outflow from China, and the U.S. economy will feel the impact.”

The global economy is more interconnected than ever before, and pain that starts in one region can rapidly spread to others.

The biggest debt bubble that the world has ever seen is starting to burst, and over the coming years we are going to see financial pain on a scale that would be unimaginable to most of us at this moment.

But even now there are those that would suggest that this colossal debt bubble can continue growing much faster than global GDP indefinitely, and this sort of exceedingly reckless optimism is leading many astray.

The Economic Collapse




11 Quotes From Trump’s Speech To Congress That Show That The U.S. Economy Is In A State Of Collapse

Donald Trump's Speech To A Joint Session Of Congress - Public DomainAfter Tuesday night, nobody should have any more doubt that the U.S. economy has been in the process of collapsing.  Donald Trump’s speech to a joint session of Congress is being hailed as his best speech ever.  Even CNN’s Van Jones praised Trump, which shocked many observers.  Jones said that when Trump honored the widow of slain Navy Seal Ryan Owens that it “was one of the most extraordinary moments you have ever seen in American politics”, and Jones believes that Trump “became President of the United States in that moment”.  But Trump’s speech is not just being praised for that one moment.  He detailed many of the most important problems that our nation is facing, and he explained his prescription for addressing those problems.

Hopefully Trump’s words helped people to understand that our problems did not get fixed just because he got elected.  It is going to take extraordinary action to fix those problems, because our problems run very deep.  In particular, Trump made an exceedingly strong case that the U.S. economy has been badly deteriorating for a very long period of time.  The following are 11 quotes from Trump’s speech to Congress that show that the U.S. economy is in a state of collapse…

#1 “Ninety-four million Americans are out of the labor force”

#2 “Over 43 million people are now living in poverty”

#3 “Over 43 million Americans are on food stamps”

#4 “More than one in five people in their prime working years are not working”

#5 “We have the worst financial recovery in 65 years”

#6 “In the last eight years, the past administration has put on more new debt than nearly all of the other Presidents combined”

#7 “We’ve lost more than one-fourth of our manufacturing jobs since NAFTA was approved”

#8 “We’ve lost 60,000 factories since China joined the World Trade Organization in 2001″

#9 “Our trade deficit in goods with the world last year was nearly 800 billion dollars”

#10 “Obamacare premiums nationwide have increased by double and triple digits. As an example, Arizona went up 116 percent last year alone.”

#11  “We’ve spent trillions and trillions of dollars overseas, while our infrastructure at home has so badly crumbled”

All of these quotes come from the transcript of the speech that was posted on the official White House website.

So many of the economic themes that Trump touched on are things that I have been writing about recently.  For example, I recently published an article entitled “11 Deeply Alarming Facts About America’s Crumbling Infrastructure” in which I discussed the horrific state of our roads, bridges, ports, dams, water systems and airports.  I greatly applaud Trump for wanting to do something about this growing national crisis, but I just don’t know where the money is going to come from.

Just over a week ago I also wrote a major article about Obamacare.  We have zero hope of turning our economy in a positive direction until we do something to fix our dramatically failing healthcare system, but at the moment Republicans in Congress seem extremely hesitant to take action.  Instead, many Republican leaders are now talking about trying to “fix Obamacare“, and that simply is not going to work.

You can’t “fix” a steaming pile of garbage.

All of the other facts that Trump listed about the economy were right on point too.  I have been screaming for seven years about our nightmarish trade deficit and the fact that tens of thousands of businesses and millions of good paying jobs were leaving the country.  It is refreshing to finally have a president that understands how badly America has been hurt by imbalanced trade agreements, and my hope is that he will start to take constructive action in this regard.

So much damage to the economy has already been done, and there are all kinds of indications that we are about to officially slide into yet another recession.  Yesterday we learned that the number of “distressed retailers” in this country is the highest that it has been since the last recession, and in recent weeks major retailers across the nation have announced the closing of hundreds of stores.  Lending standards are tightening, bankruptcies are rising, and employment growth at companies listed on the S&P 500 has gone negative for the first time since the last recession.

It is being projected that GDP growth for the first quarter of 2017 will be barely above zero, but it wouldn’t surprise me at all if we actually had a negative reading.

If we indeed are heading into a new recession, Trump and his supporters need it to happen as soon as possible so that they can blame it on Obama.  If a recession begins a year from now, everyone will blame it on Trump even if it is not his fault.  But if a recession begins now, Trump and his supporters can pin responsibility for it on Obama and then take credit if and when a recovery occurs.

Trump’s speech on Tuesday night was very optimistic, and he seemed quite confident that every issue that we are facing as a nation can be fixed

Everything that is broken in our country can be fixed. Every problem can be solved. And every hurting family can find healing and hope.

I hope that Trump is right, but I also know that the federal government is already 20 trillion dollars in debt, U.S. consumers are already more than 12 trillion dollars in debt, and corporate debt has approximately doubled since the last financial crisis.

You can’t squeeze blood out of an apple, and you can’t get out of a debt bubble by going into a lot more debt.

I understand that there are so many people out there right now that are deeply optimistic about the future, but the truth is that we have no hope of a positive future unless we fundamentally change our ways as a nation.  I wish that someone could show me evidence that this is happening, because I would be very glad to see it.  As it stands, we continue to steamroll toward the kind of apocalyptic future for this country that I have been warning about for a very long time.

It will take a lot more than words to fix America, and I think that Donald Trump understands this.

Hopefully many of his followers will start to get the message as well.

The Economic Collapse




Deutsche Bank Collapse: The Most Important Bank In Europe Is Facing A Major ‘Liquidity Event’

toilet-paper-stock-market-collapse-public-domainThe largest and most important bank in the largest and most important economy in Europe is imploding right in front of our eyes.  Deutsche Bank is the 11th biggest bank on the entire planet, and due to the enormous exposure to derivatives that it has, it has been called “the world’s most dangerous bank“.  Over the past year, I have repeatedly warned that Deutsche Bank is heading for disaster and is a likely candidate to be “the next Lehman Brothers”.  If you would like to review, you can do so here, here and here.  On September 16th, the Wall Street Journal reported that the U.S. Department of Justice wanted 14 billion dollars from Deutsche Bank to settle a case related to the mis-handling of mortgage-backed securities during the last financial crisis.  As a result of that announcement, confidence in the bank has been greatly shaken, the stock price has fallen to record lows, and analysts are warning that Deutsche Bank may be facing a “liquidity event” unlike anything that we have seen since the collapse of Lehman Brothers back in 2008.

At one point on Friday, Deutsche Bank stock fell below the 10 euro mark for the first time ever before bouncing back a bit.  A completely unverified rumor that was spreading on Twitter that claimed that Deutsche Bank would settle with the Department of Justice for only 5.4 billion dollars was the reason for the bounce.

But the size of the fine is not really the issue now.  Shares of Deutsche Bank have fallen by more than half so far in 2016, and this latest episode seems to have been the final straw for the deeply troubled financial institution.  Old sources of liquidity are being cut off, and nobody wants to be the idiot that offers Deutsche Bank a new source of liquidity at this point.

As a result, Deutsche Bank is potentially facing a “liquidity event” on a scale that we have not seen since the financial crisis of 2008.  The following comes from Zero Hedge

It is not solvency, or the lack of capital – a vague, synthetic, and usually quite arbitrary concept, determined by regulators – that kills a bank; it is – as Dick Fuld will tell anyone who bothers to listen – the loss of (access to) liquidity: cold, hard, fungible (something Jon Corzine knew all too well when he commingled and was caught) cash, that pushes a bank into its grave, usually quite rapidly: recall that it took Lehman just a few days for its stock to plunge from the high double digits to zero.

It is also liquidity, or rather concerns about it, that sent Deutsche Bank stock crashing to new all time lows earlier today: after all, the investing world already knew for nearly two weeks that its capitalization is insufficient. As we reported earlier this week, it was a report by Citigroup, among many other, that found how badly undercapitalized the German lender is, noting that DB’s “leverage ratio, at 3.4%, looks even worse relative to the 4.5% company target by 2018″ and calculated that while he only models €2.9bn in litigation charges over 2H16-2017 – far less than the $ 14 billion settlement figure proposed by the DOJ – and includes a successful disposal of a 70% stake in Postbank at end-2017 for 0.4x book he still only reaches a CET 1 ratio of 11.6% by end-2018, meaning the bank would have a Tier 1 capital €3bn shortfall to the company target of 12.5%, and a leverage ratio of 3.9%, resulting in an €8bn shortfall to the target of 4.5%.

The more the stock price drops, the faster other financial institutions, investors and regular banking clients are going to want to pull their money out of Deutsche Bank.  And every time there is news about people pulling money out of the bank, that is just going to drive the stock price even lower.

In other words, Deutsche Bank may be entering a death spiral that may be impossible to stop without a government bailout, and the German government has already stated that there will be no bailout for Deutsche Bank.

Banking customers have a total of approximately 566 billion euros deposited with the bank, and even if a small fraction of those clients start demanding their money back it is going to cause a major, major crunch.

Deutsche Bank CEO John Cryan attempted to calm nerves on Friday by releasing a memo to employees that blamed “speculators” for the decline in the stock price

Instead of doing what many have correctly suggested he should be doing, namely focusing on ways to raise more capital for the undercapitalized Deutsche Bank in order to stem the slow (at first) liquidity leak, first thing this morning CEO John Cryan issued another morale-boosting note to employees of Deustche Bank who have been watching their stock price crash to another record low, dipping under €10 in early trading for the first time ever. In the memo the embattled CEO worryingly did what Dick Fuld and other chief executives did when they felt the situation slipping out of control, namely blaming evil “rumor-spreading” shorts, saying “our bank has become subject to speculation. Ongoing rumours are causing significant swings in our stock price. … Trust is the foundation of banking. Some forces in the markets are currently trying to damage this trust.

Just as important, Cryan confirms the Bloomberg report that “a few of our hedge fund clients have reduced some activities with us. That is causing unjustified concerns.” As we explained last night, the concerns are very much justified if they spread to the biggest risk-factor for the German bank: its depositors, which collectively hold over €550 billion in liquidity-providing instruments.

If you would like to ready the full memo, you can do so right here.

One of the reasons why Deutsche Bank is considered to be so systemically “dangerous” is because it has 42 trillion euros worth of exposure to derivatives.  That is an amount of money that is 14 times larger than the GDP of the entire nation of Germany.

Some firms that were derivatives clients of the bank have already gotten spooked and have moved their business to other institutions.  It was this report from Bloomberg that really helped drive down the stock price of Deutsche Bank earlier this week…

The funds, a small subset of the more than 800 clients in the bank’s hedge fund business, have shifted part of their listed derivatives holdings to other firms this week, according to an internal bank document seen by Bloomberg News. Among them are Izzy Englander’s $ 34 billion Millennium Partners, Chris Rokos’s $ 4 billion Rokos Capital Management, and the $ 14 billion Capula Investment Management, said a person with knowledge of the situation who declined to be identified talking about confidential client matters.

“The issue here is now one of confidence,” said Chris Wheeler, a financial analyst with Atlantic Equities LLP in London.

So what comes next?

Monday is a banking holiday for Germany, so we may not see anything major happen until Tuesday.

An announcement of a major reduction in the Department of Justice fine may buy Deutsche Bank some time, but any reprieve would likely only be temporary.

What appears to be more likely is the scenario that Jeffrey Gundlach is suggesting

But Jeffrey Gundlach, chief executive of DoubleLine Capital, said investors betting that Berlin would not rescue Deutsche could find themselves nursing big losses.

The market is going to push down Deutsche Bank until there is some recognition of support. They will get assistance, if need be,’ said Gundlach, who oversees more than $ 100 billion at Los Angeles-based DoubleLine.

It will be very interesting to see how desperate things become before the German government finally gives in to the pressure.

The complete and total collapse of Deutsche Bank would be an event many times more significant for the global financial system than the collapse of Lehman Brothers was.  Global leaders simply cannot afford for such a thing to happen, but without serious intervention it appears that is precisely where we are heading.

Personally, I don’t know exactly what will happen next, but it will be fascinating to watch.

The Economic Collapse




Grand Ascension or Great Collapse?

It depends upon your perspective and the markets you follow …

Perspective:

  1. The global economy is drowning in debt – $ 230 Trillion and counting – that will not be repaid at current value. Expect hyperinflation or outright default.
  2. Negative Interest Rates on $ 13 Trillion in sovereign debt are a sign of failure by central banks, governments, and Keynesian economists.
  3. Pension plans and savers are hurt by low and negative interest rates. They have been sacrificed for the continued levitation in the stock and bond markets.
  4. All of the above indicate a correction and possible collapse are coming. Perhaps it began this month, September 2016.
  5. The charts of six markets tell the story.

Current Highs That Are Worrisome:

Note the circled S&P highs approximately every 91 months and the dangerous breakdown points.

Note the circled T-Bond highs approximately every 91 months. The global bond markets are in a huge bubble, as indicated by negative interest rates, that has lasted over 30 years. “Investors” pay for the privilege of lending money to insolvent governments that will repay, if at all, in devalued currency units.

It is a bubble!

The US Dollar has peaked approximately every 90 months. The next big move could be down.

Recent Lows That Should Produce Massive Rallies:

Gold hit lows approximately every 89 months. The rally from the December 2015 low has been impressive. Given the likelihood of corrections and/or crashes in stocks, bonds, and the dollar, gold prices should rally further.

Silver has bottomed approximately every 84 months and tells the same story as gold. The rally from the December 2015 low seems likely to push upward long and hard. If the next low occurs in late 2022 to early 2023 (Dec. 2015 plus seven years) a cycle high could occur early next decade. Considerable price appreciation between now and 2020-2022 seems likely, especially considering the upcoming corrections and/or crashes in stocks, bonds, and currencies.

Lows in the XAU – an index of gold stocks – have occurred approximately every 92 months. Expect gold and silver stocks to rally for several years.

CONCLUSIONS:

  • Central banks have levitated stocks and bonds for decades.
  • Perhaps central banks and the financial elite can levitate the stock and bond markets for another two months in their attempt to elect HRC. The near 400 point drop in the Dow on Sept. 9 (this was written on Sept. 10) suggests they might not levitate those markets long enough for the status quo to survive an honest election.
  • Gold, silver, and their stocks bottomed approximately nine months ago and have rallied nicely since then. Expect those rallies to continue for several years, perhaps into early next decade.
  • Gold, silver, and their stocks will either rally considerably, or incredibly, depending upon central bank insanity, more QE, helicopter money, accidents, and currency devaluations. Remember, Argentina hyperinflated over one trillion to one, compared to the US dollar, in the past 70 years. Many other countries have similarly hyperinflated. It could happen in your country also.
  • The S&P, T-Bonds, and the Dollar index look like candidates for the Great Collapse.

  • Gold, silver, and their stocks look like candidates for the Grand Ascension.

Gary Christenson

Republished with permission by The Deviant Investor.