Are we on the verge of another major economic downturn? In recent weeks, most of the focus has been on our politicians in Washington, but there are lots of other reasons to be deeply alarmed about the economy as well. Economic confidence is down, retail sales figures are disappointing, job cuts are up, and American consumers are deeply struggling. Even if our politicians do everything right, there would still be a significant chance that we could be heading into tough economic times in the coming months. Our economy has been in decline for a very long time, and that decline appears to be accelerating. There aren’t enough jobs, the quality of our jobs continues to decline, our economic infrastructure is being systematically gutted, and poverty has been absolutely exploding. Things have gotten so bad that former President Jimmy Carter says that the middle class of today resembles those that were living in poverty when he was in the White House. But this process has been happening so gradually that most Americans don’t even realize what has happened. Our economy is being fundamentally transformed, and the pace of our decline is picking up speed. The following are 22 reasons to be concerned about the U.S. economy as we head into the holiday season…
#1 According to Gallup, we have just seen the largest drop in U.S. economic confidence since 2008.
#2 Retailers all over America are reporting disappointing sales figures, and many analysts are very concerned about what the holiday season will bring. The following is an excerpt from a recent Zero Hedge article…
Chico’s FAS [CHS] Earnings Call 8/28/13:
“Traffic was our issue in quarter two. In a highly promotional and challenging environment, comparable sales result was a negative 2.6 percent on top of a positive 5.6 percent last year and a positive 12.8 percent in 2011.”
William-Sonoma [WSM] Earnings Call 8/28/13:
“The retail environment, it seems to indicate there’s still a lot of uncertainty out there, that the promotional environment has not gone away and that the retail environment in general continues to be choppy, especially with the recent earnings releases and this global unrest, and we just don’t want to get ahead of ourselves.”
Zale Corp [ZLC] Earnings Call 8/28/13:
“Overall, we continue to take a conservative view of market conditions in both the U.S. and in Canada. That being said, we do expect to continue to achieve positive top line growth. We expect store closures will impact our overall revenue growth for the year by about 250 basis points. It represents net closures of approximately 50 to 55 retail locations.”
DSW Inc. [DSW] Earnings Call 8/27/13:
“We did have a traffic decline in Q2, sort of similar to what just about every other retailer in America has reported.”
Guess? [GES] Earnings Call 8/28/13:
“The Korean business continued to be strong as revenue grew in the high single digits in local currency during the quarter. This was offset with the weakness from China, where we are seeing clear evidence of a pullback in consumer spending behavior because of the slowdown in the economy.”
Aeropostale [ARO] Earnings Call 8/22/13:
“Our business trends in the second quarter did not change materially from earlier in the year, which was disappointing given the level of change we registered with the brand. This performance in the third quarter outlook is being influenced by a challenging retail environment, with weak traffic trends and high levels of promotional activity.”
#3 Domestic vehicle sales just experienced their largest “miss” relative to expectations since January 2009.
#4 One of the largest furniture manufacturers in America was recently forced into bankruptcy.
#5 According to the Wall Street Journal, the 2013 holiday shopping season is already being projected to be the worst that we have seen since 2009.
#6 The Baltic Dry Index recently experienced the largest 4 day drop that we have seen in 11 months.
#7 Merck, one of the largest drug makers in the nation, has announced the elimination of 8,500 jobs.
#8 Overall, corporations announced the elimination of 387,384 jobs through the first nine months of this year.
#9 The number of announced job cuts in September 2013 was 19 percent higher than the number of announced job cuts in September 2012.
#10 The labor force participation rate is the lowest that it has been in 35 years.
#11 As I mentioned the other day, the labor force participation rate for men in the 18 to 24 year old age bracket is at an all-time low.
#12 Approximately one out of every four part-time workers in America is living below the poverty line.
#13 Incredibly, only 47 percent of all adults in America have a full-time job at this point.
#14 U.S. consumer delinquencies are starting to rise again.
#15 The Postal Service recently defaulted on a 5.6 billion dollar retiree health benefit payment.
#16 The national debt has increased more than twice as fast as U.S. GDP has grown over the past two years.
#17 Obamacare is causing health insurance premiums to skyrocket and this is reducing the disposable income that consumers have available.
#18 Median household income in the United States has fallen for five years in a row.
#19 The gap between the rich and the poor in the United States is at an all-time record high.
#20 Former President Jimmy Carter says that the middle class in America has declined so dramatically that the middle class of today resembles those that were living in poverty when he was in the White House.
#21 According to a Gallup poll that was recently released, 20.0% of all Americans did not have enough money to buy food that they or their families needed at some point over the past year. That is just under the record of 20.4% that was set back in November 2008.
#22 Right now, one out of every five households in the United States is on food stamps. There are going to be a lot of struggling families out there this winter, so please be generous with organizations that help the poor. A lot of people are really going to need their help during the cold months ahead.
Most People Cannot Even Imagine That An Economic Collapse Is Coming
Unfortunately, this brief period of stability that we have been enjoying is just an illusion.
The fundamental problems that caused the financial crisis of 2008 have not been fixed. In fact, most of our long-term economic problems have gotten even worse.
But most Americans have such short attention spans these days. In a world where we are accustomed to getting everything instantly, news cycles only last for 48 hours and 2008 might as well be an eternity ago.
In the United States today, our entire economic system is based on debt.
Without debt, very little economic activity happens. We need mortgages to buy our homes, we need auto loans to buy our vehicles and we need our credit cards to do our shopping during the holiday season.
So where does all of that debt come from?
It comes from the banks.
In particular, the “too big to fail banks” are the heart of this debt-based system.
Do you have a mortgage, an auto loan or a credit card from one of these “too big to fail” institutions? A very large percentage of the people that will read this article do.
And a lot of people might not like to hear this, but without those banks we essentially do not have an economy.
When Lehman Brothers collapsed in 2008, it almost resulted in the meltdown of our entire system. The stock market collapsed and we experienced an absolutely wicked credit crunch.
Unfortunately, that was just a small preview of what is coming.
Even though a few prominent “experts” such as New York Times columnist Paul Krugman have declared that the “too big to fail” problem is “over”, the truth is that it is now a bigger crisis than ever before.
Compared to five years ago, the four largest banks in the country are now almost 40 percent larger. The following numbers come from a recent article in the Los Angeles Times…
At the same time that those banks have been getting bigger, 1,400 smaller banks have completely disappeared from the banking industry.
That means that we are now more dependent on these gigantic banks than ever.
At this point, the five largest banks account for 42 percent of all loans in the United States, and the six largest banks account for 67 percent of all assets in our financial system.
If someone came along and zapped those banks out of existence, our economy would totally collapse overnight.
So the health of this handful of immensely powerful banking institutions is absolutely critical to our economy.
Unfortunately, these banks have become deeply addicted to gambling.
Have you ever known people that allowed their lives to be destroyed by addictions that they could never shake?
Well, that is what is happening to these banks. They have transformed Wall Street into the largest casino in the history of the world. Most of the time, their bets pay off and they make lots of money.
But as we saw back in 2008, when they miscalculate things can fall apart very rapidly.
The bets that I am most concerned about are known as “derivatives“. In essence, they are bets about what will or will not happen in the future. The big banks use very sophisticated algorithms that are supposed to help them be on the winning side of these bets the vast majority of the time, but these algorithms are not perfect. The reason these algorithms are not perfect is because they are based on assumptions, and those assumptions come from people. They might be really smart people, but they are still just people.
If things stay fairly stable like they have the past few years, the algorithms tend to work very well.
But if there is a “black swan event” such as a major stock market crash, a collapse of European or Asian banks, a historic shift in interest rates, an Ebola pandemic, a horrific natural disaster or a massive EMP blast is unleashed by the sun, everything can be suddenly thrown out of balance.
Acrobat Nik Wallenda has been making headlines all over the world for crossing vast distances on a high-wire without a safety net. Well, that is essentially what our “too big to fail” banks are doing every single day. With each passing year, these banks have become even more reckless, and so far there have not been any serious consequences.
But without a doubt, someday there will be.
What would you say about a bookie that took $200,000 in bets but that only had $10,000 to cover those bets?
You would certainly call that bookie a fool.
But that is what our big banks are doing.
Right now, JPMorgan Chase has more than 67 trillion dollars in exposure to derivatives but it only has 2.5 trillion dollars in assets.
Right now, Citibank has nearly 60 trillion dollars in exposure to derivatives but it only has 1.9 trillion dollars in assets.
Right now, Goldman Sachs has more than 54 trillion dollars in exposure to derivatives but it has less than a trillion dollars in assets.
Right now, Bank of America has more than 54 trillion dollars in exposure to derivatives but it only has 2.2 trillion dollars in assets.
Right now, Morgan Stanley has more than 44 trillion dollars in exposure to derivatives but it has less than a trillion dollars in assets.
Most people have absolutely no idea how incredibly vulnerable our financial system really is.
The truth is that these “too big to fail” banks could collapse at any time.
And when they fail, our economy will fail too.
So let us hope and pray that this brief period of false stability lasts for as long as possible.
Because when it ends, all hell is going to break loose.