On Wednesday, the temporary suspension of the debt ceiling ended, and so now the federal government is not going to be able to go into any more debt until the debt ceiling is raised. For the moment, the Trump administration can implement “emergency measures” to stay under the debt limit, but it won’t be too long before we get to a major crisis point because the federal government is quickly running out of cash. Already, the U.S. Treasury has less cash on hand than Apple or Google, and that cash balance is going to keep on dropping until the debt ceiling is finally lifted.
You may remember that the debt ceiling became a major issue a couple of times during the Obama years. Last time around, Barack Obama and the Republicans in Congress agreed to a horrendous deal which suspended the debt ceiling until several months after the 2016 election…
Since President Barack Obama signed the “Bipartisan Budget Act” on Nov. 2, 2015 there had been no legal limit on the amount of money the federal government could borrow until now. That law included a section entitled “Temporary Extension of Public Debt Limit.” It said that the law imposing a limit on the federal debt “shall not apply for the period beginning on the date of the enactment of this Act and ending on March 15, 2017.”
During the 16 and a half months between the signing of that deal and today, the U.S. national debt rose by a whopping $1,414,397,000,000.
But now the U.S. national debt will not be allowed to rise by another penny until the debt ceiling is raised or suspended once again.
The Trump administration is pushing hard to get the debt ceiling raised, and this is a complete reversal from how Donald Trump felt about the debt ceiling back in 2013. The following comes from the L.A. Times…
Trump sided with hard-liners in 2013, publicly opposing an increase. “I cannot believe the Republicans are extending the debt ceiling — I am a Republican & I am embarrassed!” he tweeted then.
Trump was actually right about the debt ceiling in 2013, and he is wrong now.
We simply cannot afford to keep adding trillions of dollars to the national debt. What we are doing to future generations of Americans is beyond criminal, because we are literally destroying their future just so that we can enjoy an inflated standard of living that we do not deserve today.
Treasury Secretary Steven Mnuchin has already begun to implement “extraordinary measures” to keep us under the debt ceiling. The first step that was taken was the suspension of the sale of SLGS securities…
“Today,” Mnuchin wrote, “Treasury is announcing that it will suspend the sale of State and Local Government Series (SLGS) securities. SLGS are special-purpose Treasury securities issued to states and municipalities to assist them in conforming to certain tax rules. These securities count against the debt limit. The suspension of SLGS sales will commence on March 15, 2017, and continue until the debt limit is either raised or suspended. As in the past, it is likely Treasury will utilize additional extraordinary measures.”
The federal government will be able to keep going for a little while by implementing such “extraordinary measures”, but the Treasury cash balance is going to continue to dwindle and at some point a major squeeze is going to happen.
As things get tighter and tighter, the Trump administration will become increasingly desperate to get the debt ceiling raised. As I wrote about yesterday, the key for Trump is going to be finding 218 votes in the House of Representatives that will be willing to go along with him.
You would think that since Republicans control the House that this should be easy, but the truth is that there are a lot of conservative Republicans that are not inclined to agree to a debt ceiling increase without substantial accompanying budget cuts.
The proposed budget that Trump released this week is getting a lot of criticism from the left for cuts to social programs, but the truth is that it actually doesn’t reduce the deficit at all…
President Trump’s “skinny” budget blueprint for 2018 features a proposed $54 billion increase in defense spending and an equal number of spending cuts from the smallest part of the federal budget.
That means his changes won’t add to next year’s projected $487 billion deficit. But they won’t reduce it, either.
And remember, that “$487 billion” figure is just for show. During the Obama years the U.S. national debt increased by an average of well over a trillion dollars a year, and that is almost certainly going to continue for years to come as long as the debt ceiling is raised.
Republicans are supposed to be the party of fiscal responsibility.
So now is their big test.
If they raise the debt ceiling and continue adding more than a trillion dollars a year to the national debt, they will lose all credibility with conservative voters on fiscal issues.
But if they try to force the federal government to start living within its means that is going to severely harm the economy in the short-term.
Donald Trump is going to have to try to figure out a way to navigate this crisis. He has already promised that he will not touch Social Security and Medicare, and those are the two biggest drivers of our budget deficits. In fact, it is being projected that entitlement spending and interest on the debt will eat up every single penny that the federal government takes in within 20 years.
So if Trump won’t touch the big entitlement programs, where will he possibly find enough cuts to satisfy the fiscal conservatives in Congress?
Without them, Trump does not have enough votes to raise the debt ceiling.
In addition, many of the conservatives in Congress absolutely hate the new Republican health care plan, and they hope to use this debt ceiling crisis as leverage to change the bill.
If Trump can’t work out something with conservatives, perhaps he could turn to the Democrats. But most Democrats are extremely resistant to work with him on anything after all that has been said and done, and so for Trump to get a deal with them he would have to make extreme concessions.
This represents the biggest political test for the Trump presidency so far, and if we get down the road a couple of months and nothing gets done, this debt ceiling crisis could spark the kind of financial crisis that I describe in my novel entitled “The Beginning Of The End“.
Barack Obama pushed things right to the brink a couple of times, but he was savvy enough politically to never let things go over the edge.
Now it is Trump’s turn, and somehow he has got to find a way to get the debt ceiling raised without making extremely deep compromises that would gut the rest of his agenda.
And he had better get to work on this quickly, because time is running out and the clock is ticking…
Corporate revenues in the United States have been falling for quite some time, but now some of the biggest companies in the entire nation are reporting extremely disappointing results. On Tuesday, Apple shocked the financial world by reporting that revenue for the first quarter had fallen 7.4 billion dollars compared to the same quarter last year. That is an astounding plunge, and it represents the very first year-over-year quarterly sales decline that Apple has experienced since 2003. Analysts were anticipating some sort of drop, but nothing like this. And of course last week we learned that Google and Microsoft also missed revenue and earnings projections for the first quarter of 2016. The economic crisis that began during the second half of 2015 is really starting to take hold, and even our largest tech companies are now feeling the pain.
This wasn’t supposed to happen to Apple. No matter what else has been going on with the U.S. economy, Apple has always been unshakeable. Even during the last recession we never saw a year-over-year decline like this…
Apple today announced financial results for the second fiscal quarter (first calendar quarter) of 2016. For the quarter, Apple posted revenue of $50.6 billion and net quarterly profit of $10.5 billion, or $1.90 per diluted share, compared to revenue of $58 billion and net quarterly profit of $13.6 billion, or $2.33 per diluted share, in the year-ago quarter. As expected, the year-over-year decline in quarterly revenue was the first for Apple since 2003.
I think that this announcement by Apple is waking a lot of people up. The global economic slowdown is real, and we can see this in iPhone sales. During the first quarter, Apple sold 16 percent fewer iPhones than it did during the same quarter in 2015. This is the very first year-over-year quarterly sales decline for the iPhone ever. Here are some of the specific sales figures from the Apple announcement…
Apple sold 51.1 million iPhones during the quarter, down from 61.2 million a year earlier, while Mac sales were 4.03 million units, down from from 4.56 million units in the year-ago quarter. iPad sales were also down once again, falling to 10.25 million from 12.6 million.
Once these numbers hit the wires, shares of Apple immediately began to plummet during after-hours trading. In fact, USA Today is reporting that Apple has already lost 43 billion dollars in market value since the annoucement…
Shares of Apple are getting hit roughly 8% in after-hours trading, tumbling to $96.67. They closed in regular trading at $104.35, or down 0.7%, putting them down 0.9% for the year. The downward move in after-hours trading means the company shed $43 billion in market value based on after-hours trading.
Meanwhile, shares of Twitter are crashing in after-hours trading after the social media giant also announced very disappointing results. The stock has now dripped below 16 dollars a share, and the company continues to lose tremendous amounts of money…
For all its other travails, Twitter is unprofitable. It narrowed its loss but still recorded a loss of $79.7 million, or 12 cents a share, compared with a loss of $162.4 million, or 25 cents a share, in the year-ago quarter.
Of course it isn’t just the tech giants that are troubled these days.
On Tuesday we learned that same-store sales for Chipotle declined by a whopping 29.7 percent during the first quarter, and appliance manufacturer Whirlpool has seen sales fall all over the planet…
Whirlpool, the world’s biggest appliance manufacturer, has become the poster child for the deep challenges facing multinational companies these days.
– Latin American sales plunged 22%.
– Revenue fell 8% in Europe, Middle East and Africa.
– Asia sales dipped 2%.
When is it finally going to sink in for most people? The global economy is slowing down significantly, and the next global economic crisis is already here.
Of course the oil companies are feeling more pain than anyone else. According to CNN, the crash in the price of oil has cost the 40 largest publicly-traded U.S. oil producers 67 billion dollars…
American oil companies are drowning in a sea of red ink.
The crash in crude oil prices caused a stunning $67 billion in combined losses by 40 publicly-traded U.S. oil producers last year, according Energy Information Administration research. And the bleeding is expected to continue at least early this year for many.
The losses surpassed $1 billion each from struggling oil companies like EOG Resources (EOG), Devon Energy (DVN) and Linn Energy (LINE) as well as SandRidge Energy (SD), the shale oil driller that recently admitted it’s exploring a bankruptcy filing.
That is an astounding amount of money.
These days we throw around terms like “millions” and “billions” so much that they almost lose their meaning.
But this is real money that we are talking about here.
In recent days, Barack Obama has been running around boasting that he saved the world economy from another Great Depression. But that isn’t true at all. Instead, our “leaders” have simply set the stage for a larger and more painful crisis. I like the way that Doug Casey recently put it…
You’ve got to remember that all of these governments and central banks all around the world have driven interest rates not just to zero, but to negative levels in some cases… and they are simultaneously printing up trillions of currency units. And even while they are desperately doing that the economy is falling apart in lots of different ways.
…They’ve created a super-bubble in bonds, a bubble in stocks, and meanwhile commodities have collapsed and are below production costs in many cases.
…The economy is going to be very, very bad… It’s the next stage of what I call the Greater Depression.
Whether you want to call it a “Great Depression”, a “Greater Depression” or “The Greatest Depression”, the truth is that we are heading into a period of time that will be unlike anything any of us have ever experienced before.
The greatest debt bubble in the history of the planet is starting to implode, and this time the central bankers and the politicians are not going to be able to put the pieces back together again.
But just like in 2008, the vast majority of the population will not recognize the warning signs until it is way too late.
*About the author: Michael Snyder is the founder and publisher of The Economic Collapse Blog. Michael’s controversial new book about Bible prophecy entitled “The Rapture Verdict” is available in paperback and for the Kindle on Amazon.com.*
Did you see what just happened? The devaluation of the yuan by China triggered the largest one day drop for that currency in the modern era. This caused other global currencies to crash relative to the U.S. dollar, the price of oil hit a six year low, and stock markets all over the world were rattled. The Dow fell 212 points on Tuesday, and Apple stock plummeted another 5 percent. As we hurtle toward the absolutely critical months of September and October, the unraveling of the global financial system is beginning to accelerate. At this point, it is not going to take very much to push us into a full-blown worldwide financial crisis. The following are 12 signs that indicate that a global financial crash has become even more likely after the events of the past few days…
#1 The devaluation of the yuan on Tuesday took virtually the entire planet by surprise (and not in a good way). The following comes from Reuters…
China’s 2 percent devaluation of the yuan on Tuesday pushed the U.S. dollar higher and hit Wall Street and other global equity markets as it raised fears of a new round of currency wars and fed worries about slowing Chinese economic growth.
#2 One of the big reasons why China devalued the yuan was to try to boost exports. China’s exports declined 8.3 percent in July, and global trade overall is falling at a pace that we haven’t seen since the last recession.
#3 Now that the Chinese have devalued their currency, other nations that rely on exports are indicating that they might do the same thing. If you scan the big financial news sites, it seems like the term “currency war” is now being bandied about quite a bit.
#4 This is the very first time that the 50 day moving average for the Dow has moved below the 200 day moving average in the last four years. This is known as a “death cross”, and it is a very troubling sign. We are just about at the point where all of the most common technical signals that investors typically use to make investment decisions will be screaming “sell”.
#5 The price of oil just closed at a brand new six year low. When the price of oil started to decline back in late 2014, a whole lot of people were proclaiming that this would be a good thing for the U.S. economy. Now we can see just how wrong they were.
At this point, the price of oil has already fallen to a level that is going to be absolutely nightmarish for the global economy if it stays here. Just consider what Jeff Gundlach had to say about this in December…
And back in December 2014, “Bond King” Jeff Gundlach had a serious warning for the world if oil prices got to $40 a barrel.
“I hope it does not go to $40,” Gundlach said in a presentation, “because then something is very, very wrong with the world, not just the economy. The geopolitical consequences could be — to put it bluntly — terrifying.”
#6 This week we learned that OPEC has been pumping more oil than we thought, and it is being projected that this could cause the price of oil to plunge into the 30s…
Increased pumping by OPEC as Chinese demand appears to be slackening could drive oil to the lowest prices since the peak of the financial crisis.
West Texas Intermediate crude futures skidded through the year’s lows and looked set to break into the $30s-per-barrel range after the Organization of the Petroleum Exporting Countries admitted to more pumping and China devalued its currency, sending ripples through global markets.
#7 In a recent article, I explained that the collapse in commodity prices that we are witnessing right now is eerily similar to what we witnessed just before the stock market crash of 2008. On Tuesday, things got even worse for commodities as the price of copper closed at a brand new six year low.
#8 The South American debt crisis of 2015 continues to intensify. Brazil’s government bonds have been downgraded to just one level above junk status, and the approval rating of Brazil’s president has fallen into the single digits.
#9 Just before the financial crisis of 2008, a surging U.S. dollar put an extraordinary amount of stress on emerging markets. Now that is happening again. Emerging market stocks just hit a brand new four year low on Tuesday thanks to the stunt that China just pulled.
#10 Things are not so great in the United States either. The ratio of wholesale inventories to sales in the United States just hit the highest level since the last recession. What that means is that there is a whole lot of stuff sitting in warehouses out there that is waiting to be sold in an economy that is rapidly slowing down.
#11 Speaking of slowing down, the growth of consumer spending in the United States has just plummeted to multi-year lows.
#12 Deep inside, most of us can feel what is coming. According to Gallup, the number of Americans that believe that the economy is getting worse is almost 50 percent higher than the number of Americans that believe that the economy is getting better.
Things are lining up perfectly for a global financial crisis and a major recession beginning in the fall and winter of 2015.
But just because things look like they will happen a certain way does not necessarily mean that they will. All it takes is a single “event” of some sort to change everything.
So what do you believe will happen in the months ahead?
Please feel free to join the discussion by posting a comment below…
The month of August sure has started off with a bang. Tech stocks are crashing, oil is crashing, industrial commodities are crashing, Greek stocks crashed the moment that the Greek stock market reopened for trading, and Chinese stocks continue to crash. At this point we have not seen a broad crash of U.S. stocks yet, but it is important to note that the Dow is already down more than 700 points from the peak in May. If it continues to slide like it has in recent days, it won’t be too long before we will officially reach “correction” territory. Just a few days ago, I described August as a “pivotal month“, and so far that is indeed turning out to be the case.
A full-blown financial crisis has not erupted yet, but we are well on the way. In this article, I want to look at a few of the “crashes” that are already happening…
This is more of a “correction” than a “crash”, but it is very noteworthy because it is happening to one of the most important U.S. stocks of all. The price of Apple stock has already broken through the 200 day moving average, and at this point it is down nearly 11 percent from the peak…
Shares of Apple are down 10.9% from their highest point in a year — which places the stock squarely in what’s considered to be a correction. The unofficial definition of a correction is a 10% or greater drop from a recent high. Shares of Apple hit a 52-week (and all-time) high on $134.54 on April 28.
If you want to see a real crash, just look at what is happening to Twitter. The stock was down close to 6 percent on Monday, and overall it has fallen 58 percent since early last year. The price of Twitter stock has never been lower than it is right now, and many investors are very apprehensive about what comes next…
Twitter shares hit a record low on Monday, closing down nearly 6% to $29.27.
That is 58% below their peak in January 2014.
Shares have fallen to their lowest point since the company went public in November 2014 weighed down by negative comments on growth from company executives that rattled investors. Its previous low was $30.50 in May 2014 as concerns over slowing user growth began to take a toll.
Of course there are tech companies that are in far worse shape than Twitter. For example, just consider what is happening to Yelp. Shares of Yelp recently plummeted 25 percent in a single day, and they are down about 70 percent over the past year.
The Greek government was quite eager to reopen their stock market this week.
Perhaps they should have waited longer.
On Monday, we witnessed the greatest stock bloodbath in Greek history. The following comes from Reuters…
Greece’s stock market closed with heavy losses on Monday after a five-week shutdown brought on by fears that the country was about to be dumped from the euro zone.
Bank shares plummeted 30 percent before loss limits kicked in to stop investors selling any more. The main Athens stock index .ATG ended down 16.2 percent, recovering slightly after plunging nearly 23 percent at the open.
It was the worst daily performance since at least 1985 when modern records began, including a 15 percent fall when Wall Street crashed in 1987.
Things also continue to unravel for “America’s Greece”. On Monday, a U.S. commonwealth territory defaulted on debt for the first time ever…
Puerto Rico’s Government Development Bank announced Monday that it was only able to make a partial payment on its Public Finance Corporation (PFC) debt service due over the weekend.
In response to the non-payment of the full service, Moody’s said it viewed the situation as a default.
“Due to the lack of appropriated funds for this fiscal year the entirety of the PFC payment was not made today (the first business day after the Saturday deadline),” GDB President Melba Acosta-Febo said in a statement. This was a decision that reflects the serious concerns about the Commonwealth’s liquidity in combination with the balance of obligations to our creditors and the equally important obligations to the people of Puerto Rico to ensure the essential services they deserve are maintained.”
As I noted the other day, the Shanghai Composite Index declined 13.4 percent during the month of July. It was the worst month for stocks in China since October 2009.
On Monday, Chinese stocks were down another 1.11 percent. Since closing at 5,166.35 on June 12th, the Shanghai Composite Index has fallen precipitously. As I write this, it is sitting at just 3622.86.
In the months prior to the financial crisis of 2008, the price of oil crashed hard.
Now it is happening again.
In July, the price of oil plunged 21 percent. That was the worst monthly decline that we have seen since October 2008.
And on Monday, the oil crash continued. The following comes from Business Insider…
On Monday in New York, West Texas Intermediate (WTI) crude fell more than 4% and slipped below $45 per barrel, a level it hasn’t touched since March.
Brent crude oil, the international benchmark that joined WTI in a bear market last week, dropped more than 4%, below $50 per barrel for the first time since January.
In recent weeks, I have been writing over and over about industrial commodities. This is yet another striking similarity to the last financial crisis. In 2008, they started crashing before stocks did, and now it is happening again…
We see the Bloomberg Commodities index now at a 13-year low. Copper is down 28 percent for the year, tin is down 30 percent, and nickel is down 44 percent.
This is a giant red flag that indicates that we are plunging into a deflationary cycle. When global economic activity slows down, so does demand for industrial commodities. I don’t understand why more people can’t see this.
I have been warning that a deflationary downturn was coming for a very long time, and so have others. For instance, just consider the following excerpt from a recent article by Nicole Foss…
Our consistent theme here at the Automatic Earth since its inception has been that we are facing a very powerful deflationary depression, following on from the bursting of an epic financial bubble. What we have witnessed in our three decades of expansion and inflation is nothing short of a monetary supernova, and that period has been the just culmination of a much larger upward trend going back many decades at least. We have lived through a credit hyper-expansion for the record books, with an unprecedented generation of excess claims to underlying real wealth. In doing so we have created the largest financial departure from reality in human history.
Bubbles are not new – humanity has experienced them periodically going all the way back to antiquity – but the novel aspect of this one, apart from its scale, is its occurrence at a point when we have reached or are reaching so many limits on a global scale. The retrenchment we are about to experience as this bubble bursts is also set to be unprecedented, given that the scale of a bust is predictably proportionate to the scale of the excesses during the boom that precedes it. We have built an incredibly complex economic system, but despite its robust appearance it is over-extended, brittle and fragile after decades of fueling its continued expansion by feeding on its own substance.
Things continue to line up in textbook fashion for a major financial crisis during the fall and winter.
I hope that you are prepared for what comes next.