There is much debate about where the U.S. economy is ultimately heading, but what everybody should be able to agree on is that economic conditions are significantly worse this year than they were last year. It is being projected that U.S. economic growth for the first quarter will be close to zero, thousands of retail stores are closing, factory output is falling, and restaurants and automakers have both fallen on very hard times. As economic activity has slowed down, commercial and consumer bankruptcies are both rising at rates that we have not seen since the last financial crisis. Everywhere you look there are echoes of 2008, and yet most people still seem to be in denial about what is happening. The following are 11 facts that prove that the U.S. economy in 2017 is in far worse shape than it was in 2016…
#1 It is being projected that there will be more than 8,000 retail store closings in the United States in 2017, and that will far surpass the former peak of 6,163 store closings that we witnessed in 2008.
#2 The number of retailers that have filed for bankruptcy so far in 2017 has already surpassed the total for the entire year of 2016.
#3 So far in 2017, an astounding 49 million square feet of retail space has closed down in the United States. At this pace, approximately 147 million square feet will be shut down by the end of the year, and that would absolutely shatter the all-time record of 115 million square feet that was shut down in 2001.
#4 The Atlanta Fed’s GDP Now model is projecting that U.S. economic growth for the first quarter of 2017 will come in at just 0.5 percent. If that pace continues for the rest of the year, it will be the worst year for U.S. economic growth since the last recession.
Foot traffic at chain restaurants in March dropped 3.4% from a year ago. Menu prices couldn’t be increased enough to make up for it, and same-store sales fell 1.1%. The least bad region was the Western US, where sales inched up 1.2% year-over-year and traffic fell only 1.7%, according to TDn2K’s Restaurant Industry Snapshot. The worst was the NY-NJ Region, where sales plunged 4.6% and foot traffic 6.3%.
This comes after a dismal February, when foot traffic had dropped 5% year-over-year, and same-store sales 3.7%.
In America alone, bad debt held by companies could reach $4 trillion, “or almost a quarter of corporate assets considered,” according to the IMF. That debt “could undermine financial stability” if mishandled, the IMF says.
The percentage of “weak,” “vulnerable” or “challenged” debt held as assets by US firms has almost arrived at the same level it was right before the 2008 crisis.
We are seeing so many parallels to the last financial crisis, and many are hoping that our politicians in Washington can fix things before it is too late.
On Monday, the most critical week of Trump’s young presidency begins. The administration will continue working on tax reform and a replacement for Obamacare, but of even greater importance is the fact that if a spending agreement is not passed by Friday a government shutdown will begin at the end of the week…
By attempting three massive political undertakings in one week, investors will have a sense of whether or not Trump will be able to deliver on pro-growth policies that would be beneficial for markets.
If Trump can pull off the trifecta, it could restore faith that policy proposals like tax cuts and infrastructure spending are on the way. If not, look out.
Members of Congress are returning from their extended two week spring vacation, and now they will only have four working days to get something done.
And I don’t believe that they will be able to rush something through in just four days. The Republicans in Congress, the Democrats in Congress, and the Trump administration all want different things, and ironing out all of those differences is not going to be easy.
For example, the Trump administration is insisting on funding for a border wall, and the Democrats are saying no way. The following comes from the Washington Post…
President Trump and his top aides applied new pressure Sunday on lawmakers to include money for a wall on the U.S.-Mexico border in a must-pass government funding bill, raising the possibility of a federal government shutdown this week.
In a pair of tweets, Trump attacked Democrats for opposing the wall and insisted that Mexico would pay for it “at a later date,” despite his repeated campaign promises not including that qualifier. And top administration officials appeared on Sunday morning news shows to press for wall funding, including White House budget director Mick Mulvaney, who said Trump might refuse to sign a spending bill that does not include any.
And of course the border wall is just one of a whole host of controversial issues that are standing in the way of an agreement. Those that are suggesting that all of these issues will be resolved in less than 100 hours are being completely unrealistic. And even though the Trump administration is putting on a brave face, the truth is that quiet preparations for a government shutdown have already begun.
The stage is being set for the kind of nightmare crisis that I portrayed in The Beginning Of The End. The stock market bubble is showing signs of being ready to burst, and an extended government shutdown would be more than enough to push things over the edge.
Let us hope that this government shutdown is only for a limited period of time, because an extended shutdown could potentially be catastrophic. In the end, either the Trump administration or the Democrats are going to have to give in on issues such as funding for Obamacare, the border wall, Planned Parenthood, defense spending increases, etc.
It will be a test of the wills, and it will be absolutely fascinating to see who buckles under the pressure first.
April 2017 could turn out to be one of the most important months in U.S. history that we have seen in a very long time. On April 6th, Donald Trump attacked Syria on the 100th anniversary of the day that the U.S. officially entered World War I, and now at the end of this month we could be facing an unprecedented political crisis in Washington. On Friday, members of Congress left town for their two week “Easter vacation”, and they won’t resume work until April 25th. What this means is that Congress will have precisely four days when they get back to pass a bill to fund government operations or there will be a government shutdown starting on April 29th.
Up to this point, there has been very little urgency by either party to move a spending bill forward. It is almost as if everyone is already resigned to the fact that a government shutdown will happen. The Democrats will greatly benefit from a government shutdown because they can just blame the entire mess on the Republicans. But for the GOP, this is essentially the equivalent of political malpractice.
To me, there is simply no way that Congress is going to be able to agree on a bill that funds the entire government in just four days. And it turns out that this upcoming deadline comes exactly on the 100th day of Trump’s presidency…
The U.S. government is poised to shut down on Day 100 of Donald Trump’s presidency, unless Congress can pass a new spending bill or a continuing resolution before the current one expires on April 28.
Since Congress is currently on a two-week recess, there will be a sense of urgency to get a new bill passed once they reconvene on April 25. Leaders in both chambers would have four days to craft a new proposal that each side can agree on and get it on the president’s desk for Trump to sign.
If the Republicans control the White House, the Senate and the House of Representatives, why will it be so difficult to get an agreement on a spending bill?
Well, first of all, look at how difficult it was for the Republicans to agree on a bill to repeal and replace Obamacare. At this point, it doesn’t look like that is going to happen at all.
More importantly, any bill to fund the government is going to require 60 votes in the Senate. The “nuclear option” that the Republicans just used to push the Gorsuch Supreme Court nomination through is not available in this case under current Senate rules because a spending bill of this nature would not qualify.
The threat from Senate Minority Leader Chuck Schumer and other Democratic leaders sets up a climactic first showdown with the president, particularly with their inclusion of Trump’s signature border wall proposal.
“If Republicans insist on inserting poison pill riders such as defunding Planned Parenthood, building a border wall, or starting a deportation force, they will be shutting down the government and delivering a severe blow to our economy,” Schumer said in a statement.
Up until now, Trump hasn’t needed Democratic votes to stock his cabinet or advance the repeal of Obamacare, but a spending bill keeping the government open is subject to a 60-vote threshold in the Senate.
Do you understand what this means?
President Trump is going to be under an immense amount of pressure to end the government shutdown once it begins, but to do so will mean that he has to give up his goal of getting a border wall.
Do you think that Trump will just throw in the towel and forget about his beloved border wall after giving countless speeches promising one?
It is a game of chicken between Trump and the Democrats, and I don’t think that either side will give in easily.
Of even greater importance is the debate over the funding of Planned Parenthood.
There are members of the Freedom Caucus that will absolutely not vote for any spending bill that includes funding for Planned Parenthood. But without the Freedom Caucus, there aren’t enough Republican votes to get a spending bill through the House of Representatives.
Alternatively, Senate Minority Leader Chuck Schumer is vowing that his party will block any funding bill that attempts to defund Planned Parenthood in the Senate.
If Planned Parenthood is not defunded now, it never will be defunded. This is one of the most pivotal moments in recent U.S. political history, and the outcome is going to have extraordinary consequences for our nation.
For those that are optimistic that there will not be a government shutdown, do you actually expect me to believe that this battle over the funding of Planned Parenthood will somehow get resolved in just four days?
Give me a break.
And of course there are dozens of other major issues that have to be resolved as well. For example, Senator McCain is promising note to vote for any bill unless it includes an enormous increase in military spending, while many Senate Democrats would be very much against such a move.
I don’t see any way that a government shutdown is going to be avoided at this point, and the longer it goes on the more financial markets are going to get rattled.
Meanwhile, we continue to get even more signs that a substantial slowdown has begun for the U.S. economy. Last week, we learned that only 98,000 jobs were added in March, and that was only about half of what most analysts were expecting.
And since it takes approximately 150,000 jobs a month just to keep up with population growth, that means that we are losing ground.
At the same time, the Atlanta Fed’s GDPNow forecasting model is now projecting that U.S. GDP growth for the first quarter of 2017 will be just 0.6 percent on an annualized basis.
That is absolutely pathetic, and as I have said before, I wouldn’t be surprised at all if we actually end up with a negative number for the first quarter.
If we do indeed get a negative number for the first quarter and that is followed by another negative number for the second quarter, that will mean that a new recession has already started right now but we just haven’t gotten official confirmation yet.
And lots of other things are already happening which have not happened since the last recession. For instance, this is the first time since the last financial crisis when there has been no growth for commercial and industrial lending for at least six months.
Commercial bankruptcy filings, from corporations to sole proprietorships, spiked 28% in March from February, the largest month-to-month move in the data series of the American Bankruptcy Institute going back to 2012.
Of course consumer bankruptcies are rising at an alarming rate as well. The following comes from Wolf Richter…
In December, bankruptcy filings rose 4.5% from a year earlier. In January they rose 5.4%. It was the first time consumer bankruptcies rose back-to-back since 2010. I called it “a red flag that’ll be highlighted only afterwards as a turning point.”
In March, consumer bankruptcy filings rose 4% year-over-year, to 77,900, the highest since March 2015, when 79,000 filings occurred, according to the American Bankruptcy Institute data. The turning point has now been confirmed.
If you would like, I could keep talking about the bad economic news for a couple thousand more words. U.S. credit card debt has just surpassed the one trillion dollar mark, a major crisis has arrived for the U.S. auto industry, thousands of retail stores are closing all over America, our pension funds are underfunded by trillions of dollars, and the U.S. national debt is now sitting at a grand total that is just shy of 20 trillion dollars. The only reason that we have not crossed that 20 trillion dollar mark yet is because the debt ceiling deadline has already passed, and that is another thing that Congress needs to address very quickly if they want to avoid a major crisis.
Needless to say, the last thing that we need at this point is another war or two on top of everything else.
Those that were hoping for some sort of “reprieve” under Donald Trump can forget all about that now. The pace of global events is really starting to accelerate, and the U.S. is already in a more precarious position than it was at any point in 2016.
The clouds have been building for a very long time, and now the storm is almost upon us. I hope that you have been getting prepared, because a day of reckoning for the United States of America is closing in very rapidly.
More than 3,500 retail stores are going to close all across America over the next few months as the worst retail downturn in U.S. history gets even deeper. Earlier this week, Sears shocked the world when it announced that there is “substantial doubt” that the company will be able to “continue as a going concern” much longer. In other words, Sears has announced that it is on the verge of imminent collapse. Meanwhile, Payless stunned the retail industry when it came out that they are preparing to file for bankruptcy. The “retail apocalypse” that I have been warning about is greatly accelerating, and many believe that this is one of the early warning signs that the economic collapse that is already going on in other parts of the globe will soon reach U.S. shores.
I have repeatedly warned my readers that “Sears is going to zero“, and now Sears is officially saying that it might actually happen. When you file official paperwork with the government that says there is “substantial doubt” that the company will survive, that means that the end is very near…
The company that operates Sears, the department store chain that dominated retail for decades, warned Tuesday that it faces “substantial doubt” about its ability to stay in business unless it can borrow more and tap cash from more of its assets.
“Our historical operating results indicate substantial doubt exists related to the company’s ability to continue as a going concern,” Sears Holdings said in a filing with the Securities and Exchange Commission. Sears Holdings operates both Sears and Kmart stores.
In the wake of that statement, the price of Sears stock dipped 13.69% to $7.85 a share.
Personally, I am going to miss Sears very much. But of course the truth is that they simply cannot continue operating as they have been.
The company said it lost $607 million, or $5.67 per diluted share, during the quarter that ended on Jan. 28. That compared with a loss of $580 million, or $5.44 per diluted share, a year earlier. It has posted a loss in all but two of the last 24 quarters, according to S&P Global Market Intelligence.
How in the world is it possible for a retailer to lose that amount of money in just three months?
As I have said before, if they had employees flushing dollar bills down the toilet 24 hours a day they still shouldn’t have losses that big.
This week we also learned that Payless is heading for bankruptcy. According to Bloomberg, the chain is planning to imminently close at least 400 stores…
Payless Inc., the struggling discount shoe chain, is preparing to file for bankruptcy as soon as next week, according to people familiar with the matter.
The company is initially planning to close 400 to 500 stores as it reorganizes operations, said the people, who asked not to be identified because the deliberations aren’t public. Payless had originally looked to shutter as many as 1,000 locations, and the number may still be in flux, according to one of the people.
Of course these are just two examples of a much broader phenomenon.
Never before in U.S. history have we seen such a dramatic wave of store closures. According to Business Insider, over 3,500 retail locations “are expected to close in the next couple of months”…
Thousands of mall-based stores are shutting down in what’s fast becoming one of the biggest waves of retail closures in decades.
More than 3,500 stores are expected to close in the next couple of months.
Once thriving shopping malls are rapidly being transformed into ghost towns. As I wrote about just recently, “you might be tempted to think that ‘Space Available’ was the hottest new retail chain in the entire country.”
When an anchor store like Sears or Macy’s closes, it often triggers a downward spiral in performance for shopping malls.
Not only do the malls lose the income and shopper traffic from that store’s business, but the closure often triggers “co-tenancy clauses” that allow the other mall tenants to terminate their leases or renegotiate the terms, typically with a period of lower rents, until another retailer moves into the anchor space.
Years ago I wrote of a time when we would see boarded-up storefronts all across America, and now it is happening.
Instead of asking which retailers are going to close, perhaps we should be asking which ones are going to survive this retail cataclysm.
In the past, you could always count on middle class U.S. consumers to save the day, but today the middle class is steadily shrinking and U.S. consumers are increasingly tapped out.
For instance, just look at what is happening to delinquency rates on auto loans…
US auto loan and lease credit loss rates weakened in the second half of 2016, according to a new report from Fitch Ratings, which said they will continue to deteriorate.
“Subprime credit losses are accelerating faster than the prime segment, and this trend is likely to continue as a result of looser underwriting standards by lenders in recent years,” said Michael Taiano, a director at Fitch.
The last time so many Americans got behind on subprime auto loans was during the last financial crisis.
We are seeing so many similarities to what happened just prior to the last recession, and yet most Americans still seem to think that the U.S. economy is going to be just fine in 2017.
The last recession probably should have started back in late 2015, but thanks to manipulation by the Fed and an unprecedented debt binge by the Obama administration, official U.S. GDP growth has been able to stay barely above zero for the last year and a half.
But just because something is delayed does not mean that it is canceled.
All along, our long-term economic imbalances have continued to get even worse, and a date with destiny is rapidly approaching for the U.S. economy.
The ninth largest economy in the entire world is currently experiencing “its longest and deepest recession in recorded history”, and in a country right next door people are being encouraged to label their trash so that the thousands upon thousands of desperately hungry people that are digging through trash bins on the streets can find discarded food more easily. Of course the two nations that I am talking about are Brazil and Venezuela. The Brazilian economy was once the seventh largest on the globe, but after shrinking for eight consecutive quarters it has now fallen to ninth place. And in Venezuela the economic collapse has gotten so bad that more than 70 percent of the population lost weight last year due to a severe lack of food. Most of us living in the northern hemisphere don’t think that anything like this could happen to us any time soon, but the truth is that trouble signs are already starting to erupt all around us. It is just a matter of time before the things currently happening in Brazil and Venezuela start happening here, but unfortunately most people are not heeding the warnings.
Just a few years ago, the Brazilian economy was absolutely roaring and it was being hailed as a model for the rest of the world to follow. But now Brazil’s GDP has been imploding for two years in a row, and this downturn is being described as “the worst recession in recorded history” for that South American nation…
Latin America’s largest economy Brazil has contracted by 3.6 percent in 2016, shrinking for the second year in a row; statistics agency IBGE said on Tuesday. It confirmed the country is facing its longest and deepest recession in recorded history.
Data shows gross domestic product (GDP) fell for the eighth straight quarter in the three months to December, down 0.9 percent from the previous quarter. The figure was worse than the 0.5 percent decline economists had forecast and left the country’s overall GDP down 3.6 percent for the full year following a 3.8 percent drop in 2015.
“In real terms, GDP is now nine percent below its pre-recession peak,” Neil Shearing, chief emerging markets economist at Capital Economics, told the Financial Times.
“This is comfortably the worst recession in recorded history,” he added.
It had been hoped that things in Brazil would be getting better by now, but instead they just keep getting worse.
The number of bankruptcy filings has soared to an all-time record high, and the official unemployment rate has more than doubled since the end of 2013. The following comes from Wolf Richter…
In a stunning deterioration, the unemployment rate in Brazil spiked to 12.6% in the rolling three-month period through January, a record in the new data series going back to 2012, according to Brazil’s statistical agency IBGE. Up from 11.8% in the three-month period through October. Up from an already terribly high 9.5% a year ago. And more than double the 6.2% in December 2013.
Meanwhile, hordes of hungry people are rummaging through garbage cans in Venezuela in order to find something to fill their aching stomachs.
Things have gotten so bad that one of President Maduro’s chief opponents has urged citizens to label which trash bags have food in them so that people that are searching through the garbage can find food scraps more easily…
Controversial Priest and opponent to President Nicolás Maduro’s administration Father Jose Palmar posted on social media this week about labeling discarded waste so those looking through it for food can do so more easily and “with dignity.”
Palmar called on Venezuelans to celebrate Lent by identifying bags where food has been discarded for those with no where else to turn. That way, they don’t have to dig through non-edible items to find it.
Thanks to chronically empty store shelves and severe food shortages, people in Venezuela are losing weight at an astounding pace. In the United States it would be a good thing if much of the population lost this much weight, but in Venezuela it definitely is not…
Three quarters of the country’s population lost an average of over 18 pounds over food shortages in 2016, according to a survey by Venezuelan universities and nonprofit groups. Last year, over 80 percent of foodstuffs disappeared from shelves and many had to get by with one meal a day, Foreign Policy reported.
Venezuela was once South America’s most powerful petrostate. But decades of government mismanagement sent the country into decline. Maduro’s predecessor Hugo Chavez choked the economy with heavy-handed regulations, price controls, and a campaign to nationalize major industries that chased out foreign investments.
Further north, very alarming signs are starting to pop up in Mexico.
It probably won’t happen next week or next month, but there are indications of emerging “liquidity problems” which could precipitate a major debt crisis at some point…
In Mexico foreign investors hold around $100 billion of the country’s local-currency government debt, the most for any emerging market economy. That’s almost 20 times what it was 20 years ago. They also hold billions of euros worth of corporate bonds, which are also showing signs of strain, prompting some Mexican business leaders to call for “new programs” to be implemented before the situation causes “a large-scale crisis” among Mexican companies.
The most ominous sign yet came last week when Bloomberg reported sources saying that the Bank of Mexico (or Banxico, as it is referred to) had sought a swap line from the Federal Reserve in case of “liquidity problems,” which immediately triggered furious denials from Banxico. “I can say clearly and unequivocally that we are not in the process of asking for any credit line from any authority,” said the central bank’s governor, Agustin Carstens, who has postponed by six months his departure from the bank, initially scheduled for May.
One of the biggest problems for nations such as Brazil, Venezuela and Mexico is the strength of the U.S. dollar. During the good times they went into tremendous amounts of debt, and much of that debt was denominated in U.S. dollars. So when the U.S. dollar becomes stronger, it takes more of their own local currencies to pay that debt back.
And if the Federal Reserve raises interest rates at their next meeting, that will strengthen the U.S. dollar even more and put even more pressure on emerging market economies.
Even one small interest rate increase by the Fedcould have a sweeping impact on U.S. and world economies, Komal Sri-Kumar told CNBC on Monday.
“I think they are going to hike” on March 15, Sri-Kumar said on “Squawk Box,” echoing a theory shared by many analysts. “But that is going to prompt capital outflows from the euro zone, especially with the political risk. It is going to increase the capital outflow from China, and the U.S. economy will feel the impact.”
The global economy is more interconnected than ever before, and pain that starts in one region can rapidly spread to others.
The biggest debt bubble that the world has ever seen is starting to burst, and over the coming years we are going to see financial pain on a scale that would be unimaginable to most of us at this moment.
But even now there are those that would suggest that this colossal debt bubble can continue growing much faster than global GDP indefinitely, and this sort of exceedingly reckless optimism is leading many astray.
If you didn’t know better, you might be tempted to think that “Space Available” was the hottest new retail chain in the entire country. As you will see below, it is being projected that about a third of all shopping malls in the United States will soon close, and we just recently learned that the number of “distressed retailers” is the highest that it has been since the last recession. Honestly, I don’t know how anyone can possibly believe that the U.S. economy is in “good shape” after looking at the retail industry. In my recent article about the ongoing “retail apocalypse“, I discussed the fact that Sears, J.C. Penney and Macy’s have all announced that they are closing dozens of stores in 2017, and you can find a pretty comprehensive list of 19 U.S. retailers that are “on the brink of bankruptcy” right here. Needless to say, quite a bloodbath is going on out there right now.
But I didn’t realize how truly horrific things were for the retail industry until I came across an article about mall closings on Time Magazine’s website…
About one-third of malls in the U.S. will shut their doors in the coming years, retail analyst Jan Kniffen told CNBC Thursday. His prediction comes in the wake of Macy’s reporting its worst consecutive same-store sales decline since the financial crisis.
Macy’s and its fellow retailers in American malls are challenged by an oversupply of retail space as customers migrate toward online shopping, as well as fast fashion retailers like H&M and off-price stores such as T.J. Maxx. As a result, about 400 of the country’s 1,100 enclosed malls will fail in the upcoming years. Of those that remain, he predicts that about 250 will thrive and the rest will continue to struggle.
Can you imagine what this country is going to look like if that actually happens?
Shopping malls all over the United States are literally becoming “ghost towns”, and many that have already closed have stayed empty for years and years.
The process usually starts when a shopping mall starts losing anchor stores. That is why it is so alarming that Sears, J.C. Penney and Macy’s are planning to shut down so many locations in 2017. According to one recent report, 310 shopping malls in America are in imminent danger of losing an anchor store…
Dozens of malls have closed in the last 10 years, and many more are at risk of shutting down as retailers like Macy’s, JCPenney, and Sears — also known as anchor stores — shutter hundreds of stores to staunch the bleeding from falling sales.
The commercial-real-estate firm CoStar estimates that nearly a quarter of malls in the US, or roughly 310 of the nation’s 1,300 shopping malls, are at high risk of losing an anchor store.
Once the anchor stores start going, traffic falls off dramatically for the other stores and they start leaving too.
Four years ago in “The Beginning Of The End” I warned that empty storefronts would soon litter the national landscape, and now that is precisely what is happening.
Now that the Christmas season is over, some retailers that have been around for decades have suddenly decided that it is time to file for bankruptcy. Sadly, one of those retailers is HHGregg…
HHGregg Inc., the 61-year-old seller of appliances and electronics, is moving closer to Chapter 11 after announcing a store-closing plan, according to people with knowledge of the matter.
The filing may come as soon as next week, said the people, who asked not to be identified because the matter isn’t public. Bloomberg previously reported that HHGregg might file for bankruptcy in March if it couldn’t reach an out-of-court solution.
Another retailer that was once riding high but is now dealing with bankruptcy is BCBG…
BCBG, the California-based fashion retailer that had acquired fashion design firm Herve Leger in 1998, and that once had more than 570 boutiques globally, including 175 in the US, and whose cocktail dresses and handbags were shown off by celebrities, filed for bankruptcy on Wednesday.
It is buckling under $459 million of debt. It has 4,800 employees. Layoffs have already started. More layoffs and other cost cuts are planned, according to court documents, cited by Bloomberg. It started closing 120 of its stores in January. It wants to sell itself at a court-supervised auction. If that fails, it wants to negotiate a debt-for-equity swap with junior lenders owed $289 million.
If the U.S. economy was actually doing as well as the stock market says that it should be doing, all of these retail chains would not be closing stores and going bankrupt.
We live at a time when middle class consumers are tapped out. According to one recent survey, 57 percent of all Americans do not even have enough money in the bank to write a $500 check for an unexpected expense.
And people are falling out of the middle class at a staggering pace. The number of homeless people in New York City recently set a brand new record high, and city authorities plan to construct 90 new homeless shelters within the next five years.
On the west coast we are also seeing a dramatic rise in homelessness. The following comes from an article by Dan Lyman…
Citizen journalists have captured stunning images and video of homeless encampments that are spiraling out of control in the shadows of Disneyland and Anaheim Stadium in California.
The tent city has recently sprung up along the Santa Ana riverbed, near a busy convergence of three major California highways known as the “Orange Crush,” at the border of Anaheim and Santa Ana, the latter a “sanctuary city.”
Homeless activists estimate that as many as 1,000 people are camped in the region.
You can see some video footage of this homeless encampment on YouTube right here…
Incredibly, the Federal Reserve is almost certainly going to raise interest rates at their next meeting even though the U.S. economy is faltering so badly. That only makes sense if they are trying to make Donald Trump look as bad as possible.
Even though this giant bubble of false economic stability that we are currently enjoying has lasted far longer than it should have, the truth is that nothing has changed about the long-term economic outlook at all.
America is still heading for “economic Armageddon”, and the retail industry is a huge red flag that is warning us that our day of reckoning is approaching more rapidly than many had anticipated.
When debt grows much faster than GDP for an extended period of time, it is inevitable that a good portion of that debt will start to go bad at some point. We witnessed a perfect example of this in 2008, and now it is starting to happen again. Commercial bankruptcies have been rising on a year-over-year basis since late 2015, and this is something that I have written about previously, but now consumer bankruptcies are also increasing. In fact, we have just witnessed U.S. consumer bankruptcies do something that they haven’t done in nearly 7 years. The following comes from Wolf Richter…
US bankruptcy filings by consumers rose 5.4% in January, compared to January last year, to 52,421 according to the American Bankruptcy Institute. In December, they’d already risen 4.5% from a year earlier. This was the first time that consumer bankruptcies increased back-to-back since 2010.
However, business bankruptcies began to surge in November 2015 and continued surging on a year-over-year basis in 2016, to reach a full-year total of 37,823 filings, up 26% from the prior year and the highest since 2014.
Of course consumer bankruptcies are still much lower than they were during the last financial crisis, but what this could mean is that we have reached a turning point.
For years, the Federal Reserve has been encouraging reckless borrowing and spending by pushing interest rates to ultra-low levels. Unfortunately, this created an absolutely enormous debt bubble, and now that debt bubble is beginning to burst. Here is more from Wolf Richter…
The dizzying borrowing by consumers and businesses that the Fed with its ultra-low interest rates and in its infinite wisdom has purposefully encouraged to fuel economic growth, if any, and to inflate asset prices, has caused debt to pile up. That debt is now eating up cash flows needed for other things, and this is causing pressures, just when interest rates have begun to rise, which will make refinancing this debt more expensive and, for a rising number of consumers and businesses, impossible. And so, the legacy of this binge will haunt the economy – and creditors – for years to come.
Despite all of the economic optimism that is out there right now, the truth is that U.S. consumers are tapped out.
If the U.S. economy truly was doing great, major retailers would not be closing hundreds of stores. Sears, Macy’s and a whole host of other big retailers are closing stores because those stores are losing money. It truly is a “retail apocalypse“, and this trend is not going to turn around until U.S. consumers start to become healthier financially.
About two-thirds of the nation is essentially living paycheck to paycheck. Most families really struggle to pay the bills from month to month, and all it would take is a major event such as a job loss or a significant illness to plunge them into financial oblivion.
In America today we are told that the secret to success is a college education, but most young Americans have to go deep into debt to afford such an education.
As a result, most college graduates start out life in the “real world” with a mountain of debt. And since many of them never find the “good jobs” that they were promised, repayment of that debt becomes a very big issue. In fact, the Wall Street Journal has discovered that student loan repayment rates are much worse than we were being told…
Last Friday, the Education Department released a memo saying that it had overstated student loan repayment rates at most colleges and trade schools and provided updated numbers.
When The Wall Street Journal analyzed the new numbers, the data revealed that the Department previously had inflated the repayment rates for 99.8% of all colleges and trade schools in the country.
The new analysis shows that at more than 1,000 colleges and trade schools, or about a quarter of the total, at least half the students had defaulted or failed to pay down at least $1 on their debt within seven years.
If you do find yourself deep in debt, a lot of families have found success by following a plan that was pioneered by author Dave Ramsey. His “Debt Snowball Plan” really works, but you have to be committed to it.
Getting out of debt can be tremendously freeing. So many people spend so many sleepless nights consumed by financial stress, but it doesn’t have to be that way.
Most of us have had to go into debt for some reason or another, and not all debt is bad debt. For example, very few of us would be able to own a home without getting a mortgage, and usually mortgages come with very low interest rates these days.
But other forms of debt (such as credit card debt or payday loans) can be financially crippling. When it comes to eliminating debt, it is often a really good idea to start with the most toxic forms of debt first.
It has been said that the borrower is the servant of the lender, and you don’t want to spend the best years of your life making somebody else rich.
Whether economic conditions turn out to be good or bad in 2017, the truth is that each one of us should be trying to do what we can to get out of debt.
Unfortunately, a lot of people never seem to learn from the past, and I have a feeling that both consumer and commercial bankruptcies will continue to rise throughout the rest of this year.
The Dow closed above 18,000 on Monday for the first time since July. Isn’t that great news? I truly wish that it was. If the Dow actually reflected economic reality, I could stop writing about “economic collapse” and start blogging about cats or football. Unfortunately, the stock market and the economy are moving in two completely different directions right now. Even as stock prices soar, big corporations are defaulting on their debts at a level that we have not seen since the last financial crisis. In fact, this wave of debt defaults have become so dramatic that even USA Today is reporting on it…
Get ready to step over some landmines, investors. The number of companies defaulting on their debt is hitting levels not seen since the financial crisis, and it’s not just a problem for bondholders.
So far this year, 46 companies have defaulted on their debt, the highest level since 2009, according to S&P Ratings Services. Five companies defaulted this week, based on the latest data available from S&P Ratings Services. That includes New Jersey-based specialty chemical company Vertellus Specialties and Ohio-based iron ore producer Cliffs Natural. Of the world’s defaults this year, 37 are of companies based in the U.S.
Meanwhile, coal producer Peabody Energy (BTU) and surfwear seller Pacific Sunwear (PSUN) this week filed plans for bankruptcy protection. Shares of Peabody have dropped 97% over the past year to $2 a share and Pacific Sunwear stock is off 98% to 4 cents a share.
A lot of big companies in this country have fallen on hard times, and it looks like bankruptcy attorneys are going to be absolutely swamped with work for the foreseeable future.
So why are stock prices soaring right now? After all, it doesn’t seem to make any sense whatsoever.
And it isn’t just a few bad apples that we are talking about. All across the spectrum, corporate revenues and corporate earnings are down. At this point, earnings for companies on the S&P 500 have plunged a total of 18.5 percent from their peak in late 2014, and it is being projected that corporate earnings overall will be down 8.5 percent for the first quarter of 2016 compared to one year ago.
As earnings decline, a lot of big companies are getting into trouble with debt, and we have already seen a very large number of corporate debt downgrades. In recent interviews, I have been bringing up the fact that the average rating on U.S. corporate debt has now fallen to “BB”, which is already lower than it was at any point during the last financial crisis.
A lot of people don’t seem to believe me when I share that fact, but it is absolutely true.
One of the big reasons why corporate debt is being downgraded is because a lot of these big companies have been going into enormous amounts of debt in order to buy back their own stock. The following comes from Wolf Richter…
Downgrades ascribed to “shareholder compensation,” as Moody’s calls share buybacks and dividends, have been soaring, according to John Lonski, Chief Economist at Moody’s Capital Markets Research. The moving 12-month sum of Moody’s credit rating downgrades of US companies, jumped from 32 in March 2015, to 48 in December 2015, and to 61 in March 2016, nearly doubling within a year.
The last time the number of downgrades attributed to financial engineering reached 61 was in early 2007. It would hit its peak of 79 in mid- 2007, a few months before the beginning of the Great Recession in Q4 2007. At the time, stocks were on the verge of commencing their epic crash.
When corporations go into the market and buy back their own stock, they are slowly cannibalizing themselves. But we have seen these stock buybacks soar to record levels for a couple of reasons. Number one, big investors want to see stock prices go up, and so big investors tend to really like these stock buybacks and will generally support corporate executives that wish to engage in doing this. Number two, if you are a greedy corporate executive that is heavily compensated by stock options, you very much want to see the stock price go up as well.
So the name of the game is greed, and stock buybacks have been fueling much of the rise in U.S. stock prices that we have been seeing recently.
However, the truth is that nothing in the financial world lasts forever, and this irrational bubble will ultimately come to an end as well.
Back then, as could be the case today, a bull market & a US-led economic recovery was rudely interrupted by a crisis in Emerging Markets. The crisis threatened to hurt Main Street via Wall Street (the Nasdaq fell 33% between Jul-Oct 1998, when [Long-Term Capital Management] went under). Policy makers panicked and monetary policy was eased (with hindsight unnecessarily). Fresh liquidity combined with apocalyptic investor sentiment very quickly morphed into a violent but narrow equity bull market/bubble in 1998/99, one which ultimately took valuations & interest rates sharply higher to levels that eventually caused a “pop”.
Like Hartnett, I definitely believe that a major “pop” is on the way, although I would like for it to be delayed for as long as possible.
Someday we will look back on these times with utter amazement. It has been absolutely incredible how the financial markets have been able to defy economic reality for so long.
In a new CNNMoney/E*Trade survey of Americans who have at least $10,000 in an online trading account, over half (52%) gave the U.S. economy as a “C” grade. Another 15% rated the economy a “D” or “F.”
This gloom persists despite the fact that the stock market is on the upswing again. The Dow topped 18,000 Monday for the first time since July 2015.
If some Americans think that the U.S. economy deserves a “D” or an “F” grade right now, just wait until they see what is in our immediate future.
Personally, I give our economy an “A” for being able to maintain our unsustainable debt-fueled standard of living for as long as it has. Somehow we have managed to consume far more than we produce for decades, and the largest debt bubble in the history of the planet just keeps getting bigger and bigger and bigger.
Of course we are very much living on borrowed time at this point, but I truly hope that the bubble economy can keep going for at least a little while longer, because nobody should want to see what is coming afterwards.
*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.*
Last time around it was subprime mortgages, but this time it is oil that is playing a starring role in a global financial crisis. Since the start of 2015, 42 North American oil companies have filed for bankruptcy, 130,000 good paying energy jobs have been lost in the United States, and at this point 50 percent of all energy junk bonds are “distressed” according to Standard & Poor’s. As you will see below, some of the big banks have a tremendous amount of loan exposure to the energy industry, and now they are bracing for big losses. And the longer the price of oil stays this low, the worse the carnage is going to get.
Today, the price of oil has been hovering around 29 dollars a barrel, and over the past 18 months the price of oil has fallen by more than 70 percent. This is something that has many U.S. consumers very excited. The average price of a gallon of gasoline nationally is just $1.89 at the moment, and on Monday it was selling for as low as 46 cents a gallon at one station in Michigan.
But this oil crash is nothing to cheer about as far as the big banks are concerned. During the boom years, those banks gave out billions upon billions of dollars in loans to fund exceedingly expensive drilling projects all over the world.
Now those firms are dropping like flies, and the big banks could potentially be facing absolutely catastrophic losses. The following examples come from CNN…
For instance, Wells Fargo (WFC) is sitting on more than $17 billion in loans to the oil and gas sector. The bank is setting aside $1.2 billion in reserves to cover losses because of the “continued deterioration within the energy sector.”
JPMorgan Chase (JPM) is setting aside an extra $124 million to cover potential losses in its oil and gas loans. It warned that figure could rise to $750 million if oil prices unexpectedly stay at their current $30 level for the next 18 months.
Citigroup (C) built up loan loss reserves in the energy space by $300 million. The bank said the move reflects its view that “oil prices are likely to remain low for a longer period of time.”
If oil stays around $30 a barrel, Citi is bracing for about $600 million of energy credit losses in the first half of 2016. Citi said that figure could double to $1.2 billion if oil dropped to $25 a barrel and stayed there.
For the moment, these big banks are telling the public that the damage can be contained.
But didn’t they tell us the same thing about subprime mortgages in 2008?
We are already seeing bank stocks start to slide precipitously. People are beginning to realize that these banks are dangerously exposed to a lot of really bad deals.
If the price of oil were to shoot back up above 50 dollars in very short order, the damage would probably be manageable. Unfortunately, that does not appear likely to happen. In fact, now that sanctions have been lifted on Iran, the Iranians are planning to flood the world with massive amounts of oil that they have been storing in tankers at sea…
Iran has been carefully planning for its return from the economic penalty box by hoarding tons of oil in tankers at sea.
Now that the U.S. and European Union have lifted some sanctions on Iran, the OPEC country can begin selling its massive stockpile of oil.
The sale of this seaborne oil will allow Iran to get an immediate financial boost before it ramps up production. The onslaught of Iranian oil is coming at a terrible time for the global oil markets, which are already drowning in an epic supply glut.
Just the other day, I explained that some of the biggest banks in the world are now projecting that the price of oil could soon fall much, much lower.
But the truth is that the price of oil does not need to go down one penny more to have a catastrophic impact on global financial markets. If it just stays right here, we will see an endless parade of layoffs, energy company bankruptcies and debt defaults. Without any change, junk bonds will continue to crash and financial institutions will continue to go down like dominoes.
We are already experiencing a major disaster. Things are already so bad that some forms of low quality crude oil are literally selling for next to nothing. The following comes from Bloomberg…
Oil is so plentiful and cheap in the U.S. that at least one buyer says it would pay almost nothing to take a certain type of low-quality crude.
Flint Hills Resources LLC, the refining arm of billionaire brothers Charles and David Koch’s industrial empire, said it offered to pay $1.50 a barrel Friday for North Dakota Sour, a high-sulfur grade of crude, according to a corrected list of prices posted on its website Monday. It had previously posted a price of -$0.50. The crude is down from $13.50 a barrel a year ago and $47.60 in January 2014.
While the near-zero price is due to the lack of pipeline capacity for a particular variety of ultra low quality crude, it underscores how dire things are in the U.S. oil patch.
A chart that I saw posted on Zero Hedge earlier today can help put all of this into perspective. Whenever the price of oil falls really low relative to the price of gold, there is a major global crisis. Right now an ounce of gold will purchase more oil than ever before, and many believe that this indicates that a new great crisis is upon us…
The number of barrels of oil that a single ounce of gold can buy has never, ever been higher.
All over the planet, big banks are absolutely teeming with bad loans. And to be honest, the big banks in the U.S. are probably in better shape than some of the major banks in Europe and Asia. But once the dominoes start to fall, very few financial institutions are going to escape unscathed.
In the coming days I would expect to see more headlines like we just got out of Italy. Apparently, Italian banks are nearing full meltdown mode, and short selling has been temporarily banned. To me, it appears that we are just inches away from full-blown financial panic in Europe.
However, just like with the last financial crisis, you never quite know where the next “explosion” is going to happen next.
But one thing is for sure – the financial crisis that began during the second half of 2015 is raging out of control, and the pain that we have seen so far is just the beginning.
There has been so much attention on Greece in recent weeks, but the truth is that Greece represents only a very tiny fraction of an unprecedented global debt bomb which threatens to explode at any moment. As you are about to see, there are 24 nations that are currently facing a full-blown debt crisis, and there are 14 more that are rapidly heading toward one. Right now, the debt to GDP ratio for the entire planet is up to an all-time record high of 286 percent, and globally there is approximately 200 TRILLION dollars of debt on the books. That breaks down to about $28,000 of debt for every man, woman and child on the entire planet. And since close to half of the population of the world lives on less than 10 dollars a day, there is no way that all of this debt can ever be repaid. The only “solution” under our current system is to kick the can down the road for as long as we can until this colossal debt pyramid finally collapses in upon itself.
As we are seeing in Greece, you can eventually accumulate so much debt that there is literally no way out. The other European nations are attempting to find a way to give Greece a third bailout, but that is like paying one credit card with another credit card because virtually everyone in Europe is absolutely drowning in debt.
Even if some “permanent solution” could be crafted for Greece, that would only solve a very small fraction of the overall problem that we are facing. The nations of the world have never been in this much debt before, and it gets worse with each passing day.
According to a new report from the Jubilee Debt Campaign, there are currently 24 countries in the world that are facing a full-blown debt crisis…
■ Costa Rica
■ Dominican Republic
■ El Salvador
■ The Gambia
■ Marshall Islands
■ Sri Lanka
■ St Vincent and the Grenadines
And there are another 14 nations that are right on the verge of one…
■ Cape Verde
■ Sao Tome e Principe
So what should be done about this?
Should we have the “wealthy” countries bail all of them out?
Well, the truth is that the “wealthy” countries are some of the biggest debt offenders of all. Just consider the United States. Our national debt has more than doubled since 2007, and at this point it has gotten so large that it is mathematically impossible to pay it off.
Europe is in similar shape. Members of the eurozone are trying to cobble together a “bailout package” for Greece, but the truth is that most of them will soon need bailouts too…
All of those countries will come knocking asking for help at some point. The fact is that their Debt to GDP levels have soared since the EU nearly collapsed in 2012.
Spain’s Debt to GDP has risen from 69% to 98%. Italy’s Debt to GDP has risen from 116% to 132%. France’s has risen from 85% to 95%.
In addition to Spain, Italy and France, let us not forget Belgium (106 percent debt to GDP), Ireland (109 debt to GDP) and Portugal (130 debt to GDP).
Once all of these dominoes start falling, the consequences for our massively overleveraged global financial system will be absolutely catastrophic…
Spain has over $1.0 trillion in debt outstanding… and Italy has €2.6 trillion. These bonds are backstopping tens of trillions of Euros’ worth of derivatives trades. A haircut or debt forgiveness for them would trigger systemic failure in Europe.
EU banks as a whole are leveraged at 26-to-1. At these leverage levels, even a 4% drop in asset prices wipes out ALL of your capital. And any haircut of Greek, Spanish, Italian and French debt would be a lot more than 4%.
Things in Asia look quite ominous as well.
According to Bloomberg, debt levels in China have risen to levels never recorded before…
While China’s economic expansion beat analysts’ forecasts in the second quarter, the country’s debt levels increased at an even faster pace.
Outstanding loans for companies and households stood at a record 207 percent of gross domestic product at the end of June, up from 125 percent in 2008, data compiled by Bloomberg show.
And remember, that doesn’t even include government debt. When you throw all forms of debt into the mix, the overall debt to GDP number for China is rapidly approaching 300 percent.
In Japan, things are even worse. The government debt to GDP ratio in Japan is now up to an astounding 230 percent. That number has gotten so high that it is hard to believe that it could possibly be true. At some point an implosion is coming in Japan which is going to shock the world.
Of course the same thing could be said about the entire planet. Yes, national governments and central banks have been attempting to kick the can down the road for as long as possible, but everyone knows that this is not going to end well.
And when things do really start falling apart, it will be unlike anything that we have ever seen before. Just consider what Egon von Greyerz recently told King World News…
Eric, there are now more problem areas in the world, rather than stable situations. No major nation in the West can repay its debts. The same is true for Japan and most of the emerging markets. Europe is a failed experiment for socialism and deficit spending. China is a massive bubble, in terms of its stock markets, property markets and shadow banking system. Japan is also a basket case and the U.S. is the most indebted country in the world and has lived above its means for over 50 years.
So we will see twin $200 trillion debt and $1.5 quadrillion derivatives implosions. That will lead to the most historic wealth destruction ever in global stock, with bond and property markets declining at least 75 – 95 percent. World trade will also contract dramatically and we will see massive hardship across the globe.
So what do you think is coming, and how bad will things ultimately get once this global debt crisis finally spins totally out of control?
Please feel free to add to the discussion by posting a comment below…