House Of Cards: Netflix Is One Of The Poster Children For Tech Bubble 2.0

How can a company that is going to generate $2,000,000,000 in negative free cash flow in 2017 be worth 70 billion dollars?  Netflix has soared in popularity in recent years, but so have their financial losses.  Just like during the original tech bubble, investors are ignoring basic fundamentals and are greatly rewarding firms that are bleeding giant mountains of cash year after year just because they are trendy “tech companies”.  But somewhere along the line you actually have to quit losing money if you are going to survive.  Just ask tech bubble 1.0 victims Pets.com, Webvan and Etoys.com.  The investors that poured enormous amounts of money into those companies ended up losing everything, and similar tragedies will play out as tech bubble 2.0 bursts.

So far in 2017, the S&P 500 is up about 8 percent, but FANG stocks (Facebook, Amazon, Netflix and Google) are up a whopping 30 percent.

But at least Facebook, Amazon and Google are making money.

Netflix is not.

So why in the world has the stock shot up by more than 30 percent so far this year?  It just doesn’t make any sense at all.  According to CNBC, during the first quarter Netflix had $423 million in negative free cash flow, and for the entire year it is being projected that it will have $2 billion in negative free cash flow…

The California-based company is now dumping cash into original content to maintain its dominance over its growing field of rivals. The company’s had $423 million negative free cash flow during the quarter, wider than the $261 million negative free cash flow a year ago. Netflix expects to have $2 billion in negative free cash flow this year.

The bleeding of cash at Netflix only seems to be accelerating.  The number for the first quarter of 2017 was 62 percent worse than the number for the first quarter of 2016, and it was more than twice as bad as the number for the first quarter of 2015.

It is hard to imagine that Netflix will ever be more popular than it is right now.

So if Netflix is not making a profit at this point, when will it ever make a profit?

Similar things could be said about Twitter.  This is a company that has never made a yearly profit and that is actually starting to see revenues decline.  But somehow the stock just continues to go up.  Since the last time I wrote about Twitter, the market cap has shot up another 1.5 billion dollars.

At this point, the market values Twitter at 13 billion dollars, but in the entire history of the company it has actually lost 2 billion dollars.

What we are witnessing is a modern day version of “tulip mania”, and at some point this irrational euphoria will come to a sudden end.  In fact, there are already some signs that tech bubble 2.0 may be in a significant amount of trouble.  The following is an excerpt from a Bloomberg article entitled “Investors Go All-In on Tech Giants”

The tech-powered rally has catapulted the sector to a price-to-earnings ratio of 24.4, or 41 percent above the 10-year average. But as Google and Amazon stretch to nearly $1,000 a share, not everyone is comfortable with the valuations. Investors pulled more than $716 million from the most popular technology exchange-traded fund last week — the $17.4 billion Technology Select Sector SPDR Fund, or XLKits largest weekly outflow in over a year, data compiled by Bloomberg show.

“Most everybody remembers 2000, so they might be getting a little nervous with this development,” said Maley. “I just wonder how many people have said to themselves, ‘If AMZN gets to $1,000, I’m going to take at least some profits.’”

All over the financial world, prominent voices are warning that the enormous financial bubbles that we see all around us are not sustainable and that a major crisis is heading our way.  I wrote about some of these voices yesterday, and today we can add Paul Singer to the list…

Given groupthink and the determination of policy makers to do ‘whatever it takes’ to prevent the next market ‘crash,’ we think that the low-volatility levitation magic act of stocks and bonds will exist until the disenchanting moment when it does not. And then all hell will break loose (don’t ask us what hell looks like…), a lamentable scenario that will nevertheless present opportunities that are likely to be both extraordinary and ephemeral. The only way to take advantage of those opportunities is to have ready access to capital.

When the financial markets collapse, Donald Trump will likely get most of the blame.

But Donald Trump did not create the stock market bubble, and he will not be responsible for ending it either.

Since the Federal Reserve was created in 1913, we have seen this same story play out over and over again.  There have been 18 distinct recessions or depressions since the Fed was established, and the more the Fed interferes in the marketplace the larger the booms and busts tend to be.

And it could be argued that this time around the Fed has manipulated financial markets more than ever before.  Interest rates were pushed as low as possible and trillions of dollars were pumped into the financial system during the Fed’s quantitative easing programs.  Of course those actions were going to create a huge bubble, and of course that bubble is going to inevitably burst.

Unfortunately, this is not just a game.  Real people with real hopes and real dreams are going to be absolutely devastated.  Millions of Americans that were carefully saving for retirement are going to be financially crippled, and pension funds all over the nation are going to be wiped out.

I don’t know why we can’t seem to learn from history.  And I am not talking about events that happened decades ago.  The build up to this coming crisis is so similar to what we witnessed just before the crashes of 2000 and 2008, but we just keep getting fooled over and over again.

But once things fall apart this time, I think that the American people will finally be fed up.  I think that they will be sick and tired of an unelected, unaccountable central bank that creates endless booms and busts, and I think that they will finally be ready to push Congress to shut the Federal Reserve down for good.

5 Highly Respected Financial Experts That Are Warning That A Market Crash Is Imminent

If everything is going to be “just fine”, why are so many big names in the financial community warning about an imminent meltdown?  I don’t think that I have seen so many simultaneous warnings about a market crash since just before the great financial crisis of 2008.  And at this point, you would have to be quite blind not to see that stocks are absurdly overvalued and that a correction is going to happen at some point.  And when stocks do start crashing, lots of fingers are going to start pointing at President Trump, but it won’t be his fault.  The Federal Reserve and other central banks are primarily responsible for creating this bubble, and they should definitely get the blame for what is about to happen to global financial markets.

My regular readers are quite familiar with my thoughts on where the market is headed, so today let me share some thoughts from five highly respected financial experts…

#1 When Altair Asset Management’s chief investment officer Philip Parker was asked if a market crash was coming to Australia, he said that he has “never been more certain of anything in my life”.  In fact, he is so sure that the investments that his hedge fund is managing are going to crash that a decision was made to liquidate the fund “and return ‘hundreds of millions’ of dollars to its clients”

While hardly a novel claim – in the past many have warned that Australia’s housing and stock market are massive asset bubbles (which local banks have been forced to deny as their fates are closely intertwined with asset prices even as the RBA is increasingly worried) – so far few if any have gone the distance of putting their money where their mouth was. That changed, when Australian asset manager Altair Asset Management made the extraordinary decision to liquidate its Australian shares funds and return “hundreds of millions” of dollars to its clients according to the Sydney Morning Herald, citing an impending property market “calamity” and the “overvalued and dangerous time in this cycle”.

Giving up management and performance fees and handing back cash from investments managed by us is a seminal decision, however preserving client’s assets is what all fund managers should put before their own interests,” Philip Parker, who serves as Altair’s chairman and chief investment officer, said in a statement on Monday quoted by the SMH.

#2 Seth Klarman leads one of the biggest hedge funds in the United States, and he believes that U.S. investors are greatly underestimating the amount of risk in the market right now…

“When share prices are low, as they were in the fall of 2008 into early 2009, actual risk is usually quite muted while perception of risk is very high,” Klarman wrote. “By contrast, when securities prices are high, as they are today, the perception of risk is muted, but the risks to investors are quite elevated.”

Klarman oversees one of the US’s largest hedge fund firms, with some $30 billion under management. He has a huge following on Wall Street — investors named his book, “Margin of Safety,” their favorite investment book in a recent SumZero survey.

#3 Bill Blain is a strategist at Mint Partners, and he is actually specifically pointing to October 12th as the date when things will start to get “horribly interesting”

But…. Catch a falling knife, why don’t you… I shall spend the summer wondering just how long the Stock Market games continue. When, not if.

At the moment, my prediction is October 12th. Around that day its going to get horribly interesting..

Why that particular day?

Gut feel and knowing how the Bowl of Petunias felt in Hitchhikers. (“Not again.”)

There are just too many contradictory currents out there. The unsustainability of burgeoning consumer debt, unfeasibly tight credit spreads, the sandcastle foundations of student loans, autos, housing and the CLO market, China, Trump, politics.. worries about what follows Brazil in the EM market, and whatever… The risks of a massive consumer sentiment dump..  

#4 David Stockman has also been warning about what may happen this fall.  According to Stockman, this current stock market bubble “is the greatest sucker’s rally we have ever seen”

The market is insanely valued right now.  They were trying to tag, the robo machines and day traders, they were trying to tag 2,400 on the S&P 500.  They ended up at 2,399, I think, but the point is that represents about 25 times trailing earnings for 2016.  We are at a point in the so-called recovery that has already lasted 96 months.  It’s almost the longest one in history.  What the market is saying is we have reached the point of full employment forever.  There will never be another recession or any kind of economic surprise or upset or dislocation.  The market is pricing itself for perfection for all of eternity.  This is crazy. . . . I think the market could easily drop to 1,600 or 1,300.  It could drop by 40% or even more once the fantasy ends. When the government shows its true colors, that it’s headed for a fiscal bloodbath when this crazy notion that there is going to be some Trump fiscal stimulus is put to rest once and for all.  I mean it’s not going to happen.  They can’t pass a tax cut that big without a budget resolution that incorporated $10 trillion or $15 trillion in debt over the next decade.  It’s just not going to pass Congress. . . . I think this is the greatest sucker’s rally we have ever seen.

#5 Last but certainly not least, David Kranzler seems quite certain “that the stock market bubble is getting ready to pop”

Anyone happen to notice that several market commentators have argued that Bitcoin is a bubble but the same stock “experts” look the other way as the U.S. stock market becomes more overvalued by the day vs. the deteriorating underlying fundamentals? Bitcoin going “parabolic” triggers alarm bells but it’s okay if the stock price of Amazon.com Inc (NASDAQ:AMZN) is hurtling toward parity with the price of one ounce of gold. Tesla (NASDAQ:TSLA) burns a billion per year in cash. It sold 76,000 cars last year vs. 10 million worldwide for General Motors (NYSE:GM). Yet Tesla’s market cap is $51.7 billion vs. $48.8 billion for GM.

This insanity is the surest sign that the stock market bubble is getting ready to pop. If you read between the lines of the the comments from certain Wall Street analysts, the only justification for current valuations is “Central Bank liquidity” and “Fed support of asset values.” This is the most dangerous stage of a market top because it draws in retail “mom & pop” investors who can’t stop themselves from missing out on the next “sure thing.” There will be millions of people who are permanently damaged financially when the Fed loses control of this market. Or, as legendary “vulture” investor Asher Edelman stated on CNBC, “I don’t want to be in the market because I don’t know when the plug is going to be pulled.”

Could all of these top experts be wrong?

It’s possible, but I wouldn’t bet on it.

Every stock market bubble of this magnitude in U.S. history has ended in a spectacular crash, and this one will not be any different.  We can certainly have some good arguments about the exact timing of the next crash, but what everyone should be able to agree on is that a crash is coming.

You only make money in the stock market if you get out at the right time.  Many of those that timed things well have made a tremendous amount of money, but most investors will be entirely caught off guard by the market implosion that is rapidly approaching.

As I have explained to my readers repeatedly, markets tend to go down a whole lot faster than they go up, and in the not too distant future we are going to see trillions of dollars of investor wealth wiped out very, very quickly.

Let’s hope that the coming crisis will not be as bad as 2008, but I have a feeling that it is going to be much worse.

We didn’t learn our lessons the last time around, and so now we are going to pay a very high price for our stubbornness.

The Next Stock Market Crash Will Be Blamed On Donald Trump But It Will Be The Federal Reserve’s Fault Instead

A stock market crash is coming, and the Democrats and the mainstream media are going to blame Donald Trump for it even though it won’t be his fault.  The truth is that we were headed for a major financial crisis no matter who won the election.  The Dow Jones Industrial Average is up a staggering 230 percent since the lows of 2009, and no stock market rally in our history has ever reached the 10 year mark without at least a 20 percent downturn.  At this point stocks are about as overvalued as they have ever been, and every other time we have seen a bubble of this magnitude a historic stock market crash has always followed.  Those that are hoping that this time will somehow be different are simply being delusional.

Since November 7th, the Dow is up by about 3,000 points.  That is an extremely impressive rally, and President Trump has been taking a great deal of credit for it.

But perhaps he should not have been so eager to take credit, because what goes up must come down.  The following is an excerpt from a recent Vanity Fair article

According to Douglas Ramsay, chief investment officer of the Leuthold Group, Trump administration officials will come to regret gloating about the market’s performance. That’s because Trump enters the White House during one of the most richly valued stock markets in U.S. history. The last president to come in at such valuations was George W. Bush, and the dot-com bubble burst soon afterward. Bill Clinton began his second term in a more overvalued stock market in 1997, and exited unscathed. But if his timing were different by just a year, he would have been blamed for the early-aughts market crash.

This stock market bubble was not primarily created by Barack Obama, Donald Trump or any other politician.  Rather, the Federal Reserve was primarily responsible for creating it by pushing interest rates all the way to the floor during the Obama era and by flooding the financial system with hot money during several stages of quantitative easing.

But now the economy is slowing down.  Economic growth on an annual basis was just 0.7 percent during the first quarter, and yet the Federal Reserve is talking about raising interest rates anyway.

The Federal Reserve also raised interest rates in a slowing economy in the late 1930s, and that had the effect of significantly extending the economic problems during that decade.

As I noted in my article entitled “The Federal Reserve Must Go”, there have been 18 recessions or depressions since the Federal Reserve was created in 1913, and now we stand on the precipice of another one.

After this next crisis, hopefully Congress will finally understand that it is time to shut the Federal Reserve down for good, and I am going to do all that I can to make that happen.

Ron Paul is someone that I look up to greatly, and he also agrees that the blame for the coming crisis should be placed on the Federal Reserve instead of on Trump…

“There are some dire predictions that say in the next year, or 18 months, we have something arriving worse than 2008 and 2009, the downturn is much worse,” Paul said in a recent interview with liberty-minded anti-globalist radio host Alex Jones. “They’ll say, ah, it’s all Trump’s fault. No. It wasn’t. 08 and 09 wasn’t Obama’s fault. It was the fault of the Federal Reserve, it was the fault of the Keynesian economic model, the spending too much, the deficit. So, unfortunately, there’s nothing he can do — Trump can’t do it.”

Paul, a medical doctor who took a keen interest in economics throughout his celebrated career as a constitutionalist in Congress, said Trump could “help” the situation by pursuing good policies. “But you can’t avoid the correction, the correction is locked in place, because the deficits are there, the malinvestment, everybody agrees interest rates have been too low too long,” he said in the late January interview. “The only thing he can do is allow the recession to come, get it over with, liquidate the debt. Politically, nobody wants that, so you’re going to see runaway inflation before you see this country wake up.”

Over the past decade, the U.S. economy has grown at an average rate of just 1.33 percent, and there is no possible way to put a positive spin on that.

And now the economy appears to be entering a fresh slowdown.  A couple of months ago, banking giant UBS warned about “a sudden slowdown in new credit”

There’s been a sudden slowdown in new credit extended to businesses over the last year, one that strategists at UBS are calling “drastic” and “highly uncommon outside of economic downturns.”

And since that time, lending has tightened up even more.  The following comes from Zero Hedge

According to the latest Fed data [7], the all-important C&I loan growth contraction has not only continued, but over the past two months, another 50% has been chopped off, and what in early March was a 4.0% annual growth [4]is now barely positive, down to just 2.0%, and set to turn negative in just a few weeks. This was the lowest growth rate since May 2011, right around the time the Fed was about to launch QE2.

At the same time, total loan growth has likewise continued to decline, and as of the second week of May was down to 3.8%, the weakest overall loan creation in three years.

This is exactly what we would expect to see if we were entering a new recession.  Neil Howe, one of the authors of The Fourth Turning, recently warned that “winter is coming” and I have to admit that I agree with him.

So when the stock market finally crashes, how bad could it be?

Well, one analyst that spoke to CNBC said that other historic market crashes have averaged “about 42 percent”…

“If you look at the market historically, we have had, on average, a crash about every eight to 10 years, and essentially the average loss is about 42 percent,” said Kendrick Wakeman, CEO of financial technology and investment analytics firm FinMason.

And as I have explained many times in the past, stocks would have to fall about 40 to 50 percent from current levels just for the stock market to get back to “normal” again.  The valuations that we are seeing today are absolutely insane, and there is no possible way that they are sustainable.

When the crash happens, many people will be pointing their fingers at Trump, but it won’t be his fault.

Instead, it will be the Federal Reserve that will be at fault, and hopefully this coming crisis will convince the American people that it is time to end this insidious debt-based central bank for good.

The Federal Reserve Must Go

If you want to permanently fix America’s economy, there really is no other choice.  Even before Ron Paul’s rallying cry of “End The Fed” shook America during the peak of the Tea Party movement, I was a huge advocate of shutting down the Federal Reserve.  Because no matter how hard we try to patch it up otherwise, the truth is that our debt-based financial system has been fundamentally flawed from the very beginning, and the Federal Reserve is the very heart of that system.  The following is a free preview of an upcoming book that I am working on about how to turn this country is a more positive direction…

*****

As the publisher of The Economic Collapse Blog, there have been times when I have been criticized for focusing too much on our economic problems and not enough on the solutions.  But I believe that in order to be willing to accept the solutions that are necessary, people need to have a full understanding of the true severity of our problems.  It isn’t by accident that we ended up 20 trillion dollars in debt.  In 1913, a bill was rushed through Congress right before Christmas that was based on a plan that had been secretly developed by very powerful Wall Street bankers.  G. Edward Griffin did an amazing job of documenting the development of this plan in his groundbreaking book “The Creature from Jekyll Island: A Second Look at the Federal Reserve”.  At that time, most Americans had no idea what a central bank does or what one would mean for the U.S. economy.  Sadly, even though more than a century has passed since that time, most Americans still do not understand the Federal Reserve.

The Federal Reserve was designed to create debt, and of course the Wall Street bankers were very excited about such a system because it would make them even wealthier.  Since the Fed was created in 1913, the U.S. national debt has gotten more than 5000 times larger and the value of the U.S. dollar has declined by about 98 percent.  So the Federal Reserve is doing what it was originally designed to do.  In fact, it has probably worked better than the original designers ever dreamed possible.

There is often a lot of confusion about the Federal Reserve, because a lot of people think that it is simply an agency of the federal government.  But of course that is not true at all.  In fact, as Ron Paul likes to say, the Federal Reserve is about as “federal” as Federal Express is.

The Fed is an independent central bank that has even argued in court that it is not an agency of the federal government.  Yes, the president appoints the leadership of the Fed, but the Fed and other central banks around the world have always fiercely guarded their “independence”.  On the official Fed website, it is admitted that the 12 regional Federal Reserve banks are organized “much like private corporations”, and they very much operate like private entities.  They even issue shares of stock to the private banks that own them.

In case you were wondering, the federal government has zero shares.

The American people are constantly being told that Fed decisions must be “above politics” because they are “too important” to be politicized.  So even though everything else in our society is up for political debate, somehow we have become convinced that the Federal Reserve should be off limits.

Today, the Federal Reserve has more power over the performance of the U.S. economy than anyone else does, and that includes the president.  The Fed has become known as “the fourth branch of government”, and a single statement from the chairman of the Fed can send global financial markets soaring or tumbling.

So even though presidents tend to get most of the credit or most of the blame for how the U.S. economy is doing, the truth is that the Fed is actually the one pulling most of the strings.  In conjunction with Congress, presidents can monkey around with regulations and tax rates, but at the end of the day their influence over the economy pales in comparison to what the Fed is able to do.

For those that have never encountered this material before, this can be difficult to grasp at first, so let’s start with something very simple.

Go to your wallet or purse and pull out a dollar bill.

At the very top, you will notice that it says “Federal Reserve Note” in big, bold letters.

If you ask 99 percent of the people in the United States where money comes from, they will not be able to tell you.  Our money is actually created and issued by the Federal Reserve, but that is not what our founders intended.  According to Article I, Section 8 of the U.S. Constitution, Congress was expressly given the authority to “coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures”.

So why is the Federal Reserve doing it?

Many Americans are still operating under the assumption that the federal government has a “printing press” and that if we ever get into too much debt trouble the government could simply create and spend lots more money into circulation.

But that is not the way that our system currently operates.

Instead, it is the Federal Reserve that creates all new money.  Once that new money is created, the federal government then borrows it and spends it into circulation.

Previously, I have written about how this works…

When the U.S. government decides that it wants to spend another billion dollars that it does not have, it does not print up a billion dollars.

Rather, the U.S. government creates a bunch of U.S. Treasury bonds (debt) and takes them over to the Federal Reserve.

The Federal Reserve creates a billion dollars out of thin air and exchanges them for the U.S. Treasury bonds.

(http://theeconomiccollapseblog.com/archives/why-donald-trump-must-shut-down-the-federal-reserve-and-start-issuing-debt-free-money)

This doesn’t seem to make any sense at all.

Why does the U.S. government have to borrow money that the Federal Reserve creates?  Why can’t they just create the money themselves?

This is the big secret that nobody is supposed to know about.

Theoretically, the federal government doesn’t have to borrow a penny.  Instead of borrowing money the Federal Reserve creates, it could just create money directly and spend it into circulation.

But then we wouldn’t be 20 trillion dollars in debt.

Once the Federal Reserve has received U.S. Treasury bonds in exchange for the “Federal Reserve Notes” that the federal government has requested, the Fed auctions off those bonds to the highest bidder.  But as I have noted so many times before, this process always creates more debt than it does money…

The U.S. Treasury bonds that the Federal Reserve receives in exchange for the money it has created out of nothing are auctioned off through the Federal Reserve system.

But wait.

There is a problem.

Because the U.S. government must pay interest on the Treasury bonds, the amount of debt that has been created by this transaction is greater than the amount of money that has been created.

So where will the U.S. government get the money to pay that debt?

Well, the theory is that we can get money to circulate through the economy really, really fast and tax it at a high enough rate that the government will be able to collect enough taxes to pay the debt.

But that never actually happens, does it?

And the creators of the Federal Reserve understood this as well. They understood that the U.S. government would not have enough money to both run the government and service the national debt. They knew that the U.S. government would have to keep borrowing even more money in an attempt to keep up with the game.

(http://theeconomiccollapseblog.com/archives/why-donald-trump-must-shut-down-the-federal-reserve-and-start-issuing-debt-free-money)

Beginning in 1913, this process has created an endless debt spiral that has resulted in the U.S. being 20 trillion dollars in debt.  It is the biggest mountain of debt in the history of the world, and it didn’t have to happen.

In fact, if we had been using debt-free money all this time we could theoretically be completely out of debt.

A lot of conservatives out there are still under the illusion that if we could just grow the economy fast enough that we could possibly pay back all of this debt someday, but as I have demonstrated in a previous article, this is mathematically impossible.  (http://theeconomiccollapseblog.com/archives/it-is-mathematically-impossible-to-pay-off-all-of-our-debt)

All of this debt threatens to destroy the bright future that our children and our grandchildren were supposed to have.  It is absolutely immoral to pass such a large debt on to future generations, but we are doing it anyway.

Of course the United States is far from alone in this regard.  Today, more than 99.9% of the population of the world lives in a country that has a central bank.

There is literally nothing else that the entire planet agrees upon almost unanimously, and yet somehow virtually the whole globe has chosen to adopt debt-based central banking.

Do you think that this is just a coincidence?

A handful of extremely small nations such as the Federated States of Micronesia still do not have a central bank, but the only large country not to have one is North Korea.

I don’t understand why more people are not talking about this.  If we really want to reform how things are done economically, it should start with central banking.

The truth is that we do not need a central bank.

Let me say that again.

We do not need a central bank.

The greatest period of economic growth in all of U.S. history was when there was no income tax and no central bank. (http://theeconomiccollapseblog.com/archives/during-the-best-period-of-economic-growth-in-u-s-history-there-was-no-income-tax-and-no-federal-reserve)

Such a system would be unimaginable to many people today, but it is entirely possible.

Instead of a central bank creating debt-based currency for us, the federal government could create debt-free money directly.

And instead of socialist central planners setting our interest rates for us, we could allow the free market to set our interest rates.

We are supposed to be a free market nation with a free market economy, and so we don’t need Fed bureaucrats to run it for us.

The free market will always do a better job in the long run then bureaucrats will.  As I noted earlier, the greatest period of economic growth in U.S. history was right before the Federal Reserve was created in 1913, but since that time there have been 18 distinct recessions or depressions: 1918, 1920, 1923, 1926, 1929, 1937, 1945, 1949, 1953, 1958, 1960, 1969, 1973, 1980, 1981, 1990, 2001, 2008.

Now we stand poised on the brink of another major downturn, and people still aren’t getting it.

As long as the Federal Reserve exists, there will be “booms” and “busts” like this.

It is time for a change.

During the good times, criticism of the Fed tends to subside.  And without a doubt, the bubble following the end of the last recession lasted much longer than a lot of people initially would have thought, but all Fed-created bubbles eventually end.

We desperately need to get free from this system, and a huge step in that direction would be a rejection of debt-based currency.

If you don’t think that this can happen, you should consider what happened in 1963.  President John F. Kennedy signed Executive Order 11110 which authorized the U.S. Treasury to issue debt-free “United States Notes” which were directly created by the federal government.

Unfortunately, he was assassinated shortly after that executive order was signed.

You can still find debt-free “United States Notes” in circulation today, and they are often for sale on auction sites such as eBay because people like to collect them.

At any time, the White House could do something similar today.

All it takes is the willingness to do so.

The borrower is the servant of the lender, and the debt-based Federal Reserve system has turned all of us into debt slaves.

If we do not want future generations of Americans to be enslaved to debt, we need to shut down the Federal Reserve and start using debt-free currency.  Any essential functions that the Fed is currently performing can ultimately be taken over by the U.S. Treasury, and of course we can make the transition gradual so that we don’t completely panic global financial markets.

The global elite are using central banking and debt-based currencies to dominate the planet.  Today, the total amount of debt in the world has shot past 150 trillion dollars, and it will only continue to grow until humanity wakes up and realizes the insanity of using a debt-based financial system.

Here in the United States, we need people in government that understand these things and that are willing to do something about it.

The Federal Reserve must go, and I will never make any apologies for saying that.

Why Donald Trump Must Shut Down The Federal Reserve And Start Issuing Debt-Free Money

great-seal-on-the-dollar-public-domainIf Donald Trump truly wants to fix the economy, he must shut down the Federal Reserve.  If he just tries to patch up our current system, he will fail, because it has been fundamentally flawed from the very beginning.  A little over a century ago, very powerful forces on Wall Street convinced Congress to completely restructure our financial system.  An immensely powerful central bank known as the Federal Reserve was created, and the goal was to transform the U.S. dollar into a debt-based currency that would continuously be inflated and to create an endless debt spiral from which the federal government could never possibly escape.  Sadly, they were successful on both counts.  Since the creation of the Federal Reserve, the value of the U.S. dollar has declined by approximately 98 percent and our national debt has gotten more than 5000 times larger.

Americans tend to give most of the credit or most of the blame for the performance of the U.S. economy to our presidents, but the truth is that an unelected, unaccountable group of central bankers has far more power over our economy than anyone else does.  The Federal Reserve has become known as “the fourth branch of government“, but unlike the other branches of government we are told that the Fed’s decisions are “above politics” because they are “too important”.  Fed officials fiercely guard their “independence”, and they fiercely resist any “interference” from Congress, the President, or the American people.

Donald Trump can try to lower taxes and reduce regulations, but what he will be able to do to influence the economy pales in comparison to the immensely powerful tools that the Fed wields.  The Fed controls interest rates, the Fed controls the money supply, and the Fed regulates the banks.

To give you an idea of how enormously powerful the Fed is, I want you to pull out a dollar bill.

As you look at that dollar bill, I want you to notice that it says “Federal Reserve Note” right at the top.

In the financial world, a “note” is an instrument of debt, and the truth is that our system was designed to create as much debt as possible.

So why are we using debt-based “Federal Reserve Notes” in the first place?  Shouldn’t Congress have control over our currency?

According to Article I, Section 8 of the U.S. Constitution, it is Congress that has the authority to “coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures”.

So how did the Fed get involved?

Well, it is a very long and convoluted story, and if you are interested in the history behind it I would commend to you an excellent book by G. Edward Griffin entitled “The Creature from Jekyll Island: A Second Look at the Federal Reserve“.  Basically, big money interests on Wall Street got their hooks into the White House and Congress, and they rushed through legislation right before Christmas in 1913 that created this insidious central banking system that was designed to slowly but surely take wealth from the American people and put it into their hands.

Sadly, most Americans don’t even realize that we have a debt-based currency, nor do they understand where our money comes from.  In a previous article, I discussed how money is normally created by the Federal Reserve under our current system…

When the U.S. government decides that it wants to spend another billion dollars that it does not have, it does not print up a billion dollars.

Rather, the U.S. government creates a bunch of U.S. Treasury bonds (debt) and takes them over to the Federal Reserve.

The Federal Reserve creates a billion dollars out of thin air and exchanges them for the U.S. Treasury bonds.

The Federal Reserve takes the U.S. Treasury bonds that it receives in exchange for the “Federal Reserve Notes” that it gave to the government and it auctions off those bonds to the highest bidder.  But of course this process always creates more debt than it does money…

The U.S. Treasury bonds that the Federal Reserve receives in exchange for the money it has created out of nothing are auctioned off through the Federal Reserve system.

But wait.

There is a problem.

Because the U.S. government must pay interest on the Treasury bonds, the amount of debt that has been created by this transaction is greater than the amount of money that has been created.

So where will the U.S. government get the money to pay that debt?

Well, the theory is that we can get money to circulate through the economy really, really fast and tax it at a high enough rate that the government will be able to collect enough taxes to pay the debt.

But that never actually happens, does it?

And the creators of the Federal Reserve understood this as well. They understood that the U.S. government would not have enough money to both run the government and service the national debt. They knew that the U.S. government would have to keep borrowing even more money in an attempt to keep up with the game.

So our debt just keeps going up and up and up.  While Barack Obama has been in the White House our national debt has risen by more than 9 trillion dollars, and at this moment it is sitting just under the 20 trillion dollar mark.

But we shouldn’t be surprised by this, because this is precisely what the Federal Reserve system was designed to do to us.

Many conservatives still hold to the mistaken illusion that we could somehow pay all of this debt back someday, but as I have shown in a previous article, this is mathematically impossible to do.

If the government went out today and grabbed every single dollar in existence we could not pay back the national debt, and of course we have trillions of dollars of household debt, trillions of dollars of corporate debt and trillions of dollars of state and local government debt that we need to pay back as well.

Under the current system our only hope is to keep the wheel spinning by continuing to devalue the dollar and by continuing to go into even greater amounts of debt.

And of course it isn’t just the United States that is in this predicament.  At this point, almost every single nation on the entire planet has a central bank.

Even though there are extremely sharp disagreements among nations on virtually everything else, somehow central banking has achieved nearly universal adoption.

As you read this article, well over 99.9% of the population of the globe lives in a country that has a central bank.

Do you think that is just a coincidence?

Of course there are still a few very small countries such as the Federated States of Micronesia that do not have a central bank, but the only big nation not to have one is North Korea.

And you would literally have to be insane to want to live in North Korea.

But now we have an opportunity to get free from this insidious system.  The truth is that we don’t have to have a central bank.  In fact, the greatest period of economic growth in U.S. history was when there was no central bank.

We don’t need central planners to set our interest rates and to manipulate our money supply.  They will never admit this, but the reality of the matter is that their interference in the economy often creates tremendous economic busts.

Since the Federal Reserve was created in 1913, there have been 18 distinct recessions or depressions: 1918, 1920, 1923, 1926, 1929, 1937, 1945, 1949, 1953, 1958, 1960, 1969, 1973, 1980, 1981, 1990, 2001, 2008.

Considering their track record, isn’t it time for a change?

And we don’t have to have a debt-based currency.  In fact, not too long ago we had a president that decided to start issuing debt-free “United States Notes”.

Back in 1963, President John F. Kennedy issued Executive Order 11110 which authorized the U.S. Treasury to issue debt-free “United States Notes” which were directly created by the U.S. government.

He was assassinated shortly thereafter.

Most Americans don’t realize this, but many of the debt-free United States Notes that were issued under President Kennedy are still in circulation today, and President Trump could do something similar.

But will he?

It has been said that the borrower is the servant of the lender, and the Federal Reserve system has turned all of us into debt slaves.

Debt is a form of social control, and the global elite use all of this debt to dominate the planet.  The total amount of debt in the world just hit a brand new record high of 152 trillion dollars, and the longer we allow the central banks to control the system the bigger this debt bubble will become.

There is a way out, and here in the United States that starts with shutting down the Federal Reserve and issuing debt-free currency.  It would take someone very bold to make a move like this, and so let us hope that the man that we just elected is up to the task.

The Global Liquidity Squeeze Has Begun

Squeeze Globe - Public DomainGet ready for another major worldwide credit crunch.  Today, the entire global financial system resembles a colossal spiral of debt.  Just about all economic activity involves the flow of credit in some way, and so the only way to have “economic growth” is to introduce even more debt into the system.  When the system started to fail back in 2008, global authorities responded by pumping this debt spiral back up and getting it to spin even faster than ever.  If you can believe it, the total amount of global debt has risen by $35 trillion since the last crisis.  Unfortunately, any system based on debt is going to break down eventually, and there are signs that it is starting to happen once again.  For example, just a few days ago the IMF warned regulators to prepare for a global “liquidity shock“.  And on Friday, Chinese authorities announced a ban on certain types of financing for margin trades on over-the-counter stocks, and we learned that preparations are being made behind the scenes in Europe for a Greek debt default and a Greek exit from the eurozone.  On top of everything else, we just witnessed the biggest spike in credit application rejections ever recorded in the United States.  All of these are signs that credit conditions are tightening, and once a “liquidity squeeze” begins, it can create a lot of fear.

Over the past six months, the Chinese stock market has exploded upward even as the overall Chinese economy has started to slow down.  Investors have been using something called “umbrella trusts” to finance a lot of these stock purchases, and these umbrella trusts have given them the ability to have much more leverage than normal brokerage financing would allow.  This works great as long as stocks go up.  Once they start going down, the losses can be absolutely staggering.

That is why Chinese authorities are stepping in before this bubble gets even worse.  Here is more about what has been going on in China from Bloomberg

China’s trusts boosted their investments in equities by 28 percent to 552 billion yuan ($89.1 billion) in the fourth quarter. The higher leverage allowed by the products exposes individuals to larger losses in the event of stock-market drops, which can be exaggerated as investors scramble to repay debt during a selloff.

In umbrella trusts, private investors take up the junior tranche, while cash from trusts and banks’ wealth-management products form the senior tranches. The latter receive fixed returns while the former take the rest, so private investors are effectively borrowing from trusts and banks.

Margin debt on the Shanghai Stock Exchange climbed to a record 1.16 trillion yuan on Thursday. In a margin trade, investors use their own money for just a portion of their stock purchase, borrowing the rest. The loans are backed by the investors’ equity holdings, meaning that they may be compelled to sell when prices fall to repay their debt.

Overall, China has seen more debt growth than any other major industrialized nation since the last recession.  This debt growth has been so dramatic that it has gotten the attention of authorities all over the planet

Wolfgang Schaeuble, Germany’s finance minister says that “debt levels in the global economy continue to give cause for concern.”

Singling out China in particular, Schaeuble noted that “debt has nearly quadrupled since 2007″, adding that it’s “growth appears to be built on debt, driven by a real estate boom and shadow banks.”

According to McKinsey’s research, total outstanding debt in China increased from $US7.4 trillion in 2007 to $US28.2 trillion in 2014. That figure, expressed as a percentage of GDP, equates to 282% of total output, higher than the likes of other G20 nations such as the US, Canada, Germany, South Korea and Australia.

This credit boom in China has been one of the primary engines for “global growth” in recent years, but now conditions are changing.  Eventually, the impact of what is going on in China right now is going to be felt all over the planet.

Over in Europe, the Greek debt crisis is finally coming to a breaking point.  For years, authorities have continued to kick the can down the road and have continued to lend Greece even more money.

But now it appears that patience with Greece has run out.

For instance, the head of the IMF says that no delay will be allowed on the repayment of IMF loans that are due next month…

IMF Managing Director Christine Lagarde roiled currency and bond markets on Thursday as reports came out of her opening press conference saying that she had denied any payment delay to Greece on IMF loans falling due next month.

Unless Greece concludes its negotiations for a further round of bailout money from the European Union, however, it is not likely to have the money to repay the IMF.

And we are getting reports that things are happening behind the scenes in Europe to prepare for the inevitable moment when Greece will finally leave the euro and go back to their own currency.

For example, consider what Art Cashin told CNBC on Friday

First, “there were reports in the media [saying] that the ECB and/or banking authorities suggested to banks to get rid of any sovereign Greek debt they had, which suggests that maybe the next step will be Greece exiting,” Cashin told CNBC.

Also, one of Greece’s largest newspapers is reporting that neighboring countries are forcing subsidiaries of Greek banks that operate inside their borders to reduce their risk to a Greek debt default to zero

According to a report from Kathimerini, one of Greece’s largest newspapers, central banks in Albania, Bulgaria, Cyprus, Romania, Serbia, Turkey and the Former Yugoslav Republic of Macedonia have all forced the subsidiaries of Greek banks operating in those countries to bring their exposure to Greek risk — including bonds, treasury bills, deposits to Greek banks, and loans — down to zero.

Once Greece leaves the euro, that is going to create a tremendous credit crunch in Europe as fear begins to spread like wildfire.  Everyone will be wondering which nation will be “the next Greece”, and investors will want to pull their money out of perceived danger zones before they get hammered.

In the past, other European nations have been willing to bend over backwards to accommodate Greece and avoid this kind of mess, but those days appear to be finished.  In fact, the finance minister of France openly admits that the French “are not sympathetic to Greece”

Greece isn’t winning much sympathy from its debt-wracked European counterparts as the country draws closer to default for failing to make bailout repayments.

“We are not sympathetic to Greece,” French Finance Minister Michael Sapin said in an interview at the International Monetary Fund-World Bank spring meetings here.

“We are demanding because Greece must comply with the European (rules) that apply to all countries,” Sapin said.

Yes, it is possible that another short-term deal could be reached which could kick the can down the road for a few more months.

But either way, things in Europe are going to continue to get worse.

Meanwhile, very disappointing earnings reports in the U.S. are starting to really rattle investors.

For example, we just learned that GE lost 13.6 billion dollars in the first quarter…

One week following the announcement that it would dismantle most of its GE Capital financing operations to instead focus on its industrial roots, General Electric reported a first quarter loss of $13.6 billion.

The results were impacted by charges relating to the conglomerate’s strategic shift. A year ago GE reported a first quarter profit of $3 billion.

That is a lot of money.

How in the world does a company lose 13.6 billion dollars in a single quarter during an “economic recovery”?

Other big firms are reporting disappointing earnings numbers too

In earnings news, American Express Co. late Thursday said its results were hurt by the strong U.S. dollar, which reduced revenue booked in other countries. Chief Executive Kenneth Chenault reiterated the company’s forecast that 2015 earnings will be flat to modestly down year over year. Shares fell 4.6%.

Advanced Micro Devices Inc. said its first-quarter loss widened as revenue slumped. The company said it was exiting its dense server systems business, effective immediately. Revenue and the loss excluding items missed expectations, pushing shares down 13%.

And just like we saw just before the financial crisis of 2008, Americans are increasingly having difficulty meeting their financial obligations.

For instance, the delinquency rate on student loans has reached a very frightening level

More borrowers are failing to make payments on their student loans five years after leaving college, painting a grim picture for borrowers, according to the Federal Reserve Bank of New York.

Student debt continues to increase, especially for people who took out loans years ago. Those who left school in the Great Recession, which ended in 2009, had particular difficulty with repayment, with many defaulting, becoming seriously delinquent or not being able to reduce their balances, the New York Fed said today.

Only 37 percent of borrowers are current on their loans and are actively paying them down, and 17 percent are in default or in delinquency.

At this point, the American consumer is pretty well tapped out.  If you can believe it, 56 percent of all Americans have subprime credit today, and as I mentioned above, we just witnessed the biggest spike in credit application rejections ever recorded.

We have reached a point of debt saturation, and the credit crunch that is going to follow is going to be extremely painful.

Of course the biggest provider of global liquidity in recent years has been the Federal Reserve.  But with the Fed pulling back on QE, this is creating some tremendous challenges all over the globe.  The following is an excerpt from a recent article in the Telegraph

The big worry is what will happen to Russia, Brazil and developing economies in Asia that borrowed most heavily in dollars when the Fed was still flooding the world with cheap liquidity. Emerging markets account to roughly half of the $9 trillion of offshore dollar debt outside US jurisdiction.

The IMF warned that a big chunk of the debt owed by companies is in the non-tradeable sector. These firms lack “natural revenue hedges” that can shield them against a double blow from rising borrowing costs and a further surge in the dollar.

So what is the bottom line to all of this?

The bottom line is that we are starting to see the early phases of a liquidity squeeze.

The flow of credit is going to begin to get tighter, and that means that global economic activity is going to slow down.

This happened during the last financial crisis, and during this next financial crisis the credit crunch is going to be even worse.

This is why it is so important to have an emergency fund.  During this type of crisis, you may have to be the source of your own liquidity.  At a time when it seems like nobody has any cash, those that do have some will be way ahead of the game.

Share This Chart With Anyone That Believes The U.S. Economy Is Not Going To Crash

Total Debt Growth vs. GDP GrowthAnyone that thinks that the U.S. economy can keep going along like this is absolutely crazy.  We are in the terminal phase of an unprecedented debt spiral which has allowed us to live far, far beyond our means for the last several decades.  Unfortunately, all debt spirals eventually end, and they usually do so in a very disorderly manner.  The chart that you are about to see is one of my favorite economic charts.  It compares the growth of U.S. GDP to the growth of total debt in the United States.  Yes, U.S. GDP has certainly grown at a decent pace over the years, but our total debt has absolutely exploded.  40 years ago, the total amount of debt in our system (government debt + corporate debt + consumer debt, etc.) was about 2 trillion dollars.  Today it has grown to more than 56 trillion dollars.  Our debt has grown at a much, much faster rate than our economy has, and there is no way in the world that we will be able to continue to do that for long.

Posted below is the chart that I was talking about.  The blue line is our total debt, and the red line is our GDP.  As you can see, this chart kind of speaks for itself…

Total Debt Growth vs. GDP Growth

So how did we get here?

Well, of course the federal government has been the biggest offender.  It would be a tremendous understatement to say that the politicians in Washington D.C. have been reckless.  Since the year 2000, the size of the U.S. national debt has grown by more than 11 trillion dollars.

Posted below is a chart that demonstrates the dramatic growth of the national debt as a percentage of GDP.  In particular, our debt has absolutely exploded as a percentage of GDP since the financial crisis of 2008…

National Debt As A Percentage Of GDP

Does that look sustainable to you?

Of course it isn’t.

Right now, the mainstream media is very excited that the federal budget deficit for this year might be less than a trillion dollars, but they are really missing the point.  The debt of the U.S. government is still growing much, much faster than the economy is, and the United States already has more government debt per capita than Greece, Portugal, Italy, Ireland or Spain.

What we are doing to future generations is absolutely criminal.  We are piling up mountains of debt that will haunt them for the rest of their lives just so that we can make the present a little bit more pleasant for ourselves.

As I noted in another article, during Obama’s first term the federal government accumulated more debt than it did under the first 42 U.S presidents combined.  And now we are entering a time period when demographic forces are going to put a tremendous amount of pressure on the finances of the federal government.

The Baby Boomers have started to retire, and they are going to want to start collecting on all of the financial promises that we have made to them.

As I have written about previously, the number of Americans on Medicare is projected to grow from a little bit more than 50 million today to 73.2 million in 2025.

The number of Americans collecting Social Security benefits is projected to grow from about 56 million today to 91 million in 2035.

Where are we going to get the money to pay for all of that?

Boston University economist Laurence Kotlikoff has calculated that the U.S. government is facing unfunded liabilities of 222 trillion dollars in the years ahead.

There is no simply no way that the U.S. government is going to be able to meet those obligations without wildly printing up money.

And of course the federal government is not the only one with massive debt problems.  We just saw the city of Detroit go bankrupt, and there are lots of other communities all over the nation that could soon follow.

Posted below is a chart that shows the growth of state and local government debt over the years.  In particular, please take note that the total amount of state and local government debt has grown from about 1.2 trillion dollars in the year 2000 to about 3 trillion dollars today…

State And Local Government Debt

But the chart posted above does not even take into account the massive unfunded pension obligations that state and local governments are facing.  According to the Detroit Free Press, state governments are facing unfunded pension obligations of nearly a trillion and a half dollars…

From Baltimore to Los Angeles, and many points in between, municipalities are increasingly confronted with how to pay for these massive promises. The Pew Center for the States, in Washington, estimated states’ public pension plans across the U.S. were underfunded by a whopping $1.4 trillion in 2010.

And many large cities are dealing with similar situations.  Detroit was the first to go down, but could Chicago or Los Angeles eventually be forced to declare bankruptcy too?…

Chicago recently saw its credit rating downgraded because of a $19-billion unfunded pension liability that the ratings service Moody’s puts closer to $36 billion. And Los Angeles could be facing a liability of more than $30 billion, by some estimates.

According to a report that was released earlier this year, the largest U.S. cities are facing hundreds of billions of dollars in unfunded pension liabilities at this point…

Early this year, the Pew Center released a survey showing that 61 of the nation’s largest cities — limiting the survey to the largest city in each state and all other cities with more than 500,000 people — had a gap of more than $217 billion in unfunded pension and health care liabilities. While cities had long promised health care, life insurance and other benefits to retirees, “few … started saving to cover the long-term costs,” the report said.

So where will all of that money come from?

That is a good question, and nobody has an easy answer at this point.

Meanwhile, U.S. consumers have been racking up staggering amounts of debt over the past several decades.  Just consider the following numbers…

-Total home mortgage debt in the United States is now about 5 times larger than it was just 20 years ago.

-Car loans just keep getting longer and longer, and approximately 70 percent of all car purchases in the United States now involve an auto loan.

-The total amount of student loan debt in America recently surpassed the one trillion dollar mark.

-One study discovered that approximately 41 percent of all working age Americans either have medical bill problems or are currently paying off medical debt, and according to a report published in The American Journal of Medicine medical bills are a major factor in more than 60 percent of the personal bankruptcies in the United States.

-Consumer debt in the United States has risen by a whopping 1700% since 1971, and 46% of all Americans carry a credit card balance from month to month.

Sadly, most people don’t realize how damaging credit card debt can be.  If you just carry an “average balance” on your credit cards each month, and those credit cards have just an “average” interest rate, you could end up paying millions of dollars to the credit card companies by the end of your life…

Let’s say you are an average American household, and you carry an average balance of $15,956 in credit card debt.

Also, as an average American household, let’s assume you pay an average current rate of 12.83%.

Finally, let’s assume you carry this average balance for 40 years, between ages 25 and 65.  How much did your credit card company make off of you and your extreme averageness?

Answer: $2,629,618.64

Incredibly, a large percentage of the population does not seem to understand these things.  An astounding 43 percent of all American families spend more than they earn each year.

Are you starting to understand why approximately half of all Americans die broke?

We are a nation that is completely and addicted to debt.

If you do not believe that it will ever catch up with us you are being delusional.

We have piled up the biggest mountain of debt in the history of the planet, and a day of reckoning is fast approaching.

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