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.
#5 Restaurants are experiencing their toughest stretch since the last recession, and in March things continued to get even worse…
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%.
#6 In March, U.S. factory output declined at the fastest pace in more than two years.
#7 According to the Bureau of Labor Statistics, not a single person is employed in nearly one out of every five U.S. families.
#8 U.S. government revenues just suffered their biggest drop since the last recession.
#9 Nearly all of the big automakers reported disappointing sales in March, and dealer inventories have now risen to the highest level that we have seen since the last recession.
#10 Used vehicle prices are absolutely crashing, and subprime auto loan losses have shot up to the highest level that we have seen since the last recession.
#11 At this point, most U.S. consumers are completely tapped out. According to CNN, almost six out of every ten Americans do not have enough money saved to even cover a $500 emergency expense.
Just like in 2008, debts are going bad at a very alarming pace. In fact, things have already gotten so bad that the IMF has issued a major warning about it…
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…
Trump has indicated that he wants to tackle the repeal and replacement of Obamacare and introduce his “massive” tax plan in the next week, all while a shutdown of parts of federal government looms Friday.
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.
How will you handle all of the people that will show up at your door when a major crisis strikes because they haven’t been making any preparations of their own? Earlier today somebody asked me about this on Facebook, and I thought that it was a very good question, because thousands of my readers will be faced with this precise dilemma at some point. When America’s day of disaster arrives, it is inevitable that most of us that are prepping will have family, friends and neighbors showing up at our door asking for help. When that happens, what will you do?
There are some people out there that are very honest about the fact that they do not plan to share what they have stored up with anyone, and that even close family members will be greeted with a shotgun if they show up unannounced.
Personally, I could never do that. My wife and I have always had the philosophy that we need to work extra hard to prepare because there will be people that need to depend on us when times get really hard. And turning away those that are in desperate need would go against everything that we stand for. After all, I am even writing a book that is all about the true meaning of love, and so it would be quite hypocritical of me to turn away those that I care about when they need me the most.
And even if I wanted to be cold-hearted, my wife would never let me get away with it. She has such a soft heart that she literally can’t bear to even see a bug die. We often have spiders invade our place, and when she sees one she gently captures it and sets it free outside. I tell her that they will just breed and come back in even bigger numbers, but that doesn’t seem to matter to her. So needless to say we are going to have to find a non-violent way to deal with our spider problem.
But I certainly understand the frustrations of those that have been trying to warn family and friends about what is coming for years and they never seem to listen.
And it is true that resources are limited. For the vast majority of us, there is only so much money and energy that we can put into prepping, and so why should those that have refused to listen to the warnings and prepare in advance be able to benefit from all of our hard work?
Unfortunately, life is not always fair. And we also need to realize that there is a tremendous amount of deception going on out there these days. Some of the deceptions that are currently circulating are very strong, and it can be very easy to be sucked into them. So we need to have compassion for those that have been led into confusion.
Look, there are literally thousands of watchmen all across this country that have never wavered from warning America about what is coming even for a moment. That is because they are standing on the truth and not on wishful thinking that is the product of overactive imaginations.
The ingredients for the “perfect storm” that so many watchmen have been warning about for ages are starting to come together right before our eyes. We are closer to World War III than we have been in decades, our politicians are openly admitting that our relations with Russia are at “an all-time low”, the federal government is 20 trillion dollars in debt, our nation is on the verge of being torn apart by strife and civil unrest, the financial markets are primed for a crash of epic proportions, there are mass die-offs of animals all over the globe, and natural disasters are happening with frightening regularity as the crust of our planet rattles and shakes.
But we are somehow supposed to believe that “everything is going to be wonderful” even though we continue to kill babies on an industrial scale, just about every form of sexual immorality that you can possibly imagine is exploding all around us, our “entertainment” industry is an open sewer, and we lead the world in both legal and illegal drug use.
I’ve got dozens more facts that I could quote regarding our moral decay, but I think that you get the point.
If we actually changed our behavior, I could understand why it would make sense for America to be blessed.
But we haven’t changed our behavior, and there are no signs that this is going to happen any time soon.
As humans, we have the freedom to choose, but those choices inevitably have consequences.
The same thing is true for our nation as a whole. We have made a whole bunch of exceedingly bad choices, and those choices are going to result in some incredibly painful consequences.
So you can do whatever you want, but my wife and I are going to continue to get prepared. America is headed for a date with disaster, and those that are suggesting otherwise are not being honest with you.
In 2008, subprime mortgages almost single-handedly took down the entire financial system, and now a new subprime crisis is here. In recent years, the auto industry has been able to boost sales by aggressively pushing people into auto loans that they cannot afford. In particular, auto loans made to consumers with subprime credit have been accounting for an increasingly larger percentage of the market. Unfortunately, when you make loans to people that should not be getting them, eventually a lot of those loans are going to start to go bad, and that is precisely what is happening now. Meanwhile, automakers and dealers are starting to panic as sales have begun to fall and used car prices have started to crash. If you work in the auto industry, you might remember how horrible the last recession was, and this new downturn could eventually turn out to be even worse. The following are 12 signs that a day of reckoning has arrived for the U.S. auto industry…
#1 Seven out of the eight largest automakers in the United States fell short of their sales projections in March.
#2 Overall, U.S. auto sales so far in 2017 have been described as a “disaster” despite record spending on consumer incentives by automakers.
#3 Dealer inventories are now at the highest level that we have seen since the last financial crisis. Why this is so troubling is because there are a whole lot of unsold vehicles just sitting there doing nothing, and this is becoming a major financial problem for many dealers.
#4 It now takes an average of 74 days before a dealer is able to sell a new vehicle. This number is also the highest that it has been since the last financial crisis.
#5 Not only is Ford projecting that sales will fall this year, they are also projecting that sales will fall in 2018 as well.
#6 Used vehicle prices are already starting to decline dramatically…
The used-vehicle price index from the National Automobile Dealers Association posted a 3.8% decline in February compared to the prior month. NADA also said wholesale prices fell 1.6%.
#7 As I discussed yesterday, Morgan Stanley is projecting that used car prices “could crash by up to 50%” over the next four or five years.
#8 Right now, more than a million Americans are behind on their payments on their auto loans. This is something that has not happened since the last financial crisis.
#9 In 2017, U.S. consumers are more “underwater” on their auto loans than they have ever been before.
#10 Subprime auto loan losses have soared to their highest level since the last financial crisis, and the delinquency rate on those loans has risen to the highest level that we have seen since the last financial crisis. By now, I am sure that you are starting to notice a pattern in these data points.
#11 At this moment, approximately $200,000,000,000 has been loaned out by auto lenders to consumers with subprime credit.
#12 Just like with subprime mortgages in the run up to the last financial crisis, subprime auto loans have been bundled together and sold as “securities” to investors. And just like last time around, this has turned out to be a recipe for disaster…
Many auto loans, including those considered subprime, are securitized and sold to investors. But Morgan Stanley recently reported that the share of auto securities tied to “deep subprime” loans – those given to borrowers with a FICO credit score below 550 — has risen from 5.1 percent in 2010 to 32.5 percent today. It said defaults on those bonds have risen significantly in the past five years.
Almost a quarter of the more than $1.1 trillion in U.S. auto loan debt is owed by subprime borrowers, and delinquency rates have hit their highest point in seven years.
In the old days, you could always count on the U.S. auto industry to bounce back eventually because of the economic strength of average U.S. consumers.
Unfortunately, the middle class in America is being systematically hollowed out by long-term economic trends that our leaders in Washington D.C. have consistently ignored.
We have become a nation of economic extremes. There are more millionaires in this country than ever before, but meanwhile poverty is exploding in communities all over the country.
If you live in a prosperous area, things may be going great where you live for the moment. But as Gallup has discovered, an all-time record high percentage of Americans are worrying “a great deal” about hunger and homelessness these days…
Over the past two years, an average of 67% of lower-income U.S. adults, up from 51% from 2010-2011, have worried “a great deal” about the problem of hunger and homelessness in the country. Concern has also increased among middle- and upper-income Americans, but they still worry far less than do lower-income Americans.
You may have plenty of money in your bank account, and so for you hunger and homelessness are not very big issues. But for those that are just scraping by from month to month, having enough food and a place to sleep at night are top priorities. Here is more from Gallup…
Americans at all income levels are expressing greater concern about hunger and homelessness, and it is the top worry among lower-income Americans, who are most likely to struggle to pay for adequate food and housing.
In addition to the woes of the auto industry, the retail industry is going through the worst wave of store closings in modern American history, pension funds are melting down all over the nation, and stocks are primed for a crash of epic proportions. Things are lining up just right for the kind of scenario that I laid out in The Beginning Of The End, but unfortunately most people are not listening to the warnings.
The same thing happened just before the great financial crisis of 2008. All of the warning signs were there well in advance, and many of the experts were warning about what was coming as early as 2005. But because it did not happen immediately, a lot of people greatly mocked the warnings.
But then the fall of 2008 arrived and all of the mockers suddenly went silent.
As you can see from the numbers that I shared above, a new crisis has already arrived.
The only question now is how bad it will ultimately turn out to be.
As always, let us hope for the best, but let us also get prepared for the worst.
Have you ever thought about what comes after the bubble? In 2008 we got a short preview of what life will be like, but most Americans seem to have come to the conclusion that the last financial crisis was just a minor bump in the road toward endless economic prosperity. But of course the truth is that the ridiculously high debt-fueled standard of living that we are enjoying now is not sustainable, and after this bubble bursts it will be an extremely painful adjustment for our society.
Since the last financial crisis, the U.S. national debt has nearly doubled, corporate debt has doubled, stock valuations have reached exceedingly ridiculous extremes, the student loan debt bubble has surpassed a trillion dollars, we are facing the largest unfunded pension crisis in U.S. history, and in many parts of the country (particularly the west coast) we are facing a housing bubble that is even worse than the one that burst in 2007 and 2008.
And even with all of these bubbles, U.S. GDP growth has been absolutely anemic. Even if you believe the grossly manipulated numbers that the federal government puts out, the U.S. economy grew at a “miserably low” rate of just 1.6 percent in 2016…
In terms of GDP, the fourth quarter was revised up slightly, but there were adjustments for prior quarters, and overall GDP growth for the year 2016 remained at a miserably low 1.6%. We’ve come to call this the “stall speed.” It’s difficult for the US economy to stay aloft at this slow speed. As Q4 gutted any hopes for a strong finish, GDP growth in 2016 matched the worst year since the Great Recession.
And corporate profits, despite a stock market that has been surging for years, are even worse. A lot worse. They’ve declined for years. In fact, they declined for years during the prior two stock market bubbles, the dotcom bubble and the pre-Financial-Crisis bubble. Both ended in crashes.
Things have continued to get even worse early in 2016. At this point, it is being projected that U.S. GDP will grow at an annual rate of just 0.9 percent during the first quarter of 2017.
So anyone that tries to tell you that the U.S. economy is in good shape is simply not being honest with you.
But even though things don’t look great now, they are going to look far, far worse after the biggest debt bubble in human history bursts.
For example, what do you think that America will look like after half of all stock market wealth disappears? In a recent note to his clients, John P. Hussman stated that his team is projecting that by the end of this current market cycle “roughly half of U.S. equity market capitalization – $17 trillion in paper wealth – will simply vanish”.
And of course that projection lines up perfectly with what I have been saying for quite a while. In order for key measures of stock market valuation (such as CAPE, etc.) to return to their long-term averages, stocks are going to have to fall at least 40 to 50 percent from their current levels.
As this coming crisis unfolds, other asset classes will experience astounding downturns as well. This week, Morgan Stanley (one of the too big to fail banks) released a report that said that used car prices “could crash by up to 50%” over the next several years…
For months we’ve been talking about the massive lending bubble propping up the U.S. auto market. Now, noting many of the same concerns that we’ve highlighted repeatedly, Morgan Stanley’s auto team, led by Adam Jonas, has just issued a report detailing why they think used car prices could crash by up to 50% over the next 4-5 years.
Housing prices are primed for a major plunge as well. This is especially true on the west coast where tech money and foreign purchasers from Asia have pushed home values up to dizzying levels. Half a million dollars will be lucky to get you a “starter home” in San Francisco, and it was being reported that one poor techie living there was paying $1400 a month just to live in a closet. Many believe that some cities on the west coast will be quite fortunate if home values only go down by 50 percent during the coming crash.
Everywhere you look there are bubbles. In a recent piece, Daniel Lang pointed out some more of them…
- Eric Rosengren, the president of the Federal Reserve Bank of Boston, recently made a startling tacit admission. We may be in the midst of yet another real estate bubble. Major financial institutions in this country are in possession of over $14 trillion worth of residential real estate loans. That’s well over $40,000 for every man woman and child in America.
- Low interest rates have fueled a bubble in subprime auto loans, and that bubble appears to be reaching its limits. There are now over 1 million ordinary and subprime auto loans that are delinquent, a number that hasn’t been this high since 2009.
- There is now well over a trillion dollars worth of student loan debt in this country; much of it owned by low income families. And there’s little hope that these students will ever see a return on their investment. That’s why at least 27% of student loans are in default. While more than one in four students are in default now, that number was one in nine a decade ago. And if current trends continue, there could be $3.3 trillion of student loan debt by the end of the next decade.
At some point the imbalances become just too great and the system collapses in upon itself.
In other words, we are heading for a massive implosion.
And once the implosion happens, people are going to go absolutely nuts. Anger and frustration are already rising to the boiling point all over the country, and it isn’t going to take much to push millions of Americans completely over the edge.
In a recent interview with Greg Hunter, author James Rickards warned that when things get really bad in America we could actually see what he refers to as “money riots”…
So, could we be facing a “Mad Max” world if the financial system totally crashes? Rickards says, “In ‘Road to Ruin,’ I talk about what I call the money riots. There is a lot of reasons for rioting. When you start shutting banks and the stock exchange and they say you can’t get your money, it’s only temporary, trust us, people will go out and start to burn down banks. The government is ready for that also with emergency response and martial law. . . . Governments don’t go down without a fight. . . . You can see the shutdown coming because they will try to buy time until they come up with a solution, whether it’s gold, Special Drawing Rights (SDR), guarantees or whatever it might be. There are only two or three possibilities here, but all of them will take time, and they will have to shut down the system. . . . People will not sit for that. So, that means people will riot. They’ll burn down banks. They will smash windows, but what is the reaction to that? The answer is martial law, militarized police, actual military units and you get something that looks like fascism pretty quickly.”
I very much agree with his assessment.
All it is going to take is another major financial crisis and this nation will go completely and utterly insane.
Unfortunately, all of our long-term economic problems have proceeded to get a lot worse since the last time around, and so when things fall apart this time we will likely be looking at a scenario that is absolutely unprecedented in American history.
A lot of people have become very complacent out there these days, but that is a huge mistake.
Just because a crisis is delayed does not mean that it is canceled. And because our leaders have kept making this economic bubble larger and larger, that just means that the coming crisis will be even more painful than it otherwise could have been.
We always knew that this would start happening. Earlier this month, I wrote about the severe economic problems that are plaguing South America, but up to this point I have neglected to discuss the horrific famines that are breaking out all over Africa. Right now there is a desperate need for food in South Sudan, Somalia, northeast Nigeria, Eritrea and Kenya. And Yemen, even though it is not technically part of Africa, is being affected by many of the same factors that are crippling nations all over eastern Africa. The United Nations says that more than 20 million people could die from starvation and disease if nothing is done. When I write about economic collapse, this is the kind of thing that I am talking about, and we are starting to see alarming conditions spread across the globe. Many believe that we could never possibly face this kind of food crisis in the western world, but unfortunately wishful thinking will only get you so far.
The United Nations was formed in 1945, and the UN has just announced that what we are facing this year is “the largest humanitarian crisis since the creation of the UN”. The following comes from a CNN article entitled “20 million at risk of starvation in world’s largest crisis since 1945, UN says“…
“We stand at a critical point in history. Already at the beginning of the year we are facing the largest humanitarian crisis since the creation of the UN,” UN humanitarian chief Stephen O’Brien said Friday.
“Now, more than 20 million people across four countries face starvation and famine. Without collective and coordinated global efforts, people will simply starve to death. Many more will suffer and die from disease.”
It would be hard to overstate the level of human suffering that we are witnessing in many parts of Africa at this moment. In Somalia, the UN estimates that more than 6 million people are in desperate need of food aid…
As Somalia inches closer to a calamitous famine, the prospect of utter devastation and colossal loss of human life is once again becoming an imminent reality. The humanitarian situation in Somalia is deteriorating by the day with up to 6.2 million people in need of urgent aid. People across Somalia have been forced to walk hundreds of miles in search of food, water and shelter- with women and children disproportionately affected. Over 300,000 children under the age of five are severely malnourished, with over 200,000 more children at risk of acute malnutrition.
In South Sudan, close to half the population is in dire need of assistance, and things have gotten so bad there that people will literally eat grass if they can find it…
Across South Sudan more than one million children are believed to be acutely malnourished and UNICEF have said that if urgent aid does not reach them, many of them will die. “There is no food, we eat anything we can find,” one South Sudanese mother told ITV. “We will find grass, we will eat it. That’s just the way it us for us now.”
Over in Yemen, there are about seven million people in need of food help, and authorities are warning that if nothing is done “millions of children” could starve to death…
“The numbers affected are absolutely extraordinary,” said Mark Kaye, Save the Children’s Yemen spokesperson.
“We keep on talking about a country that’s on the brink of famine, but for me these numbers highlight that we’re at the point of no return. If things are not done now we are going to be looking back on this and millions of children will have starved to death, and we’ll all have been aware of this for some time. That will shame us as an international community for years to come.
Eritrea was not specifically included in the recent UN alert, but it should have been. Much of the country has been hit by a crippling drought, and approximately half of all children in Eritrea are stunted…
But we cannot understand why Eritrea is not included in the appeal. Unicef has confirmed what we know from our friends and families inside the country. In a report in January, the agency said that the El Niño drought has hit half of all Eritrea’s regions. Acute malnutrition is widespread. As Unicef put it: “Malnutrition rates already exceeded emergency levels, with 22,700 children under five projected to suffer from severe acute malnutrition in 2017 … Half of all children in Eritrea are stunted, and as a result, these children are even more vulnerable to malnutrition and disease outbreaks.”
We have been warned that there would be famines in diverse places in these times. But here in the western world we tend to be lulled into a false sense of security by our comfortable lives, not realizing that the massively inflated standard of living that we have been enjoying has been fueled by the largest mountain of debt in the history of the planet.
In Kenya, a national emergency has been declared due to drought and famine. For those of you that are parents, what would you do if your children were crying out for food but you didn’t have anything to give them? The following story from Kenya is beyond heartbreaking…
Emmanuel Ayapar is three years old and can no longer walk. The flesh on his legs, which dangle from his mother’s hip as she carries him around, is wasting away.
He seems listless and sad, tongue flicking repeatedly in and out of his mouth.
‘We do not have enough food,’ said Veronica, his 28-year-old mother. ‘We eat only once a day.’
The little boy is suffering from severe malnutrition and is at risk of starving to death. He weighs just 15lb – half the typical weight for a boy of his age.
I don’t even know what to say after that.
In the western world we can be so incredibly self-absorbed that we don’t even realize that children are literally starving to death on the other side of the planet.
Hopefully those of us that live in “wealthy” western countries will step up to the plate and aid those in need, and hopefully this crisis will also help us to understand that we need to prepare for the day when things get difficult in our own nations too.
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…
Has the Federal Reserve gone completely insane? On Wednesday, the Fed raised interest rates for the second time in three months, and it signaled that more rate hikes are coming in the months ahead. When the Federal Reserve lowers interest rates, it becomes less expensive to borrow money and that tends to stimulate more economic activity. But when the Federal Reserve raises rates , that makes it more expensive to borrow money and that tends to slow down economic activity. So why in the world is the Fed raising rates when the U.S. economy is already showing signs of slowing down dramatically? The following are 12 reasons why the Federal Reserve may have just made the biggest economic mistake since the last financial crisis…
#1 Just hours before the Fed announced this rate hike, the Federal Reserve Bank of Atlanta’s projection for U.S. GDP growth in the first quarter fell to just 0.9 percent. If that projection turns out to be accurate, this will be the weakest quarter of economic growth during which rates were hiked in 37 years.
#2 The flow of credit is more critical to our economy than ever before, and higher rates will mean higher interest payments on adjustable rate mortgages, auto loans and credit card debt. Needless to say, this is going to slow the economy down substantially…
The Federal Reserve decision Wednesday to lift its benchmark short-term interest rate by a quarter percentage point is likely to have a domino effect across the economy as it gradually pushes up rates for everything from mortgages and credit card rates to small business loans.
Consumers with credit card debt, adjustable-rate mortgages and home equity lines of credit are the most likely to be affected by a rate hike, says Greg McBride, chief analyst at Bankrate.com. He says it’s the cumulative effect that’s important, especially since the Fed already raised rates in December 2015 and December 2016.
#3 Speaking of auto loans, the number of people that are defaulting on them had already been rising even before this rate hike by the Fed…
The number of Americans who have stopped paying their car loans appears to be increasing — a development that has the potential to send ripple effects through the US economy.
Losses on subprime auto loans have spiked in the last few months, according to Steven Ricchiuto, Mizuho’s chief US economist. They jumped to 9.1% in January, up from 7.9% in January 2016.
“Recoveries on subprime auto loans also fell to just 34.8%, the worst performance in over seven years,” he said in a note.
#4 Higher rates will likely accelerate the ongoing “retail apocalypse“, and we just recently learned that department store sales are crashing “by the most on record“.
#5 We also recently learned that the number of “distressed retailers” in the United States is now at the highest level that we have seen since the last recession.
#6 We have just been through “the worst financial recovery in 65 years“, and now the Fed’s actions threaten to plunge us into a brand new crisis.
#7 U.S. consumers certainly aren’t thriving, and so an economic slowdown will hit many of them extremely hard. In fact, about half of all Americans could not even write a $500 check for an unexpected emergency expense if they had to do so right now.
#8 The bond market is already crashing. Most casual observers only watch stocks, but the truth is that a bond crash almost always comes before a stock market crash. Bonds have been falling like a rock since Donald Trump’s election victory, and we are not too far away from a full-blown crisis. If you follow my work on a regular basis you know this is a hot button issue for me, and if bonds continue to plummet I will be writing quite a bit about this in the weeks ahead.
#9 On top of everything else, we could soon be facing a new debt ceiling crisis. The suspension of the debt ceiling has ended, and Donald Trump could have a very hard time finding the votes that he needs to raise it. The following comes from Bloomberg…
In particular, the markets seem to be ignoring two vital numbers, which together could have profound consequences for global markets: 218 and $189 billion. In order to raise or suspend the debt ceiling (which will technically be reinstated on March 16), 218 votes are needed in the House of Representatives. The Treasury’s cash balance will need to last until this happens, or the U.S. will default.
The opening cash balance this month was $189 billion, and Treasury is burning an average of $2 billion per day – with the ability to issue new debt. Net redemptions of existing debt not held by the government are running north of $100 billion a month. Treasury Secretary Steven Mnuchin has acknowledged the coming deadline, encouraging Congress last week to raise the limit immediately.
If something is not done soon, the federal government could be out of cash around the beginning of the summer, and this could create a political crisis of unprecedented proportions.
#10 And even if the debt ceiling is raised, that does not mean that everything is okay. It is being reported that U.S. government revenues just experienced their largest decline since the last financial crisis.
#11 What do corporate insiders know that the rest of us do not? Stock purchases by corporate insiders are at the lowest level that we have seen in three decades…
It’s usually a good sign when the CEO of a major company is buying shares; s/he is an insider and knows what’s going on, so their confidence is a positive sign.
Well, according to public data filed with the Securities and Exchange Commission, insider buying is at its LOWEST level in THREE DECADES.
In other words, the people at the top of the corporate food chain who have privileged information about their businesses are NOT buying.
#12 A survey that was just released found that corporate executives are extremely concerned that Donald Trump’s policies could trigger a trade war…
As business leaders are nearly split over the effectiveness of Washington’s new leadership, they are in unison when it comes to fears over trade and immigration. Nearly all CFOs surveyed are concerned that the Trump administration’s policies could trigger a trade war between the United States and China.
A decline in global trade could deepen the economic downturns that are already going on all over the planet. For example, Brazil is already experiencing “its longest and deepest recession in recorded history“, and right next door people are literally starving in Venezuela.
After everything that you just read, would you say that the economy is “doing well”?
Of course not.
But after raising rates on Wednesday, that is precisely what Federal Reserve Chair Janet Yellen told the press…
“The simple message is — the economy is doing well.” Federal Reserve Chair Janet Yellen said at a news conference. “The unemployment rate has moved way down and many more people are feeling more optimistic about their labor prospects.”
However, after she was challenged with some hard economic data by a reporter, Yellen seemed to change her tune somewhat…
Well, look, our policy is not set in stone. It is data- dependent and we’re — we’re not locked into any particular policy path. Our — you know, as you said, the data have not notably strengthened. I — there’s noise always in the data from quarter to quarter. But we haven’t changed our view of the outlook. We think we’re on the same path, not — we haven’t boosted the outlook, projected faster growth. We think we’re moving along the same course we’ve been on, but it is one that involves gradual tightening in the labor market.
Just like in 2008, the Federal Reserve really doesn’t understand the economic environment. At that time, Federal Reserve Chair Ben Bernanke assured everyone that there was not going to be a recession, but when he made that statement a recession was actually already underway.
And as I have said before, I wouldn’t be surprised in the least if it is ultimately announced that GDP growth for the first quarter of 2017 was negative.
Whether it happens now or a bit later, the truth is that the U.S. economy is heading for a new recession, and the Federal Reserve has just given us a major shove in that direction.
Is the Fed really so clueless about the true state of the economy, or could it be possible that they are raising rates just to hurt Donald Trump?
I don’t know the answer to that question, but clearly something very strange is going on…