As the U.S. economy starts to slow down once again, global financial markets are beginning to tremble. Over the past couple of weeks, all kinds of bad economic news has been pouring in. The ADP jobs report was a "disaster", the housing numbers are dismal, manufacturing has slowed way down and consumer confidence is dropping like a rock. The Democrats and the Republicans are bickering over the debt ceiling and this is causing a lot of uncertainty as well. All of this bad news is starting to spook investors. On Wednesday, the Dow was down 279 points and the NASDAQ was down 65 points. It was the worst day of the year for the Dow, and many are wondering what is going to happen next if we see even more bad economic data. QE2 is slated to end at the end of the month, and already the bond markets seem to be anticipating QE3. If the U.S. economy enters another significant downturn during the second half of 2011, it seems quite likely that the Federal Reserve would attempt to do something to stimulate the economy and that would probably mean more money printing.
This article is essentially the second part to an article I wrote yesterday about how we are seeing warnings about the next financial collapse all over the place right now. Panic is building and a lot of investors are trying to figure out where to put their money. Suddenly everyone seems a whole lot less optimistic than they were a couple of months ago.
Michael Sheldon, the chief market strategist at RDM Financial, believes that all of the bad economic news we are seeing right now is clear evidence that we are entering an "economic slump"....
"Initially, we just had bad news from the weekly jobless claims data, but now we're starting to see a broad-based economic slump."
So what are some of the numbers that have investors so concerned?
Mike Riddell, a fund manager at M&G Investments in London, recently explained to CNBC why he is so alarmed right now....
"US house prices have fallen by more than 5 percent year on year, pending home sales have collapsed and existing home sales disappointed, the trend of improving jobless claims has arrested, first quarter GDP wasn’t revised upwards by the 0.4 percent forecast, durables goods orders shrank, manufacturing surveys from Philadelphia Fed, Richmond Fed and Chicago Fed were all very disappointing."
The bad economic news just keeps rolling in. It is almost as if someone has slammed on the economic brakes.
The following are a few more examples of the bad economic numbers that have come out over the past couple of days....
*According to the latest ADP Employment Services report, private employers in the United States only added 38,000 jobs last month. That number had been expected to be somewhere around 175,000. This jobs report is being called a "disaster".
*Manufacturing activity in May was much lower than most economists were projecting. The following is how CNBC described the newest numbers from ISM....
The Institute for Supply Management (ISM) said its index of national factory activity fell to 53.5 in May from 60.4 the month before. The reading missed economists' expectations for 57.7.
*Moody's downgraded Greek debt again on Wednesday, and stated that they believe that there is a 50/50 chance that Greece will default. This time Moody's downgraded Greek debt by three levels all the way down to Caa1, and that caused the euro to fall like a rock.
To get an idea of just how imbalanced the European financial system has become at this point, just check out this article.
*Earlier this week it was announced that U.S. home prices have declined 5.1% from a year ago. Sadly, U.S. home prices have now fallen more than they did during the entire Great Depression.
*As I mentioned yesterday, the consumer confidence index fell from 66 in April to 60.8 in May.
So what is causing all of this?
Well, the truth is that the "sugar high" that the U.S. economy has been enjoying is coming to an end.
QE2 is almost over and the vast majority of the federal "stimulus money" has been spent. Now the federal government is talking about getting spending under control and we are seeing austerity programs being implemented on the state and local level from coast to coast.
But without massive intervention by the Federal Reserve and by the U.S. government will the U.S. economy be able to stand?
Douglas Borthwick, a managing director with Faros Trading in Stamford, Connecticut is not optimistic....
"The sugar high that has buoyed the U.S. economy over the past six months is wearing out, and there is little in economic growth or foundation to show for it."
The truth is that the Fed and the U.S. government went all-out in an attempt to keep the economy from falling into a total depression. The U.S. government has been running budget deficits well in excess of a trillion dollars and the Fed has been printing money like mad. If these measures are removed, the economic crisis we are experiencing might just get a whole lot worse.
How much worse?
Well, just check out what Peter Yastrow, a market strategist for Yastrow Origer, recently told CNBC....
"Interest rates are amazingly low and that, thanks to Ben Bernanke, is driving everything," Yastrow said. "We’re on the verge of a great, great depression. The [Federal Reserve] knows it."
Ben Bernanke and Barack Obama keep talking about the "economic recovery" but most Americans know better.
According to one new poll, 66% of Americans believe that we are still in a recession.
Perhaps this is a sign that the American people are starting to wake up to the new economic realities that we are facing.
The U.S. economy is being ripped apart and shredded. Thanks to our short-sighted trade policies, the Chinese economy has roared to life while the U.S. economy continues to ship jobs and factories overseas.
But instead of facing up to our economic problems and coming up with some solutions, our nation has been on a horrific debt binge over the last couple of decades in a desperate attempt to maintain our standard of living.
One of the reasons why I pound on the economic news day after day is so that more people will really understand what is going on and will start to wake up.
In fact, if you have a family member of a friend that just doesn't get it, the following is a great article to share with that person: "50 Things Every American Should Know About The Collapse Of The Economy".
Look, even Barack Obama says that the present state of affairs is "unsustainable" and that changes have to be made.
But if the U.S. government decided that it was going to go to a balanced budget tomorrow, that would suck approximately a trillion and a half dollars out of the economy.
What do you think would happen if that came to pass?
Of course by going into even more debt we are destroying the economic future of our children and our grandchildren.
We have piled up the biggest mountain of debt in the history of the world and we expect future generations to pay it off.
It is absolutely disgusting what we have done and it is thievery on the highest level.
Everyone knows that we are living in the greatest debt bubble in the history of the world and that at some point it is going to pop.
Perhaps the best we can hope for at this point is for a little bit more time before economic disaster strikes.
Unfortunately, all of the latest economic news seems to be pointing toward another economic slowdown.
Hold on to your seats.