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10 Charts Which Show We Are Much Worse Off Than Just Before The Last Economic Crisis

10 Charts Economic CrisisIf you believe that ignorance is bliss, you might not want to read this article.  I am going to dispel the notion that there has been any sort of “economic recovery”, and I am going to show that we are much worse off than we were just prior to the last economic crisis.  If you go back to 2007, people were feeling really good about things.  Houses were being flipped like crazy, the stock market was booming and unemployment was relatively low.  But then the financial crisis of 2008 struck, and for a while it felt like the world was coming to an end.  Of course it didn’t come to an end – it was just the first wave of our problems.  The waves that come next are going to be the ones that really wipe us out.  Unfortunately, because we have experienced a few years of relative stability, many Americans have become convinced that Barack Obama, Janet Yellen and the rest of the folks in Washington D.C. have fixed whatever problems caused the last crisis.  Even though all of the numbers are screaming otherwise, there are millions upon millions of people out there that truly believe that everything is going to be okay somehow.  We never seem to learn from the past, and when this next economic downturn strikes it is going to do an astonishing amount of damage because we are already in a significantly weakened state from the last one.

For each of the charts that I am about to share with you, I want you to focus on the last shaded gray bar on each chart which represents the last recession.  As you will see, our economic problems are significantly worse than they were just before the financial crisis of 2008.  That means that we are far less equipped to handle a major economic crisis than we were the last time.

#1 The National Debt

Just prior to the last recession, the U.S. national debt was a bit above 9 trillion dollars.  Since that time, it has nearly doubled.  So does that make us better off or worse off?  The answer, of course, is obvious.  And even though Barack Obama promises that “deficits are under control”, more than a trillion dollars was added to the national debt in fiscal year 2014.  What we are doing to future generations by burdening them with so much debt is beyond criminal.  And so what does Barack Obama want to do now?  He wants to ramp up government spending and increase the debt even faster.  This is something that I covered in my previous article entitled “Barack Obama Says That What America Really Needs Is Lots More Debt“.

Presentation National Debt

#2 Total Debt

Over the past 40 years, the total amount of debt in the United States has skyrocketed to astronomical heights.  We have become a “buy now, pay later” society with devastating consequences.  Back in 1975, our total debt level was sitting at about 2.5 trillion dollars.  Just prior to the last recession, it was sitting at about 50 trillion dollars, and today we are rapidly closing in on 60 trillion dollars.

Presentation Credit Market Instruments

#3 The Velocity Of Money

When an economy is healthy, money tends to change hands and circulate through the system quite rapidly.  So it makes sense that the velocity of money fell dramatically during the last recession.  But why has it kept going down since then?

Presentation Velocity Of M2

#4 The Homeownership Rate

Were you aware that the rate of homeownership in the United States has fallen to a 20 year low?  Traditionally, owning a home has been a sign that you belong to the middle class.  And the last recession was really rough on the middle class, so it makes sense that the rate of homeownership declined during that time frame.  But why has it continued to steadily decline ever since?

Presentation Homeownership Rate

#5 The Employment Rate

Barack Obama loves to tell us how the unemployment rate is “going down”.  But as I will explain later in this article, this decline is primarily based on accounting tricks.  Posted below is a chart of the civilian employment-population ratio.  Just prior to the last recession, approximately 63 percent of the working age population of the United States was employed.  During the recession, this ratio fell to below 59 percent and it stayed there for several years.  Just recently it has peeked back above 59 percent, but we are still very, very far from where we used to be, and now the next economic downturn is rapidly approaching.

Presentation Employment Population Ratio

#6 The Labor Force Participation Rate

So how can Obama get away with saying that the unemployment rate has gone down dramatically?  Well, each month the government takes thousands upon thousands of long-term unemployed workers and decides that they have been unemployed for so long that they no longer qualify as “part of the labor force”.  As a result, the “labor force participation rate” has fallen substantially since the end of the last recession…

Presentation Labor Force Participation Rate

#7 The Inactivity Rate For Men In Their Prime Working Years

If things are “getting better”, then why are so many men in their prime working years doing nothing at all?  Just prior to the last recession, the inactivity rate for men in their prime working years was about 9 percent.  Today it is just about 12 percent.

Presentation Inactivity Rate

#8 Real Median Household Income

Not only is a smaller percentage of Americans employed today than compared to just prior to the last recession, the quality of our jobs has gone down as well.  This is one of the factors which has resulted in a stunning decline of real median household income.

Presentation Real Median Household Income

I have shared these next numbers before, but they bear repeating.  In America today, most Americans do not make enough to support a middle class lifestyle on a single salary.  The following figures come directly from the Social Security Administration

-39 percent of American workers make less than $20,000 a year.

-52 percent of American workers make less than $30,000 a year.

-63 percent of American workers make less than $40,000 a year.

-72 percent of American workers make less than $50,000 a year.

We all know people that are working part-time jobs because that is all that they can find in this economy.  As the quality of our jobs continues to deteriorate, the numbers above are going to become even more dismal.

#9 Inflation

Even as our incomes have stagnated, the cost of living just continues to rise steadily.  For example, the cost of food and beverages has gone up nearly 50 percent just since the year 2000.

Presentation Food Inflation

#10 Government Dependence

As the middle class shrinks and the number of Americans that cannot independently take care of themselves soars, dependence on the government is reaching unprecedented heights.  For instance, the federal government is now spending about twice as much on food stamps as it was just prior to the last recession.  How in the world can anyone dare to call this an “economic recovery”?

Presentation Government Spending On Food Stamps

So you tell me – are things “getting better” or are they getting worse?

To me, it is crystal clear that we are in much worse condition than we were just prior to the last economic crisis.

And now things are setting up in textbook fashion for the next great economic crisis.  Unfortunately, most Americans are totally clueless about what is going on and the vast majority are completely and totally unprepared for what is coming.

Or could it be possible that I am wrong?  Whether you agree or disagree with me, please feel free to add to the discussion by posting a comment below…

14 Signs That Most Americans Are Flat Broke And Totally Unprepared For The Coming Economic Crisis

14 Signs Americans Are Flat BrokeWhen the coming economic crisis strikes, more than half the country is going to be financially wiped out within weeks.  At this point, more than 60 percent of all Americans are living paycheck to paycheck, and a whopping 24 percent of the country has more credit card debt than emergency savings.  One of the primary principles that any of these “financial experts” that you see on television will teach you is to have a cushion to fall back on.  At the very least, you never know when unexpected expenses like major car repairs or medical bills will come along.  And in the event of a major economic collapse, if you do not have any financial cushion at all you will be a sitting duck.  Yes, I know that there are millions upon millions of families out there that are just trying to scrape by from month to month at this point.  I hear from people that are deeply struggling in this economy all the time.  So I don’t blame them for not being able to save lots of money.  But if you are in a position to build up an emergency fund, you need to do so.  We have been experiencing an extended period of relative economic stability, but it will not last.  In fact, the time for getting prepared for the next great economic downturn is rapidly running out, and most Americans are not ready for it at all.  The following are 14 signs that most Americans are flat broke and totally unprepared for the coming economic crisis…

#1 According to a survey that was just released, 24 percent of all Americans have more credit card debt than emergency savings.

#2 That same survey discovered that an additional 13 percent of all Americans do not have any credit card debt, but they do not have a single penny of emergency savings either.

#3 At this point, approximately 62 percent of all Americans are living paycheck to paycheck.

#4 Adults under the age of 35 in the United States currently have a savings rate of negative 2 percent.

#5 More than half of all students in U.S. public schools come from families that are poor enough to qualify for school lunch subsidies.

#6 A study that was conducted last year found that more than one out of every three adults in the United States has an unpaid debt that is “in collections“.

#7 One survey discovered that 52 percent of all Americans really cannot even financially afford the homes that they are living in right now.

#8 According to research conducted by Atif Mian of Princeton University and Amir Sufi of the University of Chicago Booth School of Business, 40 percent of Americans could not come up with $2000 right now without borrowing it.

#9 That same study found that 60 percent of Americans could not say yes to the following question…

“Do you have 3 months emergency funds to cover expenses in case of sickness, job loss, economic downturn?”

#10 A different study discovered that less than one out of every four Americans has enough money stored away to cover six months of expenses.

#11 Today, the average American household is carrying a grand total of 203,163 dollars of debt.

#12 It is estimated that less than 10 percent of the entire U.S. population owns any gold or silver for investment purposes.

#13 48 percent of all Americans do not have any emergency supplies in their homes whatsoever.

#14 53 percent of all Americans do not even have a minimum three day supply of nonperishable food and water in their homes.

Perhaps none of this concerns you.

Perhaps you think that this bubble economy can persist indefinitely.

Well, if you won’t listen to the more than 1200 articles that set out the case for the coming economic collapse on my website, perhaps you will listen to former Federal Reserve Chairman Alan Greenspan.  The following is what he recently told one interviewer

We asked him where he thought the gold price will be in five years and he said “measurably higher.”

In private conversation I asked him about the outstanding debts… and that the debt load in the U.S. had gotten so great that there has to be some monetary depreciation. Specially he said that the era of quantitative easing and zero-interest rate policies by the Fed… we really cannot exit this without some significant market event… By that I interpret it being either a stock market crash or a prolonged recession, which would then engender another round of monetary reflation by the Fed.

He thinks something big is going to happen that we can’t get out of this era of money printing without some repercussions – and pretty severe ones – that gold will benefit from.

And as I have stressed so frequently, the signs that the next crisis is almost here are all around us.

For example, the Baltic Dry Index has just plunged to a fresh record low, and things have already gotten so bad that some global shippers are now filing for bankruptcy

The unintended consequences of a money-printed, credit-fueled, mal-investment-boom in commodities (prices – as opposed to physical demand per se) and the downstream signals that sent to any and all industries are starting to bite. The Baltic Dry Index has plunged once again to new record lows and the collapse of the non-financialized ‘clean’ indicator of the imbalances between global trade demand and freight transport supply has the real-world effects are starting to be felt, as Reuters reports the third dry-bulk shipper this month has filed for bankruptcy… in what shippers call “the worst market conditions since the ’80s.”

Perhaps you do see things coming.

Perhaps you do want to get prepared.

If you are new to all of this, and you don’t quite know how to get started preparing, please see my previous article entitled “89 Tips That Will Help You Prepare For The Coming Economic Depression“.  It will give you some basic tips that you can start implementing right away.

And of course one of the most important things is something that I talked about at the top of this article.

If at all possible, you have got to have an emergency fund.  When the coming economic storm strikes, your family is going to need something to fall back on.

If you are trusting in the government to save you when things fall apart, you will be severely disappointed.

Two More Harbingers Of Financial Doom That Mirror The Crisis Of 2008

Harbingers - Public DomainThe stock market continues to flirt with new record highs, but the signs that we could be on the precipice of the next major financial crisis continue to mount.  A couple of days ago, I discussed the fact that the U.S. dollar is experiencing a tremendous surge in value just like it did in the months prior to the financial crisis of 2008.  And previously, I have detailed how the price of oil has collapsed, prices for industrial commodities are tanking and market behavior is becoming extremely choppy.  All of these are things that we witnessed just before the last market crash as well.  It is also important to note that orders for durable goods are declining and the Baltic Dry Index has dropped to the lowest level on record.  So does all of this mean that the stock market is guaranteed to crash in 2015?  No, of course not.  But what we are looking for are probabilities.  We are looking for patterns.  There are multiple warning signs that have popped up repeatedly just prior to previous financial crashes, and many of those same warning signs are now appearing once again.

One of these warning signs that I have not discussed previously is the wholesale inventories to sales ratio.  When economic activity starts to slow down, inventory tends to get backed up.  And that is precisely what is happening right now.  In fact, as Wolf Richter recently wrote about, the wholesale inventories to sales ratio has now hit a level that we have not seen since the last recession…

In December, the wholesale inventory/sales ratio reached 1.22, after rising consistently since July last year, when it was 1.17. It is now at the highest – and worst – level since September 2009, as the financial crisis was winding down:

Wolf Richter

Rising sales gives merchants the optimism to stock more. But because sales are rising in that rosy scenario, the inventory/sales ratio, depicting rising inventories and rising sales, would not suddenly jump. But in the current scenario, sales are not keeping up with inventory growth.

Another sign that I find extremely interesting is the behavior of the yield on 10 year U.S. Treasury notes.  As Jeff Clark recently explained, we usually see a spike in the 10 year Treasury yield about the time the market is peaking before a crash…

The 10-year Treasury note yield bottomed on January 30 at 1.65%. Today, it’s at 2%. That’s a 35-basis-point spike – a jump of 21% – in less than two weeks.

And it’s the first sign of an impending stock market crash.

10 Year Yield - Stansberry

As I explained last September, the 10-year Treasury note yield has ALWAYS spiked higher prior to an important top in the stock market.

For example, the 10-year yield was just 4.5% in January 1999. One year later, it was 6.75% – a spike of 50%. The dot-com bubble popped two months later.

In 2007, rates bottomed in March at 4.5%. By July, they had risen to 5.5% – a 22% increase. The stock market peaked in September.

Let’s be clear… not every spike in Treasury rates leads to an important top in the stock market. But there has always been a sharp spike in rates a few months before the top.

Once again, just because something has happened in the past does not mean that it will happen in the future.

But the fact that so many red flags are appearing all at once has got to give any rational person reason for concern.

Yes, the Dow gained more than 100 points on Thursday.  But on Thursday we also learned that retail sales dropped again in January.  Overall, this has been the worst two month drop in retail sales since 2009

Following last month’s narrative-crushing drop in retail sales, despite all that low interest rate low gas price stimulus, January was more of the same as hopeful expectations for a modest rebound were denied. Falling 0.8% (against a 0.9% drop in Dec), missing expectations of -0.4%, this is the worst back-to-back drop in retail sales since Oct 2009. Retail sales declined in 6 of the 13 categories.

And economic activity is rapidly slowing down on the other side of the planet as well.

For example, Chinese imports and exports both fell dramatically in January…

Chinese imports collapsed 19.9% YoY in January, missing expectations of a modest 3.2% drop by the most since Lehman. This is the biggest YoY drop since May 2009 and worst January since the peak of the financial crisis. Exports tumbled 3.3% YoY (missing expectations of 5.9% surge) for the worst January since 2009. Combined this led to a $60.03 billion trade surplus in January – the largest ever. But apart from these massive imbalances, everything is awesome in the global economy (oh apart from The Baltic Dry at record lows, Iron Ore near record lows, oil prices crashed, and the other engine of the world economy – USA USA USA – imploding).

In light of so much bad economic data, it boggles my mind that stocks have been doing so well.

But this is typical bubble behavior.  Financial bubbles tend to be very irrational and they tend to go on a lot longer than most people think they will.  When they do finally burst, the consequences are often quite horrifying.

It may not seem like it to most people, but we are right on track for a major financial catastrophe.  It is playing out right in front of our eyes in textbook fashion.  But it is going to take a little while to unfold.

Unfortunately, most people these days do not have the patience to watch long-term trends develop.  Instead, we have been trained by the mainstream media to have the attention spans of toddlers.  We bounce from one 48-hour news cycle to the next, eagerly looking forward to the next “scandal” that is going to break.

And when the next financial crash does strike, the mainstream media is going to talk about what a “surprise” it is.  But for those that are watching the long-term trends, it is not going to be a surprise at all.  We will have seen it coming a mile away.

 

Guess What Happened The Last Time The U.S. Dollar Skyrocketed In Value Like This?…

Question Ball - Public DomainOver the past decade, there has been only one other time when the value of the U.S. dollar has increased by so much in such a short period of time.  That was in mid-2008 – just before the greatest financial crash since the Great Depression.  A surging U.S. dollar also greatly contributed to the Latin American debt crisis of the early 1980s and the Asian financial crisis of 1997.  Today, the globe is more interconnected than ever.  Most global trade is conducted in U.S. dollars, and much of the borrowing done by emerging markets all over the planet is denominated in U.S. dollars.  When the U.S. dollar goes up dramatically, this can put a tremendous amount of financial stress on economies all around the world.  It also has the potential to greatly threaten the stability of the 65 trillion dollars in derivatives that are directly tied to the value of the U.S. dollar.  The global financial system is more vulnerable to currency movements than ever before, and history tells us that when the U.S. dollar soars the global economy tends to experience a contraction.  So the fact that the U.S. dollar has been skyrocketing lately is a very, very bad sign.

Most of the people that write about the coming economic collapse love to talk about the coming collapse of the U.S. dollar as well.

But in the initial deflationary stage of the coming financial crisis, we are likely to see the U.S. dollar actually strengthen considerably.

As I have discussed so many times before, we are going to experience deflation first, and after that deflationary phase the desperate responses by the Federal Reserve and the U.S. government to that deflation will cause the inflationary panic that so many have written about.

Yes, someday the U.S. dollar will essentially be toilet paper.  But that is not in our immediate future.  What is in our immediate future is a “flight to safety” that will push the surging U.S. dollar even higher.

This is what we witnessed in 2008, and this is happening once again right now.

Just look at the chart that I have posted below.  You can see the the U.S. dollar moved upward dramatically relative to other currencies starting in mid-2008.  And toward the end of the chart you can see that the U.S. dollar is now experiencing a similar spike…

Dollar Index 2015

At the moment, almost every major currency in the world is falling relative to the U.S. dollar.

For example, this next chart shows what the euro is doing relative to the dollar.  As you can see, the euro is in the midst of a stunning decline…

Euro U.S. Dollar

Instead of focusing on the U.S. dollar, those that are looking for a harbinger of the coming financial crisis should be watching the euro.  As I discussed yesterday, analysts are telling us that if Greece leaves the eurozone the EUR/USD could fall all the way down to 0.90.  If that happens, the chart above will soon resemble a waterfall.

And of course it isn’t just the euro that is plummeting.  The yen has been crashing as well.  The following chart was recently posted on the Crux

Yen Dollar from the Crux

Unfortunately, most Americans have absolutely no idea how important all of this is.  In recent years, growing economies all over the world have borrowed gigantic piles of very cheap U.S. dollars.  But now they are faced with the prospect of repaying those debts and making interest payments using much more expensive U.S. dollars.

Investors are starting to get nervous.  At one time, investors couldn’t wait to pour money into emerging markets, but now this process is beginning to reverse.  If this turns into a panic, we are going to have one giant financial mess on our hands.

The truth is that the value of the U.S. dollar is of great importance to every nation on the face of the Earth.  The following comes from U.S. News & World Report

In the early ’80s, a bullish U.S. dollar contributed to the Latin American debt crisis, and also impacted the Asian Tiger crisis in the late ’90s. Emerging markets typically have higher growth, but carry much higher risk to investors. When the economies are doing well, foreign investors will lend money to emerging market countries by purchasing their bonds.

They also deposit money in foreign banks, which facilitates higher lending. The reason for this is simple: Bond payments and interest rates in emerging markets are much higher than in the U.S. Why deposit cash in the U.S. and earn 0.25 percent, when you could earn 6 percent in Indonesia? With the dollar strengthening, the interest payments on any bond denominated in U.S. dollars becomes more expensive.

Additionally, the deposit in the Indonesian bank may still be earning 6 percent, but that is on Indonesian rupiahs. After converting the rupiahs to U.S. dollars, the extra interest doesn’t offset the loss from the exchange. As investors get nervous, the higher interest on emerging market debt and deposits becomes less alluring, and they flee to safety. It may start slowly, but history tells us it can quickly spiral out of control.

Over the past few months, I have been repeatedly stressing that so many of the signs that we witnessed just prior to previous financial crashes are happening again.

Now you can add the skyrocketing U.S. dollar to that list.

If you have not seen my previous articles where I have discussed these things, here are some places to get started…

Guess What Happened The Last Time The Price Of Oil Crashed Like This?…

Not Just Oil: Guess What Happened The Last Time Commodity Prices Crashed Like This?…

10 Key Events That Preceded The Last Financial Crisis That Are Happening Again RIGHT NOW

The warnings signs are really starting to pile up.

When we look back at past financial crashes, there are recognizable patterns that can be identified.

Anyone with half a brain should be able to see that a large number of those patterns are unfolding once again right before our eyes.

Unfortunately, most people in this world end up believing exactly what they want to believe.

No matter how much evidence you show them, they will not accept the truth until it is too late.

Birth Pangs Of The Coming Great Depression

Birth PangsThe signs of the times are everywhere – all you have to do is open up your eyes and look at them.  When a pregnant woman first goes into labor, the birth pangs are usually fairly moderate and are not that close together.  But as the time for delivery approaches, they become much more frequent and much more intense.  Economically, what we are experiencing right now are birth pangs of the coming Great Depression.  As we get closer to the crisis that is looming on the horizon, they will become even more powerful.  This week, we learned that the Baltic Dry Index has fallen to the lowest level that we have seen in 29 years.  The Baltic Dry Index also crashed during the financial collapse of 2008, but right now it is already lower than it was at any point during the last financial crisis.  In addition, “Dr. Copper” and other industrial commodities continue to plunge.  This almost always happens before we enter an economic downturn.  Meanwhile, as I mentioned the other day, orders for durable goods are declining.  This is also a traditional indicator that a recession is approaching.  The warning signs are there – we just have to be open to what they are telling us.

And of course there are so many more parallels between past economic downturns and what is happening right now.

For example, volatility has returned to the markets in a big way.  On Tuesday the Dow was down about 300 points, on Wednesday it was down another couple hundred points, and then on Thursday it was up a couple hundred points.

This is precisely how markets behave just before they crash.  When markets are calm, they tend to go up.  When markets get really choppy and start behaving erratically, that tells us that a big move down is usually coming.

At the same time, almost every major global currency is imploding.  For much more on this, see the amazing charts in this article.

In particular, I am greatly concerned about the collapse of the euro.  The Swiss would not have decoupled their currency from the euro if it was healthy.  And political events in Greece are certainly not going to help things either.  Economic conditions across Europe just continue to get worse, and the future of the eurozone itself is very much in doubt at this point.  And if the eurozone does break up, a European economic depression is almost virtually assured – at least in the short term.

And I haven’t even mentioned the oil crash yet.

There is only one other time in all of history when the price of oil collapsed by more than 60 dollars, and that was just prior to the horrific financial crisis of 2008.

Since the last financial crisis, the oil industry has been a huge source for job growth in this country.  The following is an excerpt from a recent CNN article

The oil sector has added over a half million jobs — many of them high paying — since the recession ended in June 2009. That’s 13% of all US job growth over that period.

Now energy companies and related sectors are laying off thousands. Expect that trend to continue, bears say.

But losing good jobs is just the tip of the iceberg of this oil crisis.

At this point, the price of oil has already dropped to a catastrophically low level.  The longer it stays at this level, the more damage that it is going to do.  If the price of oil stays at this level for all of 2015, we are going to have a complete and total financial nightmare on our hands

For the first time in 18 years, oil exporters are pulling liquidity out of world markets rather than putting money in. The world is now fast approaching a world reserve currency shift. If we see 8 to 12 months at these oil prices; U.S. shale industry will be wiped out. The effect on junk bonds will cascade to the rest of the stock market and U.S. economy.

…and this time there will be nothing left to catch the falling knife before it hits the American economy right in the heart. Not the FED nor the U.S. government can stop what’s coming. Liquidity will freeze up, our credit will be downgraded, the stock market will start to collapse, and then we can expect the FED to come in and hyper-inflate the dollar. This will cause the world to finish abandoning the world reserve currency in the last rungs of trade. This will be the end of the petrodollar.

Something that I have not discussed so far this year is the looming crisis in emerging market debt.

As economic problems spread around the world, a number of “emerging markets” are in danger of having their debt downgraded.  And many investment funds have rules that prohibit them from holding any debt that is not “investment grade”.  Therefore, we could potentially see some of these giant funds dumping massive amounts of emerging market debt if downgrades happen.

This is a really big deal.  As a Business Insider article recently detailed, we could be talking about hundreds of billions of dollars…

Russia this week became the first of the major economies to lose its investment grade status from Standard & Poor’s, falling out off the top ratings category for credits deemed to have a low risk of default for the first time in a decade.

If Moody’s and Fitch follow, conservative investors barred from owning junk securities must sell their holdings. JPMorgan estimates this means they may ditch $6 billion in Russian government rouble and dollar debt.

Russia may have company. Almost $260 billion worth of sovereign and corporate bonds – nearly a tenth of outstanding emerging market (EM) debt – is in danger of being relegated to junk, according to David Spegel, head of emerging debt at BNP Paribas, who calls such credits “falling angels”.

And no article of this nature would be complete without mentioning derivatives.

I could not possibly overemphasize the danger that the 700 trillion dollar derivatives bubble poses to the global financial system.

As we enter the coming Great Depression, derivatives are going to play a starring role.  Wall Street has been pumped full of funny money by global central banks, and our financial markets have been transformed into the greatest casino in the history of the world.  When this house of cards comes crashing down, and it will, it is going to be a financial disaster unlike anything that the planet has ever seen.

And yes, global central banks are very much responsible for setting the stage for what we are about to experience.

I really like the way that David Stockman put it the other day…

The global financial system is literally booby-trapped with accidents waiting to happen owing to six consecutive years of massive money printing by nearly every central bank in the world.

Over that span, the collective balance sheet of the major central banks has soared by nearly $11 trillion, meaning that honest price discovery has been virtually destroyed. This massive “bid” for existing financial assets based on credit confected from thin air drove long-term bond yields to rock bottom levels not seen in 600 years since the Black Plague; and pinned money market costs at zero—-for 73 months running.

What is the consequence of this drastic financial repression along the entire yield curve? The answer is bond prices which keep rising regardless of credit risk, inflation or taxes; and rampant carry trade speculation that can’t get out of its own way because  central banks have made the financial gamblers’ cost of goods—the “funding” cost of their trades—-essentially zero.

Of course I am not the only one warning that a new Great Depression is coming.  For instance, just consider what British hedge fund manager Crispin Odey is saying…

British hedge fund manager Crispin Odey thinks we’ve entered an economic downturn that is “likely to be remembered in a hundred years,” and central banks won’t be able to stop it.

In his Odey Asset Management investor letter dated Dec. 31, Odey writes that the shorting opportunity “looks as great as it was in 07/09.”

“My point is that we used all our monetary firepower to avoid the first downturn in 2007-09,” he writes, “so we are really at a dangerous point to try to counter the effects of a slowing China, falling commodities and EM incomes, and the ultimate First World Effects. This is the heart of the message. If economic activity far from picks up, but falters, then there will be a painful round of debt default.”

Even though most average citizens are completely oblivious to what is happening, many among the elite are heeding the warning signs and are feverishly getting prepared.  As Robert Johnson told a stunned audience at the World Economic Forum the other day, they are “buying airstrips and farms in places like New Zealand“.  They can see the horrifying storm forming on the horizon and they are preparing to get out while the getting is good.

It can be very frustrating to write about economics, because things in the financial world can take an extended period of time to play out.  Sadly, most people these days have extremely short attention spans.  We live in a world of iPhones, iPads, YouTube videos, Facebook updates and 48 hour news cycles.  People no longer are accustomed to thinking in long-term time frames, and if something does not happen right away we tend to get bored with it.

But the economic world is not like a game of “Angry Birds”.  Rather, it is very much like a game of chess.

And unfortunately for us, checkmate is right around the corner.

 

Why The Damage To The Economy Caused By The Oil Crash Is Going To Get Progressively Worse

Oil Price Crash - Public DomainWe are really starting to see the price of oil weigh very heavily on the economy and on the stock market.  On Tuesday, the Dow was down 291 points, and the primary reason for the decline was disappointing corporate sales numbers.  For example, heavy equipment manufacturer Caterpillar is blaming the “dramatic decline in the price of oil” for much lower than anticipated sales during the fourth quarter of 2014.  Even though Caterpillar is not an “energy company”, the price of oil is critical to their success.  And the same could be said about thousands of other companies.  That is why I have repeatedly stated that anyone who believes that collapsing oil prices are good for the U.S. economy is crazy.  The key to how much damage this oil collapse is going to do to our economy is not how low prices ultimately go.  Rather, the key is how long they stay at these low levels.  If the price of oil went back to $80 a barrel next week, the damage would be fairly minimal.  But if the price of oil stays at this current level for the remainder of 2015, the damage will be absolutely catastrophic.  Just think of the price of oil like a hot iron.  If you touch it for just a fraction of a second, it won’t do too much damage.  But if you press it against your skin for an hour, you will be severely damaged for the rest of your life at the very least.

So the damage that we are witnessing right now is just the very beginning unless the price of oil goes back up substantially.

When the price of oil first started crashing, most analysts focused on the impact that it would have on energy companies.  And without a doubt, quite a few of them are likely to be wiped out if things don’t change soon.

But of even greater importance is the ripple effects that the price of oil will have throughout our entire economy.  The oil price crash is not that many months old at this point, and yet big companies are already blaming it for causing significant problems.  The following is how Caterpillar explained their disappointing sales numbers on Tuesday

The recent dramatic decline in the price of oil is the most significant reason for the year-over-year decline in our sales and revenues outlook.  Current oil prices are a significant headwind for Energy & Transportation and negative for our construction business in the oil producing regions of the world.  In addition, with lower prices for copper, coal and iron ore, we’ve reduced our expectations for sales of mining equipment.  We’ve also lowered our expectations for construction equipment sales in China.  While our market position in China has improved, 2015 expectations for the construction industry in China are lower”

We also learned on Tuesday that orders for durable goods were extremely disappointing.  Many analysts believe that this is another area where the oil price crash is having an impact

Orders for business equipment unexpectedly fell in December for a fourth month, signaling a global growth slowdown is weighing on American companies. Bookings for non-military capital goods excluding aircraft dropped 0.6 percent for a second month, data from the Commerce Department showed. Demand for all durable goods − items meant to last at least three years − declined 3.4 percent, the worst performance since August.

Let’s keep an eye on the durable goods numbers in coming months.  Usually, when the economy is heading into a recession durable goods numbers start declining.

Meanwhile, a bunch of other big companies reported disappointing sales numbers on Tuesday as well.  The following summary comes from the Crux

Microsoft lost 9.9 percent as software-license sales to businesses were below forecasts. Caterpillar plunged 7.3 percent after forecasting 2015 results that trailed estimates as plunging oil prices signal lower demand from energy companies. DuPont Co. dropped 2.8 percent as a stronger dollar cuts into the chemical maker’s profit. Procter & Gamble Co. and United Technologies Corp. declined at least 2 percent after saying the surging greenback will lower full-year earnings.

What the economy could really use right now is a huge rebound in the price of oil.

Unfortunately, as I wrote about the other day, that is not likely to happen any time soon.

In fact, a top executive for Goldman Sachs recently told CNBC that he believes that the price of oil could ultimately go as low as 30 dollars a barrel.

And hedge fund managers are backing up their belief that oil is heading even lower with big money

Hedge funds boosted bearish wagers on oil to a four-year high as US supplies grew the most since 2001.

Money managers increased short positions in West Texas Intermediate crude to the highest level since September 2010 in the week ended January 20, US Commodity Futures Trading Commission data show. Net-long positions slipped for the first time in three weeks.

US crude supplies rose by 10.1 million barrels to 397.9 million in the week ended January 16 and the country will pump the most oil since 1972 this year, the Energy Information Administration says. Saudi Arabia’s King Salman, the new ruler of the world’s biggest oil exporter, said he will maintain the production policy of his predecessor despite a 58 percent drop in prices since June.

Sadly, the truth is that anyone that thought that the stock market would go up forever and that the U.S. economy would be able to avoid a major downturn indefinitely was just being delusional.

Our economy goes through cycles, and every financial bubble eventually bursts.

For example, did you know that the S&P 500 has never had seven up years in a row?  The following comes from a CNBC article that was posted on Tuesday…

Doubleline Capital founder Jeff Gundlach, more known for his bond prowess than as an equity market expert, pointed out that the S&P 500 has never had seven consecutive up years.

Of course, records are made to be broken, and each year is supposed to stand on its own.

But in a market that faces an uncertain future regarding monetary policy, the specter of a global economic slowdown, and an oil price plunge that is dampening capital investment, Gundlach’s little factoid sparked a lot of chatter at ETF.com’s InsideETFs conference in Hollywood, Florida.

Hmm – that reminds me of the seven year cycles that I discussed in my article yesterday.

If the price of oil stays this low for the rest of 2015, there is no way that we are going to avoid a recession.

If the price of oil stays this low for the rest of 2015, there is no way that we are going to avoid a stock market crash.

So let’s hope that the price of oil starts going back up.

If it doesn’t, the damage that is inflicted on our economy is going to get progressively worse.

The Shemitah: The Biblical Pattern Which Indicates That A Financial Collapse May Be Coming In 2015

The Shemitah- Financial Collapse In 2015Does a mystery that is 3,500 years old hold the key to what is going to happen to global financial markets in 2015?  Could it be possible that the timing of major financial crashes is not just a matter of coincidence?  In previous articles on my website, I have discussed some of the major economic and financial cycle theories and their proponents.  For example, in an article entitled “If Economic Cycle Theorists Are Correct, 2015 To 2020 Will Be Pure Hell For The United States“, I examined a number of economic cycle theories that seem to indicate that the second half of this decade is going to be a nightmare economically.  But the cycle that I am going to discuss in this article is a lot more controversial than any of those.  In his most recent book, Jonathan Cahn has demonstrated that almost all of the major financial crashes in U.S. history are very closely tied to a seven year pattern that we find in the Bible known as “the Shemitah”.  Since that book was released, I have been asked about this repeatedly during radio appearances.  So in this article I am going to attempt to explain what the Shemitah is, and what this Biblical pattern seems to indicate may happen in 2015.  If you are an atheist, an agnostic, or are generally skeptical by nature, this article might prove quite challenging for you.  I would ask that you withhold judgment until you have examined the evidence.  When I first heard about these things, I had to go verify the facts for myself, because they are truly extraordinary.

So precisely what is “the Shemitah”?

In the Bible, the people of Israel were commanded to let the land lie fallow every seven years.  There would be no sowing and no reaping, and this is something that God took very seriously.  In fact, the failure to observe these Sabbath years was one of the main reasons cited in the Scriptures for why the Jewish people were exiled to Babylon in 586 BC.

But there was more to the Shemitah year than just letting the land lie fallow.

On the last day of the Shemitah year, the people of Israel were instructed to perform a releasing of debts.  We find the following in Deuteronomy chapter 15

At the end of every seven years you shall grant a relinquishing of debtsThis is the manner of the relinquishing: Every creditor that has loaned anything to his neighbor shall relinquish it. He shall not exact it of his neighbor, or of his brother, because it is called the Lord’s relinquishment.

This happened at the end of every seven years on Elul 29 – the day right before Rosh Hashanah on the Biblical calendar.

So what does this have to do with us today?

Well, if you go back to the last day of the Shemitah year in 2001, you will find that there was an absolutely horrifying stock market crash.

On September 17th, 2001 (which was Elul 29 on the Jewish calendar), we witnessed the greatest one day stock market crash in U.S. history up to that time.  The Dow fell an astounding 684 points, and it was a record that held for precisely seven years until the end of the next Shemitah year.

At the end of the next Shemitah year in 2008, another horrifying stock market crash took place.  On September 29th, 2008 the Dow plummeted 777 points, which still today remains the greatest one day stock market crash of all time.  It turns out that September 29th, 2008 corresponded with Elul 29 on the Jewish calendar – the precise day when the Bible calls for a releasing of debts.

So on the very last day of the last two Shemitah years, the stock market crashed so badly that it set a brand new all-time record.

And now we are in another Shemitah year.  It began last fall, and it will end next September.

Could it be possible that we will see another historic market crash?

Author Jonathan Cahn has correctly pointed out that we should never put God in a box.  Just because something has happened in the past does not mean that it will happen again.  But we should not rule anything out either.

Perhaps God is using His calendar to make a point.  Cahn believes that if we are going to see something happen, it will probably occur as the Shemitah year comes to an end

Cahn has pointed that, according to his research, the worst of the worst usually happens at the end of the Shemitah year, not at the beginning. In fact, the last day of the year, Elul 29 on the Hebrew calendar, which will occur on Sept. 13, 2015, is the most dreaded day.

The pattern revealed in “The Mystery of the Shemitah” is that the beginning of the Shemitah’s impact is often subtle, but leads to a dramatic climax.

“The beginning may mark a change in direction, even a foreshadow of what will come to a crescendo at the Shemitah’s end,” he said.

And this time around, far more people are paying attention.  Back in 2001 and 2008, most Americans had absolutely no idea what a “Shemitah year” was.  But now it is being talked about on some of the most prominent alternative news websites on the Internet.  For example, the following is what Joseph Farah of WND has to say about the Shemitah year…

Farah believes the date Sept. 13, 2015 bears close watching – though he is quick to admit he has no idea what, if anything, will happen in America.

“A clear pattern has been established,” he says. “I don’t believe it’s a coincidence what happened in America on Elul 29 in 2001 and 2008. It would be foolish to ignore the possibility that a greater judgment might be in the works – especially if America continues to move away from God and His Word.”

The Shemitah year that we are in now does end on September 13th, 2015 – and that falls on a Sunday so the markets will be closed.

But what it comes to the Shemitah, we aren’t just looking at one particular day.

And it is very interesting to note that there will also be a solar eclipse on September 13th, 2015.  Over the past century, there have only been two other times when a solar eclipse has corresponded with the end of a Shemitah year.  Those two times were in 1931 and 1987, and as Jonathan Cahn has told WND, those solar eclipses foreshadowed major financial disasters…

In 1931, a solar eclipse took place on Sept. 12 – the end of a “Shemitah” year. Eight days later, England abandoned the gold standard, setting off market crashes and bank failures around the world. It also ushered in the greatest monthlong stock market percentage crash in Wall Street history.

In 1987, a solar eclipse took place Sept. 23 – again the end of a “Shemitah” year. Less than 30 days later came “Black Monday” the greatest percentage crash in Wall Street history.

Is Cahn predicting doom and gloom on Sept. 13, 2015? He’s careful to avoid a prediction, saying, “In the past, this ushered in the worst collapses in Wall Street history. What will it bring this time? Again, as before, the phenomenon does not have to manifest at the next convergence. But, at the same time, and again, it is wise to take note.”

So what is going to happen this time?

We will just have to wait and see.

But without a doubt so many of the same patterns that we witnessed just prior to the financial crash of 2008 are happening again right before our very eyes.

It has been said that those that do not learn from history are doomed to repeat it.

Perhaps you believe that there is something to “the Shemitah”, or perhaps you think that it is all a bunch of nonsense.

But at least now you know what everyone is talking about.  What you choose to do with this information is up to you.

 

12 Signs That The Economy Is Really Starting To Bleed Oil Patch Jobs

Oil Rig Texas - Public DomainThe gravy train is over for oil workers.  All over North America, people that felt very secure about their jobs just a few weeks ago are now getting pink slips.  There are even some people that I know personally that this has happened to.  The economy is really starting to bleed oil patch jobs, and as long as the price of oil stays down at this level the job losses are going to continue.  But this is what happens when a “boom” turns into a “bust”.  Since 2003, drilling and extraction jobs in the United States have doubled.  And these jobs typically pay very well.  It is not uncommon for oil patch workers to make well over $100,000 a year, and these are precisely the types of jobs that we cannot afford to be losing.  The middle class is struggling mightily as it is.  And just like we witnessed in 2008, oil industry layoffs usually come before a downturn in employment for the overall economy.  So if you think that it is tough to find a good job in America right now, you definitely will not like what comes next.

At one time, I encouraged those that were desperate for employment to check out states like North Dakota and Texas that were experiencing an oil boom.  Unfortunately, the tremendous expansion that we witnessed is now reversing

In states like North Dakota, Oklahoma and Texas, which have reaped the benefits of a domestic oil boom, the retrenchment is beginning.

“Drilling budgets are being slashed across the board,” said Ron Ness, president of the North Dakota Petroleum Council, which represents more than 500 companies working in the state’s Bakken oil patch.

Smaller budgets and less extraction activity means less jobs.

Often, the loss of a job in this industry can come without any warning whatsoever.  Just check out the following example from a recent Bloomberg article

The first thing oilfield geophysicist Emmanuel Osakwe noticed when he arrived back at work before 8 a.m. last month after a short vacation was all the darkened offices.

By that time of morning, the West Houston building of his oilfield services company was usually bustling with workers. A couple hours later, after a surprise call from Human Resources, Osakwe was adding to the emptiness: one of thousands of energy industry workers getting their pink slips as crude prices have plunged to less than $50 a barrel.

These jobs are not easy to replace.  If oil industry veterans go down to the local Wal-Mart to get jobs, they will end up making only a very small fraction of what they once did.  Every one of these jobs that gets lost is really going to hurt.

And at this point, the job losses in the oil industry are threatening to become an avalanche.  The following are 12 signs that the economy is really starting to bleed oil patch jobs…

#1 It is being projected that the U.S. oil rig count will decline by 15 percent in the first quarter of 2015 alone.  And when there are less rigs operating, less workers are needed so people get fired.

#2 Last week, 55 more oil rigs shut down.  That was the largest single week decline in the United States in 24 years.

#3 Oilfield services provider Baker Hughes has announced that it plans to lay off 7,000 workers.

#4 Schlumberger, a big player in the energy industry, has announced plans to get rid of 9,000 workers.

#5 Suncor Energy is eliminating 1,000 workers from their oil projects up in Canada.

#6 Halliburton’s energy industry operations have slowed down dramatically, so they gave pink slips to 1,000 workers last month.

#7 Diamondback Energy just slashed their capital expenditure budget 40 percent to just $450 million.

#8 Elevation Resources plans to cut their capital expenditure budget from $227 million to $100 million.

#9 Concho Resources says that it plans to reduce the number of rigs that it is operating from 35 to 25.

#10 Tullow Oil has reduced their exploration budget from approximately a billion dollars to about 200 million dollars.

#11 Henry Resources President Danny Campbell has announced that his company is reducing activity “by up to 40 percent“.

#12 The Federal Reserve Bank of Dallas is projecting that 140,000 jobs related to the energy industry will be lost in the state of Texas alone during 2015.

And of course it isn’t just workers that are going to suffer.

Some states are extremely dependent on oil revenues.  Just take the state of Alaska for instance.  According to one recent news report, 90 percent of the budget of Alaska comes from oil revenue…

But oil is also a revenue source in more than two dozen states, especially for about a third of them. In Alaska, where up to 90 percent of the budget is funded by oil, new Gov. Bill Walker has ordered agency heads to start identifying spending cuts.

Sadly, it looks like oil is not going to rebound any time soon.

China, the biggest user of oil in the world, just reported that economic growth expanded at the slowest pace in 24 years.  And concerns about oversupply drove the price of U.S. crude down another couple of dollars on Monday

Oil declined about 5 percent on Tuesday after the International Monetary Fund cut its 2015 global economic forecast on lower fuel demand and key producer Iran hinted prices could drop to $25 a barrel without supportive OPEC action.

U.S. crude, also known as West Texas Intermediate or WTI, settled 4.7 percent lower at $46.39 a barrel, near its intraday bottom of $46.23.

There is only one other time in history when we have seen an oil price crash of this magnitude.

That was in 2008, just before the greatest financial crisis since the Great Depression.

Many believe that we are now on the verge of the next great financial crisis.

I hope that you are getting ready.

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