Why is the global economy in so much trouble? How can so many people be so absolutely certain that the world financial system is going to crash? Well, the truth is that when you take a look at the cold, hard numbers it is not difficult to see why the global financial pyramid scheme is destined to fail. In the United States today, there is approximately 56 trillion dollars of total debt in our financial system, but there is only about 9 trillion dollars in our bank accounts. So you could take every single penny out of the banks, multiply it by six, and you still would not have enough money to pay off all of our debts. Overall, there is about 190 trillion dollars of total debt on the planet. But global GDP is only about 70 trillion dollars. And the total notional value of all derivatives around the globe is somewhere between 600 trillion and 1500 trillion dollars. So we have a gigantic problem on our hands. The global financial system is a very shaky house of cards that has been constructed on a foundation of debt, leverage and incredibly risky derivatives. We are living in the greatest financial bubble in world history, and it isn’t going to take much to topple the entire thing. And when it falls, it is going to be the largest financial disaster in the history of the planet.
The global financial system is more interconnected today than ever before, and a crisis at one major bank or in one area of the world can spread at lightning speed. As I wrote about yesterday, the entire European banking system is leveraged 26 to 1 at this point. A decline in asset values of just 4 percent would totally wipe out the equity of many of those banks, and once a financial panic begins we could potentially see major financial institutions start to go down like dominoes.
We got a small taste of what that is like back in 2008, and it is inevitable that it will happen again.
Anyone that would tell you that the current global financial system is sustainable does not know what they are talking about. Just look at the numbers that I have posted below.
The following is the global financial pyramid scheme by the numbers…
–$9,283,000,000,000 – The total amount of all bank deposits in the United States. The FDIC has just 25 billion dollars in the deposit insurance fund that is supposed to “guarantee” those deposits. In other words, the ratio of total bank deposits to insurance fund money is more than 371 to 1.
–$10,012,800,000,000 – The total amount of mortgage debt in the United States. As you can see, you could take every penny out of every bank account in America and it still would not cover it.
–$10,409,500,000,000 – The M2 money supply in the United States. This is probably the most commonly used measure of the total amount of money in the U.S. economy.
–$15,094,000,000,000 – U.S. GDP. It is a measure of all economic activity in the United States for a single year.
–$16,749,269,587,407.53 – The size of the U.S. national debt. It has grown by more than 10 trillion dollars over the past ten years.
–$32,000,000,000,000 – The total amount of money that the global elite have stashed in offshore banks (that we know about).
–$190,000,000,000,000 – The approximate size of the total amount of debt in the entire world. It has nearly doubled in size over the past decade.
–$212,525,587,000,000 – According to the U.S. government, this is the notional value of the derivatives that are being held by the top 25 banks in the United States. But those banks only have total assets of about 8.9 trillion dollars combined. In other words, the exposure of our largest banks to derivatives outweighs their total assets by a ratio of about 24 to 1.
–$600,000,000,000,000 to $1,500,000,000,000,000 – The estimates of the total notional value of all global derivatives generally fall within this range. At the high end of the range, the ratio of derivatives to global GDP is more than 21 to 1.
Are you starting to get the picture?
Every single day, the total amount of debt will continue to grow faster than the total amount of money until the day that this bubble bursts.
What we witnessed back in 2008 was just a little “hiccup” in the system. It caused the worst economic downturn since the Great Depression, but global financial authorities were able to get things stabilized.
Next time it won’t be so easy.
The next wave of the economic collapse is quickly approaching. A full-blown economic depression has already started in southern Europe. Unemployment is at record highs and economic activity is contracting rapidly.
The major offshore banking centers in Cyprus are on the verge of collapsing. It was just announced that they will now be closed until Tuesday, but nobody really knows for sure when they will be allowed to reopen. And there is already talk that when they do reopen that there will be strict limits on how much money people can take out.
And now the IMF is warning that the three biggest banks in Slovenia are failing and that a billion euros will be needed to bail them out.
The dominoes are starting to tumble, and the United States won’t be immune. In fact, the greatest financial problems that the United States has ever seen are on the horizon.
But you can just have faith that Ben Bernanke, Barack Obama and the U.S. Congress know exactly what they are doing and will be able to save us from the coming financial collapse if you want.
The mainstream media will provide you with all of the positive economic news that you could possibly want. They are giddy about the fact that the Dow keeps hitting all-time highs and they would have us all believe that we are in the midst of a robust economic recovery. You can listen to them if you want to.
But when you are tempted to believe that everything is going to be “okay” somehow, just go back and look at the numbers there were posted above one more time.
There is no way that the global financial pyramid scheme is going to be able to hold up for too much longer. At some point it is going to totally collapse. When that happens, will you be ready?
When you get into too much debt, eventually really bad things start to happen. This is a very painful lesson that southern Europe is learning right now, and it is a lesson that the United States will soon learn as well. It simply is not possible to live way beyond your means forever. You can do it for a while though, and politicians in the U.S. and in Europe keep trying to kick the can down the road and extend the party, but the truth is that debt is a very cruel master and at some point it inevitably catches up with you. And when it catches up with you, the results can be absolutely devastating. Greece, Italy, Spain and Portugal all tried to just slow down the rate at which their government debts were increasing, and look at what happened to their economies. In each case, GDP is shrinking, unemployment is skyrocketing, credit is freezing up and manufacturing is declining. And you know what? None of those countries has even gotten close to a balanced budget yet. They are all still going into even more debt. Just imagine what would happen if they actually tried to only spend the money that they brought in?
I have always said that the next wave of the economic collapse would start in Europe and that is exactly what is happening. So keep watching Europe. What is happening to them will eventually happen to us.
The following are 17 signs that a full-blown economic depression is raging in southern Europe…
#1 The Italian economy is in the midst of a horrifying “credit crunch” that is causing thousands of companies to go bankrupt…
Confindustria, the business federation, said 29pc of Italian firms cannot meet “operational expenses” and are starved of liquidity. A “third phase of the credit crunch” is underway that matches the shocks in 2008-2009 and again in 2011.
In a research report the group said the economy was caught in a “vicious circle” where banks are too frightened to lend, driving more companies over the edge. A thousand are going bankrupt every day.
#2 During the 4th quarter of 2012, the unemployment rate in Greece was 26.4 percent. That was 2.6 percent higher than the third quarter of 2012, and it was 5.7 percent higher than the fourth quarter of 2011.
#3 During the 4th quarter of 2012, the youth unemployment rate in Greece was 57.8 percent.
#4 The unemployment rate in Spain has reached 26 percent.
Data from Italy’s national statistics institute ISTAT showed that the country’s economy shrank by 0.9pc in the fourth quarter of last year and gross domestic product was down a revised 2.8pc year-on-year.
#10 The Greek economy is contracting even faster than the Italian economy is…
Greece also sank further into recession during the fourth quarter of 2012, with figures on Monday showing the economy contracted by 5.7pc year-on-year.
#12 Manufacturing activity is declining just about everywhere in Europe except for Germany…
Research group Markit said its index of activity in UK manufacturing – where 50 is the cut off between growth and decline – sank from 50.5 in January to 47.9 in February. It left Britain on the brink of a third recession in five years after the economy shrank by 0.3 per cent in the final quarter of 2012.
Chris Williamson, chief economist at Markit, said: ‘This represents a major setback to hopes that the UK economy can return to growth in the first quarter and avoid a triple-dip recession.’
The eurozone manufacturing index also read 47.9. Germany scored 50.3 but Spain hit 46.8, Italy 45.8 and France 43.9.
#13 The percentage of bad loans in Italian banks has risen to 12.2 percent. Back in 2007, that number was sitting at just 4.5 percent.
#14 Bank deposits experienced significant declines all over Europe during the month of January.
#15 Private bond default rates are soaring all over southern Europe…
S&P said the default rate for Italian non-investment grade bonds jumped to 9.5pc last year from 5.7pc in 2012 as local banks shut off funding. It was even worse in Spain, doubling to 14.3pc.
The default rate in France rocketed from 0.8pc to 8.7pc, the latest in a blizzard of bad news from the country as the delayed effects of tax rises, fiscal tightening, and the strong euro do their worst.
#16 Lars Feld, a key economic adviser to German Chancellor Angela Merkel, recently said the following…
“The sustainability of Italian public finances is in jeopardy. The euro crisis will therefore return shortly with a vengeance.”
#17 Things have gotten so bad in Greece that the Greek government plans to sell off 28 state-owned buildings – including the main police headquarters in Athens.
One of the few politicians in Europe that actually understands what is happening in Europe is Nigel Farage. A video of one of his recent rants is posted below. Farage believes that “the Eurozone has been a complete economic disaster” and that the worst is yet to come…
Most people believe that the eurozone has been “saved”, but that is not even close to the truth.
In fact, it becomes more likely that we will see the eurozone break up with each passing day.
So who would leave first?
Well, recently there have been rumblings among some German politicians that Greece should be the first to leave. The following is from a recent Reuters article…
Greece remains the biggest risk for the euro zone despite a calming of its economic and political crisis and may still have to leave the common currency, a senior conservative ally of German Chancellor Angela Merkel said.
But there is also a chance that Germany could eventually be the first nation that decides to leave the euro. In fact, a new political party is forming in Germany that is committed to getting Germany out of the euro. The following is a brief excerpt from a recent article by Ambrose Evans-Pritchard…
A new party led by economists, jurists, and Christian Democrat rebels will kick off this week, calling for the break-up of monetary union before it can do any more damage.
“An end to this euro,” is the first line on the webpage of Alternative für Deutschland (AfD). “The introduction of the euro has proved to be a fatal mistake, that threatens the welfare of us all. The old parties are used up. They stubbornly refuse to admit their mistakes.”
They propose German withdrawl from EMU and return to the D-Mark, or a breakaway currency with the Dutch, Austrians, Finns, and like-minded nations. The French are not among them. The borders run along the ancient line of cleavage dividing Latins from Germanic tribes.
However this all plays out, the reality is that things are about to get much more interesting in Europe.
No debt bubble lasts forever. The Europeans are finding that out right now, and the U.S. won’t be too far behind.
But for the moment, most Americans assume that everything is going to be okay because the Dow keeps setting new all-time record highs.
Well, enjoy this little bubble of debt-fueled false prosperity while you can, because it won’t last for long.
A massive wake up call is coming, and it will be exceedingly painful for those that are not ready for it.
They didn’t see it coming last time either. Back in 2007, President Bush, Federal Reserve Chairman Ben Bernanke and just about every prominent voice in the financial world were all predicting that we would experience tremendous economic prosperity well into the future. In fact, as late as January 2008 Bernanke boldly declared that “the Federal Reserve is not currently forecasting a recession.” At the time, only the “doom and gloomers” were warning that everything was about to fall apart. And of course we all know what happened. But just a few short years later, history seems to be repeating itself. Barack Obama, Federal Reserve Chairman Ben Bernanke and almost every prominent voice in the financial world are all promising that the U.S. “economic recovery” is going to continue even though Europe is coming apart like a 20 dollar suit. But the economic fundamentals tell a different story. Our national debt is more than $6,000,000,000,000 larger than it was back in 2008, the number of Americans on food stamps just hit another brand new all-time record, and the bankers up on Wall Street are selling gigantic mountains of the exact same kind of toxic derivatives that caused so much trouble the last time around. But all of our “leaders” swear that everything is going to be okay. You can believe them if you want, but denial is not just a river in Egypt, and another crash is inevitably coming.
Sadly, many Americans are not even going to see the crash coming because they still have faith in the “experts”. They haven’t figured out that the “experts” really do not know what they are doing.
The blind are leading the blind, and in the end the results are going to be absolutely tragic.
The following are 10 hilarious examples of how clueless our leaders are about the economy…
#1 When I first came across the following chart the other day, it made me chuckle. It is a chart that supposedly tells us the “probability” of a recession, and it was taken from the website of the Federal Reserve Bank of St. Louis. According to the chart, right now there is a 0.16% chance of a recession…
#2 Federal Reserve Chairman Ben Bernanke has also been proclaiming his belief that the U.S. economy will continue to grow. The following is an excerpt from his recent remarks to Congress…
The pause in real GDP growth last quarter does not appear to reflect a stalling-out of the recovery. Rather, economic activity was temporarily restrained by weather-related disruptions and by transitory declines in a few volatile categories of spending, even as demand by U.S. households and businesses continued to expand. Available information suggests that economic growth has picked up again this year.
And Bernanke also insists that the labor market is “improving”…
Consistent with the moderate pace of economic growth, conditions in the labor market have been improving gradually.
Of course the labor market is not actually improving. I showed this using the Fed’s own numbers the other day.
#3 Although Bernanke has such a nightmarish track record of failure, Warren Buffett still has faith in him. In fact, Buffett loves all of the money printing that Bernanke has been doing…
The U.S. economy might be “dead in the water” without the stimulus provided by the Federal Reserve under Chairman Ben Bernanke, according to Warren Buffett, CEO of Berkshire Hathaway.
“I think very cheap money makes things happen, it makes asset values higher. When asset values are higher, people do have a greater propensity to spend,” Buffett told CNBC.
“I think Bernanke has sort of carried the load himself during this period.”
If Buffett thinks the wild money printing that the Fed has been doing is so wonderful, then he probably would have absolutely loved living in the Weimar Republic.
#4 Barack Obama continues to insist that we do not have a debt crisis, but that we will not be able to balance the budget any time in the foreseeable future either.
Even though the national debt has grown by more than 6 trillion dollars under his leadership and our debt to GDP ratio is now well over 100%, Obama does not believe that it is a significant problem…
“We don’t have an immediate crisis in terms of debt”
Sadly, the truth is that the U.S. will never have a balanced budget ever again under our current system, but most of our politicians are not willing to go that far and admit that sad fact to the American people just yet.
#5 But of course it would certainly help if the U.S. government would stop wasting so much money. For example, did you know that the federal government is helping dead people get free cell phones? The following is from a recent article in the New York Post…
Dead people don’t need cell phones.
That’s the message Rep. Tim Griffin of Arkansas wants to send Congress, after he says a controversial government-backed program that helps provide phones to low-income Americans ended up sending mobiles to the dead relatives of his constituents. Griffin has introduced a bill that targets the phone hand-out program, which has ballooned into a fiscal headache for the government.
And of course a lot of living people are abusing the free cell phone program as well. Rep. Griffin says that he has heard of some people getting as many as 10 free cell phones from the government…
“I’ve also gotten calls from people who say their employees were bragging about having 10 phones.”
#6 Meanwhile, the most prominent economic journalist in the United States, Paul Krugman of the New York Times, continues to insist that it is a good thing for the government to be running up so much debt…
First of all… that trillion-dollar deficit is overwhelmingly the result of a depressed economy. And when the economy’s depressed it’s good to run a deficit. You don’t want the government to try and balance its budget right now.
Krugman is also operating under the delusion that the federal government “can’t run out of cash”, that it can just print money whenever it wants and that printing giant piles of money would not hurt anything.
The United States is a country that has its own currency–can’t run out of cash because we print the money. If you even try to think what would happen–suppose that investors get down on the United States. Even so, that would weaken the dollar, not send interest rates soaring, and that would be good. That would help our exports
It is frightening that the top economic journalist in America has such little understanding of how our system actually works. I would encourage Krugman to read a couple of my previous articles so that he won’t be so ignorant in the future…
#7 Many Americans have wondered why the federal government never seems to go after the big Wall Street banks. Well, now we know why. The other day, the Attorney General of the United States admitted that the federal government is very hesitant to prosecute anyone from the big banks because of what it might do to the global economy…
“I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy”
So I guess we now live in a world where there is a different set of rules for the big banks, eh?
Most of us already knew that this was the case, but it is quite chilling to hear the Attorney General of the United States publicly admit this.
#8 Many of the big Wall Street banks are absolutely giddy that the Dow keeps setting new all-time highs, and many of them are projecting wonderful things ahead for the U.S. economy. For example, here is one forecast from Morgan Stanley’s Vincent Reinhart …
“In the Morgan Stanley forecast for the US, the trajectory of economic activity marks an inflection point midway through 2013. The severe financial crisis of 2008-09 necessitated significant downward adjustments by the private sector to the levels of aggregate demand and efficient supply. As the event recedes further into history, however, the drag on growth from these ongoing level adjustments plays out.
In our forecast, the expansion of real GDP steps up to around 2-3/4 percent in the second half of this year and beyond.”
#9Vice-President Joe Biden is pushing economic optimism to ridiculous levels. Apparently he believes that most Americans are “no longer worried” that a major economic crisis is coming…
But all kidding aside, I think the American people have moved — Democrats, Republicans, independents. They know that the possibilities for this country are immense. They’re no longer traumatized by what was a traumatizing event, the great collapse in 2008. They’re no longer worried, I think, about our economy being overwhelmed either by Europe writ large, the EU, or China somehow swallowing up every bit of innovation that exists in the world. They’re no longer, I think, worried about our economy being overwhelmed beyond our shores.
And I don’t think they’re any more — there’s no — there’s very little doubt in any circles out there about America’s ability to be in position to lead the world in the 21st century, not only in terms of our foreign policy, our incredible defense establishment, but economically.
#10 Right now, many in the financial world are projecting that this will be a year to remember for the stock market. During a recent interview with Fox Business, Wharton School of Business Finance Professor Jeremy Siegel declared that the Dow will cross the 16,000 mark by the end of this year…
“I think by the end of this year, we’ll be in the 16,000 to 17,000 range.”
Of course it is true that other analysts have a much different view of things. Many of them are absolutely amazed that the U.S. economy has become so disconnected from economic reality. For example, just check out what Steve Russell and Hamish Baillie, fund managers at the Ruffer Investment Company, recently had to say…
“If this was explained to a recently arrived Martian he would no doubt be puzzled – US unemployment has almost doubled since 2007, GDP [gross domestic product] growth is a third lower and debt as a percentage of GDP is within a whisker of doubling. The market is forward looking but this is extreme”
So who is right and who is wrong?
Time will tell.
Fortunately, it appears that the American people are getting fed up with the constant stream of lies that they have been told.
According to a new Pew Research survey, just 26 percent of all Americans trust the government to do the right thing.
So what about you?
Do you trust what the government and the “experts” are telling you?
Do you trust them to do the right thing?
Feel free to post a comment with your thoughts below…
Reckless money printing by Federal Reserve Chairman Ben Bernanke has pumped up the Dow to a brand new all-time high. So what comes next? Will the Dow go even higher? Hopefully it will. In fact, it would be great if the Dow was able to hit 15,000 before it finally came crashing down. That would give all of us some more time to prepare for the nightmarish economic crisis that is rapidly approaching. As you will see below, the U.S. economy is in far, far worse shape than it was the last time the Dow reached a record high back in 2007. In addition, all of the long-term trends that are ripping our economy to shreds just continue to get even worse and our debt just continues to explode. Unfortunately, the Dow has become completely divorced from economic reality in recent years because of Fed manipulation. All of this funny money that the Federal Reserve has been cranking out has made the wealthy even wealthier, but this bubble will not last for too much longer. What goes up must come down. And remember, a bubble is always biggest right before it bursts.
Fortunately, it looks like an increasing number of people out there are starting to recognize that the primary reason why stocks have been going up is because of the Fed. Just check out this excerpt from a recent article by the USA Today editorial board…
The Federal Reserve’s purchases have driven interest rates to near zero. This has stimulated the economy but not without cost. Savers, particularly older ones trying to live on income from their investments, are starved for safe options. They’ve been forced into stocks, which is one reason the market has been acting as if it’s on steroids. Further, with borrowing costs low, Congress and the White House have less incentive to rein in the national debt. Rock-bottom interest rates have also distorted markets.
The best indication that the Fed’s bond-buying purchases are pushing stocks up artificially is that investors run for cover whenever there is a hint that the Fed might change course, as happened recently. On Monday, billionaire superinvestor Berkshire Hathaway CEO Warren Buffett told CNBC that markets are on a “hair trigger” waiting for signs of change from the Fed. The market is “hooked on the drug” of easy money, Dallas Fed President Richard Fisher told Reuters.
Fisher’s comparison of Fed policies to a drug is apt. Markets might not like the idea of the drug being withdrawn now, when the Fed holds a portfolio of $3 trillion. But the withdrawal symptoms will be a lot worse once the portfolio grows to $4 trillion, or more.
Those sentiments were echoed by Gordon Charlop, a trader at Rosenblatt Securities, during a recent appearance on CNBC…
“The Wizard of the Fed, Ben [Bernanke], has done a great job propping up the market, but the question is how does the wizard move the pin from the balloon without blowing the whole thing up?” said Charlop. “This is getting out of balance and he’s got to figure out a way to justify the levels that we’ve gotten to and draw back on some of the stimulus.”
Of course, in the end, the bursting of this bubble is going to be very messy.
The Fed has dramatically distorted the market in an attempt to make things look good, but now the financial markets are completely and totally addicted to easy money. Is there any chance that the Fed will be able to take away that easy money without causing disaster?
There are only a few ways that this current scenario can play out. The following is what Stanley Druckenmiller recently told CNBC…
“I don’t know when it’s going to end, but my guess is, it’s going to end very badly; and it’s going to end very badly because, again, when you get the biggest price in the world, interest rates, being manipulated you get a misallocation of resources and this is going to end in one of two ways – with a malinvestment bust which we got in ’07-’08 (we didn’t get inflation). We got a malinvestment bust because of the bubble that was created in housing. Or it could end with just monetizing the debt and off we go in inflation. So that’s a very binary outcome – they’re both bad.”
What the Fed has done to the money supply in recent years has been absolutely unprecedented. Just check out how our money supply has skyrocketed since the last financial crisis…
So what happens when the amount of money in an economy rises rapidly?
Well, if I remember Econ 101 correctly, that would mean that prices should go up.
And that is exactly what has happened. And since most of the money that the Fed has created has gone into the financial system first, it should not be a surprise that we have seen a bubble in financial assets.
In a previous article that I wrote last September, I warned that QE3 would cause stocks to go up…
So what have the previous rounds of quantitative easing accomplished? Well, they have driven up the prices of financial assets. Those that own stocks have done very well the past couple of years. So who owns stocks? The wealthy do. In fact, 82 percent of all individually held stocks are owned by the wealthiest 5 percent of all Americans. Those that have invested in commodities have also done very nicely in recent years. We have seen gold, silver, oil and agricultural commodities all do very well. But that also means that average Americans are paying more for basic necessities such as food and gasoline. So the first two rounds of quantitative easing made the wealthy even wealthier while causing living standards to fall for all the rest of us. Is there any reason to believe that QE3 will be any different?
Of course not.
So will stocks continue to go up indefinitely?
No way.
As I have also written about previously, the money printing that the Fed is doing right now is not nearly enough to stop the mammoth derivatives crisis that is coming.
A derivatives crisis was one of the primary reasons for the financial crash of 2008, but most Americans still have no idea what derivatives are.
They can be very complex, but I think that it is easiest just to think of them as side bets.
When someone buys a derivative, they are not buying anything real. They are simply betting that something will or will not happen.
For example, if you bet $100 that the Chicago Cubs will win the World Series this year, would you be “investing” in anything real?
Of course not.
Well, it is the same with most derivatives.
Today, Wall Street has become the biggest casino in the entire world and trillions of dollars of very reckless bets have been made.
It would be hard to overstate the recklessness of these banks. The numbers that you are about to see are absolutely jaw-dropping. According to the Comptroller of the Currency, four of the largest U.S. banks are walking a tightrope of risk, leverage and debt when it comes to derivatives. Just check out how exposed they are…
JPMorgan Chase
Total Assets: $1,812,837,000,000 (just over 1.8 trillion dollars)
Total Exposure To Derivatives: $69,238,349,000,000 (more than 69 trillion dollars)
Citibank
Total Assets: $1,347,841,000,000 (a bit more than 1.3 trillion dollars)
Total Exposure To Derivatives: $52,150,970,000,000 (more than 52 trillion dollars)
Bank Of America
Total Assets: $1,445,093,000,000 (a bit more than 1.4 trillion dollars)
Total Exposure To Derivatives: $44,405,372,000,000 (more than 44 trillion dollars)
Goldman Sachs
Total Assets: $114,693,000,000 (a bit more than 114 billion dollars – yes, you read that correctly)
Total Exposure To Derivatives: $41,580,395,000,000 (more than 41 trillion dollars)
That means that the total exposure that Goldman Sachs has to derivatives contracts is more than 362 times greater than their total assets.
When the derivatives crash happens, there won’t be enough money in the entire world to fix it.
So enjoy this little stock market bubble while you can.
It will end soon enough.
And of course stocks should not be this high in the first place. The underlying economic fundamentals do not justify these kinds of stock prices whatsoever.
A recent CNN article noted that the last time the Dow hit a record high that unemployment in the U.S. was much lower…
Consider this. When the Dow hit its now old record high back in October 2007, the economy was still in good shape — although it was just a few months away from the beginning of the Great Recession.
The unemployment rate in October 2007 was 4.7%. In January of this year, the unemployment rate was 7.9%.
And that same article also pointed out that GDP growth and housing prices were also much stronger back in 2007…
Gross domestic product grew 3% in the third quarter of 2007. Revised figures from the government last week showed that GDP in the fourth quarter of 2012 rose a scant 0.1%. But I guess that’s good news considering the first estimate showed a 0.1% decline.
And despite all the hoopla about the steady recovery in the housing market over the past year, real estate is still in a bear market. The most recent level of the S&P Case-Shiller 20-City Home Price Index, one of the most widely watched gauges of the health of housing, is still 24% below where it was in October 2007.
We have never even come close to recovering from the last economic crisis. Most Americans seem to have forgotten how good things were back then, but a recent Zero Hedge article included some more points of comparison between October 2007 and today…
Dow Jones Industrial Average: Then 14164.5; Now 14164.5
Regular Gas Price: Then $2.75; Now $3.73
GDP Growth: Then +2.5%; Now +1.6%
Americans Unemployed (in Labor Force): Then 6.7 million; Now 13.2 million
Americans On Food Stamps: Then 26.9 million; Now 47.69 million
Size of Fed’s Balance Sheet: Then $0.89 trillion; Now $3.01 trillion
US Debt as a Percentage of GDP: Then ~38%; Now 74.2%
US Deficit (LTM): Then $97 billion; Now $975.6 billion
Total US Debt Oustanding: Then $9.008 trillion; Now $16.43 trillion
US Household Debt: Then $13.5 trillion; Now 12.87 trillion
Labor Force Particpation Rate: Then 65.8%; Now 63.6%
Consumer Confidence: Then 99.5; Now 69.6
And of course anyone that reads my site regularly knows that the U.S. economy has been in a state of persistent decline over the past several years.
Just consider the following data points…
-The percentage of the civilian labor force in the United States that is actually employed has been steadily declining every single year since 2006.
-In 2007, the unemployment rate for the 20 to 29 age bracket was about 6.5 percent. Today, the unemployment rate for that same age group is about 13 percent.
-According to one study, 60 percent of the jobs lost during the last recession were mid-wage jobs, but 58 percent of the jobs created since then have been low wage jobs.
-Median household income in America has fallen for four consecutive years. Overall, it has declined by more than $4000 during that time span.
-At this point, an astounding 53 percent of all American workers make less than $30,000 a year.
That is the other side of the Fed’s insidious money printing. Incomes in the United States are going down, but the cost of living is skyrocketing. This is squeezing millions of Americans out of the middle class…
When Debbie Bruister buys a gallon of milk at her local Kroger supermarket, she pays $3.69, up 70 cents from what she paid last year.
Getting to the store costs more, too. Gas in Corinth, Miss., her hometown, costs $3.51 a gallon now, compared to less than three bucks in 2012. That really hurts, considering her husband’s 112-mile daily round-trip commute to his job as a pharmacist.
Perhaps you can identify with this. Perhaps your paychecks are about the same as they used to be back in 2007 but the cost of living has gone up dramatically since then.
I wish I could tell you that things were going to get better, but unfortunately there are all kinds of indications that things are about to get even worse for the U.S. economy. If you doubt this, just read this article and this article.
Yes, the Dow is at an all-time high. But do you want to know what else has hit an all-time high up in New York?
Homelessness.
The following is from a recent report in the New York Times…
An average of more than 50,000 people slept each night in New York City’s homeless shelters for the first time in January, a record that underscores an unsettling national trend: a rising number of families without permanent housing.
And apparently families and children have been hit particularly hard over the past year…
More than 21,000 children—an unprecedented 1% of the city’s youth—slept each night in a city shelter in January, an increase of 22% in the past year, the report said, while homeless families now spend more than a year in a shelter, on average, for the first time since 1987. In January, an average of 11,984 homeless families slept in shelters each night, a rise of 18% from a year earlier.
Of course New York is far from alone. There has been a surge in homelessness all over the United States. In fact, at this point more than a million public school students in the United States are homeless. This is the first time that has ever happened in U.S. history.
But the Dow just hit a record high so we should all be wildly happy, right?
Hopefully we can get more Americans to understand that the “prosperity” that we are enjoying right now is just an illusion. It isn’t real. It is a bubble created by reckless money printing by the Fed and reckless borrowing by the U.S. government. If you can believe it, the U.S. government borrowed another 253 billion dollars during the month of February alone.
The Fed and the U.S. government will continue to engage in this kind of reckless behavior until the bubble eventually bursts.
So what should all the rest of us do?
We should be feverishly preparing for the hard times that are coming. As Daisy Luther recently wrote about, one of the most important things to do is to create an emergency fund. Instead of going out and blowing your money on the latest toys and gadgets, set some money aside so that you will have something to live on if the economy crashes and you suddenly lose your income.
Just remember what happened back in 2008. Millions of Americans suddenly lost their jobs, and because many of them had no financial reserves, a lot of Americans suddenly could not pay their mortgages and they lost their homes.
So put some money away in a place where it will be safe – and that does not mean the stock market.
Jim Cramer of CNBC and a lot of the other talking heads on the financial news channels are trying to encourage ordinary Americans to jump into “the bull market” right now and make some money, and many people will take their advice.
But the truth is that a bubble is always biggest right before it bursts.
This bubble is awfully big right now, and I don’t know how much larger it can possibly get.
Are we running out of time? For the last several years, we have been living in a false bubble of hope that has been fueled by massive amounts of debt and bailout money. This illusion of economic stability has convinced most people that the great economic crisis of 2008 was just an “aberration” and that now things are back to normal. Unfortunately, that is not the case at all. The truth is that the financial crash of 2008 was just the first wave of our economic troubles. We have not even come close to recovering from that wave, and the next wave of the economic collapse is rapidly approaching. Our economy is like a giant sand castle that has been built on a foundation of debt and toilet paper currency. As each wave of the crisis hits us, the solutions that our leaders will present to us will involve even more debt and even more money printing. And each time, those “solutions” will only make our problems even worse. Right now, events are unfolding in Europe and in the United States that are pushing us toward the next major crisis moment. I sincerely hope that we have some more time before the next crisis overwhelms us, but as you will see, time is rapidly running out.
The following are 12 things that just happened that show the next wave of the economic collapse is almost here…
#1 According to TrimTab’s CEO Charles Biderman, corporate insider purchases of stock have hit an all-time low, and the ratio of corporate insider selling to corporate insider buying has now reached an astounding 50 to 1….
While retail is being told to buy-buy-buy, Biderman exclaims that “insiders at U.S. companies have bought the least amount of shares in any one month,” and that the ratio of insider selling to buying is now 50-to-1 – a monthly record.
#2 On Friday we learned that personal income in the United States experienced its largest one month decline in 20 years…
Personal income decreased by $505.5 billion in January, or 3.6%, compared to December (on a seasonally adjusted and annualized basis). That’s the most dramatic decline since January 1993, according to the Commerce Department.
#3 In a stunning move, Michigan Governor Rick Snyder says that he will appoint an emergency financial manager to take care of Detroit’s financial affairs…
Snyder, 54, took a step he avoided a year ago, empowering an emergency financial manager who can sweep aside union contracts, sell municipal assets, restructure services and reorder finances. He announced the move yesterday at a public meeting in Detroit.
If this does not work, Detroit will almost certainly have to declare bankruptcy. If that happens, it will be the largest municipal bankruptcy in U.S. history.
#4 On Friday it was announced that the unemployment rate in Italy had risen to 11.7 percent. That was a huge jump from 11.3 percent the previous month, and Italy now has the highest unemployment rate that it has experienced in 21 years.
#5 The youth unemployment rate in Italy has risen to a new all-time record high of 38.7 percent.
#6 On Friday it was announced that the unemployment rate in the eurozone as a whole had just hit a brand new record high of 11.9 percent.
#7 On Friday it was announced that the unemployment rate in Greece has now reached 27 percent, and it is being projected that it will reach 30 percent by the end of the year.
#8 The youth unemployment rate in Greece is now an almost unbelievable 59.4 percent.
#9 On Saturday, hundreds of thousands of protesters filled the streets of Lisbon and other Portuguese cities to protest the austerity measures that are being imposed upon them. It was reportedly the largest protest in the history of Portugal.
#10 According to Goldman Sachs, bank deposits declined all over Europe during the month of January.
#11 Over the weekend, the deputy governor of China’s central bank declared that China is prepared for a “currency war“…
A top Chinese banker said Beijing is “fully prepared” for a currency war as he urged the world to abide by a consensus reached by the G20 to avert confrontation, state media reported on Saturday.
Yi Gang, deputy governor of China’s central bank, issued the call after G20 finance ministers last month moved to calm fears of a looming war on the currency markets at a meeting in Moscow.
Those fears have largely been fuelled by the recent steep decline in the Japanese yen, which critics have accused Tokyo of manipulating to give its manufacturers a competitive edge in key export markets over Asian rivals.
#12 Italy is an economic basket case at this point, and the political gridlock in Italy is certainly not helping matters. Former comedian Beppe Grillo’s party could potentially tip the balance of power one way or the other in Italy, and over the weekend he made some comments that are really shaking things up over in Europe. For one thing, he is suggesting that Italy should hold a referendum on the euro…
“I am a strong advocate of Europe. I am in favor of an online referendum on the euro,” Beppe Grillo told Bild am Sonntag.
Such a vote would not be legally binding in Italy, where referendums can only be used to repeal laws or parts of laws, but would carry political weight. Grillo has said in the past that membership of the euro should be up to the Italian people.
In addition, Grillo is also suggesting that Italy’s debt has gotten so large that renegotiation is the only option…
In an interview with a German magazine published on Saturday, Mr Grillo said that “if conditions do not change” Italy “will want” to leave the euro and return to its former national currency.
The 64-year-old comic-turned-political activist also said Italy needs to renegotiate its €2 trillion debt.
At 127 per cent of gross domestic product (GDP), it is the highest in the euro zone after Greece.
“Right now we are being crushed, not by the euro, but by our debt. When the interest payments reach €100 billion a year, we’re dead. There’s no alternative,” he told Focus, a weekly news magazine.
He said Italy was in such dire economic straits that “in six months, we will no longer be able to pay pensions and the wages of public employees.”
And of course government debt has taken center stage in the United States as well.
The sequester cuts have now gone into effect, and they will definitely have an effect on the U.S. economy. Of course that effect will not be nearly as dramatic as many Democrats are suggesting, but without a doubt those cuts will cause the U.S. economy to slow down a bit.
Well, everyone should keep watching Europe very closely, and it will also be important to keep an eye on Wall Street. There are a whole bunch of indications that the stock market is at or near a peak. For example, just check out what one prominent stock market analyst recently had to say…
“Every reliable technical tool is warning of major peaking action,” said Walter Zimmerman, the senior technical analyst at United-ICAP. “This includes sentiment, momentum, classical chart patterns, and Elliott wave analysis.
“Most of the rally in the stock market since 2009 can be chalked up to the Federal Reserve’s attempt to create a ‘wealth effect’ through higher stock market prices. This only exacerbates the downside risk. Why? The stock market no is longer a lead indicator for the economy. It is instead reflecting Fed manipulation. Pushing the stock market higher while the real economy languishes has resulted in another bubble.
“The next leg down will not be a partial correction of the advance since the 2009 lows. It will be another major financial crisis. The worst is yet to come.”
Sadly, most people will continue to deny that anything is wrong until it is far too late.
Many areas of Europe are already experiencing economic depression, and it is only a matter of time before the U.S. follows suit.
Time is running out, and I hope that you are getting ready.
So what do you think?
How much time do you believe that we have left before the next wave of the economic collapse strikes?
Please feel free to post a comment with your thoughts below…
Is “discretionary income” rapidly becoming a thing of the past for most American families? Right now, there are a lot of signs that we are on the verge of a nightmarish consumer spending drought. Incomes are down, taxes are up, many large retail chains are deeply struggling because of the lack of customers, and at this point nearly a quarter of all Americans have more credit card debt than money in the bank. Considering the fact that consumer spending is such a large percentage of the U.S. economy, that is very bad news. How will we ever have a sustained economic recovery if consumers don’t have much money to spend? Well, the truth is that we aren’t ever going to have a sustained economic recovery. In fact, this debt-fueled bubble of false hope that we are experiencing right now is as good as things are going to get. Things are going to go downhill from here, and if you think that consumer spending is bad now, just wait until you see what happens over the next several years.
Even though the Dow is surging toward a record high right now, everyone knows that things are not good for the middle class. A recent quote from CPA Howard Dvorkin kind of summarizes our current state of affairs very nicely…
“The fact of the matter is that America is broke — whether it’s mortgages, student loans or credit cards, we are broke. The old rule of thumb is that people should have six months’ of savings,” Dvorkin says.”If you talk to people, most don’t have two pennies.”
These days most Americans are living from paycheck to paycheck, and thanks to rising prices and rising taxes, those paychecks are getting squeezed tighter and tighter. Many families have had to cut back on unnecessary expenses, and some families no longer have any discretionary income at all.
The following are 16 signs that the middle class is rapidly running out of money…
#1 According to one brand new survey, 24 percent of all Americans have more credit card debt than money in the bank.
#2 J.C. Penney was once an unstoppable retail powerhouse, but now J.C. Penney has just posted its lowest annual retail sales in more than 20 years…
J.C. Penney Co. (JCP) slid the most in more than three decades after the department-store chain lost $4.3 billion in sales in the first year of Chief Executive Officer Ron Johnson’s turnaround plan.
The shares fell 18 percent to $17.40 at 11:28 a.m. in New York after earlier declining 22 percent, the biggest intraday drop since at least 1980, according to data compiled by Bloomberg. J.C. Penney yesterday said its net loss in the quarter ended Feb. 2 widened to $552 million from $87 million a year earlier. The Plano, Texas-based retailer’s annual revenue slid 25 percent to $13 billion, the lowest since at least 1987.
How much worse can things get? At this point the decline has become so steep for J.C. Penney that Jim Cramer of CNBC is declaring that they are in “a true tailspin“.
Looking to buy a new car, truck or crossover? You may find it more difficult to stretch the household budget than you expected, according to a new study that finds median-income families in only one major U.S. city actually can afford the typical new vehicle.
The typical new vehicle is now more expensive than ever, averaging $30,500 in 2012, according to TrueCar.com data, and heading up again as makers curb the incentives that helped make their products more affordable during the recession when they were desperate for sales. According to the 2013 Car Affordability Study by Interest.com, only in Washington could the typical household swing the payments, the median income there running $86,680 a year.
#4 The founder of Subway Restaurants, Fred Deluca, says that the recent tax increases are having a noticeable impact on his business…
“The payroll tax is affecting sales. It’s causing sales declines,” he said, estimating a decline of about 2 percentage points off sales at his restaurants. “There are a lot of pressures on consumers,” Deluca said, adding “I think this is on the permanent side, but I think business will adjust to it.”
#5 Many other large restaurant chains are also struggling in this tough economic environment…
Darden Restaurants, which owns the casual dining chains Oliver Garden, LongHorn Steakhouse and Red Lobster, said blended same-store sales at its three eateries would be 4.5 percent lower during its fiscal third quarter.
Clarence Otis, Darden’s chairman and chief executive, said that “while results midway through the third quarter were encouraging, there were difficult macro-economic headwinds during the last month of the quarter.”
“Two of the most prominent were increased payroll taxes and rising gasoline prices, which together put meaningful pressure on the discretionary purchasing power of our guests,” he added.
#6 The CFO of Family Dollar recently admitted to CNBC that this is a “challenging time” because of reduced consumer spending…
At Family Dollar where the average customer makes less than $40,000 a year, the combination of a two-percent hike in the payroll tax, rising gas prices and delayed tax refunds has created a “challenging time and an uncertain time for the consumer right now,” said Mary Winston, the company’s chief financial officer.
“In our case, anything that takes money out of our customer’s wallet gives them less money to spend in our stores,” she told CNBC. “So I think all of those things create nervousness for the consumer, and I think there are sometimes political dynamics going on that they might not even fully understand the details, but they know it’s not good.”
Evelin Cruz, a department manager at the Wal-Mart Supercenter in Pico Rivera, California, said Simon’s comments from the officers’ meeting were “dead on.”
“There are gaps where merchandise is missing,” Cruz said in a telephone interview. “We are not talking about a couple of empty shelves. This is throughout the store in every store. Some places look like they’re going out of business.”
This all comes on the heels of an internal Wal-Mart memo that was leaked to the press earlier this month that described February sales as a “total disaster”.
#8 Electronics retailer Best Buy continues to struggle mightily. Best Buy just announced that it will be eliminating 400 jobs at its headquarters in Richfield, Minnesota.
#9 It is being projected that many of the largest retail chains in America, including Best Buy, will close down hundreds of stores during 2013. The following is a list of projected store closings for 2013 that I included in a previous article…
Best Buy
Forecast store closings: 200 to 250
Sears Holding Corp.
Forecast store closings: Kmart 175 to 225, Sears 100 to 125
J.C. Penney
Forecast store closings: 300 to 350
Office Depot
Forecast store closings: 125 to 150
Barnes & Noble
Forecast store closings: 190 to 240, per company comments
Gamestop
Forecast store closings: 500 to 600
OfficeMax
Forecast store closings: 150 to 175
RadioShack
Forecast store closings: 450 to 550
#10 Another sign that consumer spending is slowing down is the fact that less stuff is being moved around in our economy. As I have mentioned previously, freight shipment volumes have hit their lowest level in two years, and freight expenditures have gone negative for the first time since the last recession.
#11 Many young adults have no discretionary income to spend because they are absolutely drowning in student loan debt. According to the New York Federal Reserve, student loan debt nearly tripled between 2004 and 2012.
#12 The student loan delinquency rate in the United States is now at an all-time high. It is only a matter of time before the student loan debt bubble bursts.
#13 Due to a lack of jobs and high levels of debt, poverty among young adults in America is absolutely exploding. Today, U.S. families that have a head of household that is under the age of 30 have a poverty rate of 37 percent.
#14 According to one recent survey, 62 percent of all middle class Americans say that they have had to reduce household spending over the past year.
#15 Median household income in the United States has fallen for four consecutive years. Overall, it has declined by more than $4000 during that time span.
#16 According to the U.S. Census Bureau, the middle class is currently taking home a smaller share of the overall income pie than has ever been recorded before.
Are you starting to get the picture?
Retailers are desperate for sales, but you can’t squeeze blood out of a rock.
But if you listen to the mainstream media, they would have you believe that happy days are here again.
Right now, everyone seems to be quite giddy about the fact that the Dow is marching toward an all-time high. And I actually do believe that the Dow will blow right past it. In fact, it is even possible that we could see the Dow hit 15,000 before everything starts falling apart.
But at some point, the financial markets will catch up with economic reality. It is just a matter of time.
In the meanwhile, those that are wise are taking advantage of these times of plenty to prepare for the great economic drought that is coming.
Don’t be caught living paycheck to paycheck and totally unprepared when the next wave of the economic collapse strikes. Anyone that believes that this debt-fueled bubble of false hope can last indefinitely is just being delusional.
If we can’t even cut federal spending by 2.4 percent without much of the country throwing an absolute hissy fit, then what hope does America have? All of this whining and crying about the sequester is absolutely disgraceful. The truth is that even if the sequester goes into effect, the U.S. government will still take in more money than ever before in 2013 and it will still spend more money than ever before in 2013. So it is a bit disingenuous to call what is about to happen “a spending cut”, but for the sake of argument let’s concede that point. Even if the budget really was being “cut” by 85 billion dollars, that only would only amount to a “cut” of 2.4 percent to federal spending. It would barely make a dent in the federal budget deficit for 2013. The U.S. government would still accumulate about as much new debt in fiscal year 2013 as it did in all the years from the inauguration of George Washington to the inauguration of Ronald Reagan combined. Our debt to GDP ratio would continue to soar. The sequester cuts would essentially only be a minor bump on the road to financial oblivion. But if you listen to Barack Obama and his allies, they would have you believe that we are facing a great national crisis because of these impending cuts. They would have you believe that hundreds of thousands of people will lose their jobs and that many government agencies will no longer be able to operate effectively. They would have you believe that “granny won’t get her lunch” and “roofs blown off by Hurricane Sandy won’t get repaired”. Well, if all of that is true, then what in the world would our country look like if we actually cut a trillion dollars from the federal budget this year and started living within our means?
Have you ever known people that are already hundreds of thousands of dollars in debt and yet go out and regularly blow thousands more dollars on wild shopping sprees?
Such debt addicts may be very proud of their new homes, their new cars, their new clothes and all of their fancy electronic gadgets, but it was all purchased with debt. When a “day of reckoning” finally arrives, many debt addicts lose absolutely everything and end up in the street.
That is what America is like today.
Our politicians like to show off all of the stuff that our government is spending money on, but the truth is that we are spending gigantic mountains of money that we simply do not have. We are literally stealing from our kids and our grandkids so that we can continue to enjoy a massively inflated standard of living that we have not earned.
But we can’t stop ourselves. Americans are absolutely addicted to big government. They want a gigantic government that sends out free money to more than 100 million Americans every month, but they absolutely do not want to pay for it. They would rather steal money from their children and their grandchildren to pay for it.
This has got to stop, because we are literally destroying the future of this country.
If Americans really want a massively bloated government that takes care of everyone from the cradle to the grave then they should pay for it.
If Americans don’t want to pay for it, then they should reduce the size of the government to a level where they are willing to pay for it.
But stealing money from future generations of Americans to pay our bills is absolutely disgraceful.
As I talked about in a previous article, we are stealing more than 100 million dollars from our children and our grandchildren every single hour of every single day.
Is there anyone out there that is willing to stand up and defend that kind of theft?
But the vast majority of Americans don’t want to do anything to stop it, because they don’t want to harm “the economy” (i.e. our ridiculously bloated standard of living).
Will the sequester cuts hurt the economy a bit?
Of course.
Government spending cuts always hurt the economy.
If we raised taxes to help pay the bills that the federal government has been racking up, would that hurt the economy?
Of course.
Tax increases always hurt the economy.
But if we continue on the path that we are today, America is doomed.
The U.S. national debt is the biggest single debt in the history of the world. It is now more than 16.6 trillion dollars, and it has gotten more than 23 times larger since Jimmy Carter first entered the White House.
If our politicians suddenly decided to go to a balanced budget today, our debt-fueled “bubble economy” would disappear and we would immediately plunge into a deep economic depression.
Do the American people have the character to be able to handle that kind of an “adjustment” to our standard of living?
Of course not.
That is why so many of our politicians are scared to death of doing anything about the debt.
And even these small sequester “cuts” are freaking everyone out. Many of our politicians and many in the mainstream media are openly declaring that “the sky is falling”. Just check out the following short excerpt from a recent New York Times article…
The owner of a Missouri smokehouse that makes beef jerky is worried about a slowdown in food safety inspections. A Montana school district is drawing up a list of teachers who could face layoffs. Officials at an Arizona border station fear that lines to cross the border could lengthen. And if Olympic National Park in Washington cannot hire enough workers to plow backcountry trails, they may stay closed until the snow melts in July.
But that is nothing compared to what others are saying. CNN is declaring that if the sequester cuts happen, “granny won’t get her lunch” and “roofs blown off by Hurricane Sandy won’t get repaired”.
And check out these ominous warnings from Barack Obama about what will happen if the sequester cuts go into effect…
“Emergency responders like the ones who are here today — their ability to help communities respond to and recover from disasters will be degraded. Border Patrol agents will see their hours reduced. FBI agents will be furloughed. Federal prosecutors will have to close cases and let criminals go. Air traffic controllers and airport security will see cutbacks, which means more delays at airports across the country. Thousands of teachers and educators will be laid off. Tens of thousands of parents will have to scramble to find childcare for their kids. Hundreds of thousands of Americans will lose access to primary care and preventive care like flu vaccinations and cancer screenings.”
Immigration and Customs Enforcement officials have released “several hundred” immigrants from deportation centers across the country, saying the move is an effort to cut costs ahead of budget cuts due to hit later this week.
Announcing the news Tuesday, ICE officials said that the immigrants were released under supervision and continue to face deportation. After reviewing hundreds of cases, those released were considered low-risk and “noncriminal,” officials said.
The claims about the sequester cuts just seem to get more ridiculous with each passing day. Homeland Security Secretary Janet Napolitano is warning that the cuts will make the U.S. more vulnerable to terrorist attacks, and Obama recently decided not to send an aircraft carrier to the Persian Gulf because of “budget concerns“.
Apparently he sees no problem with using the U.S. military to score political points.
And Federal Reserve Chairman Ben Bernanke says that the budget cuts will result in “less actual deficit reduction in the short run”.
Really?
How stupid do they think we all are?
Yes, the sequester cuts will have an impact on the economy, but they won’t cause the sky to fall.
The following is what the CBO says the economic impact of the cuts is likely to be…
The Congressional Budget Office estimates the cuts will cost 750,000 jobs and hit growth by 0.6 percentage points, assuming the cuts remain in effect for the remainder of the fiscal year. Some economists expect a slightly bigger impact.
Remember, these are actually very small cuts.
In fact, according to U.S. Representative Lynn Jenkins, the U.S. government will actually be spending more money in 2013 than it did in 2012 even if the sequester cuts go into effect…
“There’s a fact that says we are going to take in more money this fiscal year than we have ever taken in before,” Jenkins said. “The budget this year, we will spend more money this year than we spent last year even if the sequester goes into effect. We will spend more money even if the sequester goes into effect.”
So why is everyone whining and crying over such a very small amount of money?
If you want to get upset about something, why not get upset about things that are increasing our debt by trillions of dollars?
For example, according to a Government Accountability Office report that was just released, Obamacare is going to cause the federal debt to rise by $6.2 trillion.
Why aren’t more people getting upset over that?
Sadly, it is because America is a debt addict. Most Americans don’t really care much when federal spending skyrockets out of control, but if anyone tries to slow down the spending a little bit they throw hissy fits.
And please don’t tell me that “the big government Republicans” are much better than “the big government Democrats” on budget issues. The Republicans have caved in and have gone along with all of this wild spending every single time.
On March 27th, they will have another opportunity to do something. That is when the current continuing resolution expires.
At that time, the Republicans could refuse to pass anything but a balanced budget.
Or they could at least refuse to pass anything except a budget that would cut the federal budget deficit in half.
But they won’t do anything once again. They will cave in and go along with the status quo because they are cowards.
So we will continue to rip off future generations to fuel our current bloated standard of living.
Thomas Jefferson understood that government borrowing is theft from future generations. He once made the following statement….
And I sincerely believe, with you, that banking establishments are more dangerous than standing armies; and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale.
Shame on you Democrats.
Shame on you Republicans.
Shame on you America.
You are destroying the future of America for your own selfish reasons.
If future generations get the chance, they will look back on what you did to them and they will curse you for it.
Like I said, it would mean a deep economic depression, and it would also likely mean a tremendous amount of societal chaos.
Even now, while we are still living in the boom times, things are really starting to get crazy out there. Just check out what is going on in Oakland…
Oakland’s crime problems have gotten so bad that some people aren’t even bothering to call the cops anymore; instead, they’re trying to solve and prevent crimes themselves.
KPIX 5 cameras caught up with a half dozen neighbors in East Oakland’s Arcadia Park neighborhood Monday as they walked the streets on the lookout for crime. The vigilance has never seemed more necessary than now; 25 homes in the neighborhood have been burglarized over the last two months alone.
In a neighborhood that has started to feel like the wild west, people have even started posting “wanted” signs.
“You have to walk around in your house with a gun to feel safe here,” said Alaska Tarvins of the Arcadia Park Board of Directors.
If this is how bad things are now, how bad will they be when a day of reckoning for our economy arrives?
And a day of reckoning is coming.
Our politicians can try to keep kicking the can down the road for as long as they can, but eventually time will run out. Just take a look at what is happening in Greece and Spain. Meanwhile, all of this can kicking is just making the eventual crisis even worse.
We can borrow our way to prosperity for a while, but in the end there is always a very bitter price to pay for doing so.
I would love to tell you that there is a chance that all of this will be turned around, but the truth is that all of this whining and crying about the sequester shows that America is doomed.
Is the U.S. economy about to experience a major downturn? Unfortunately, there are a whole bunch of signs that economic activity in the United States is really slowing down right now. Freight volumes and freight expenditures are way down, consumer confidence has declined sharply, major retail chains all over America are closing hundreds of stores, and the “sequester” threatens to give the American people their first significant opportunity to experience what “austerity” tastes like. Gas prices are going up rapidly, corporate insiders are dumping massive amounts of stock and there are high profile corporate bankruptcies in the news almost every single day now. In many ways, what we are going through right now feels very similar to 2008 before the crash happened. Back then the warning signs of economic trouble were very obvious, but our politicians and the mainstream media insisted that everything was just fine, and the stock market was very much detached from reality. When the stock market did finally catch up with reality, it happened very, very rapidly. Sadly, most people do not appear to have learned any lessons from the crisis of 2008. Americans continue to rack up staggering amounts of debt, and Wall Street is more reckless than ever. As a society, we seem to have concluded that 2008 was just a temporary malfunction rather than an indication that our entire system was fundamentally flawed. In the end, we will pay a great price for our overconfidence and our recklessness.
So what will the rest of 2013 bring?
Hopefully the economy will remain stable for as long as possible, but right now things do not look particularly promising.
The following are 20 signs that the U.S. economy is heading for big trouble in the months ahead…
#1 Freight shipment volumes have hit their lowest level in two years, and freight expenditures have gone negative for the first time since the last recession.
#2 The average price of a gallon of gasoline has risen by more than 50 cents over the past two months. This is making things tougher on our economy, because nearly every form of economic activity involves moving people or goods around.
#3 Reader’s Digest, once one of the most popular magazines in the world, has filed for bankruptcy.
#4 Atlantic City’s newest casino, Revel, has just filed for bankruptcy. It had been hoped that Revel would help lead a turnaround for Atlantic City.
#5 A state-appointed review board has determined that there is “no satisfactory plan” to solve Detroit’s financial emergency, and many believe that bankruptcy is imminent. If Detroit does declare bankruptcy, it will be the largest municipal bankruptcy in U.S. history.
#6 David Gallagher, the CEO of Town Sports International, recently said that his company is struggling right now because consumers simply do not have as much disposable income anymore…
“As we moved into January membership trends were tracking to expectations in the first half of the month, but fell off track and did not meet our expectations in the second half of the month. We believe the driver of this was the rapid decline in consumer sentiment that has been reported and is connected to the reduction in net pay consumers earn given the changes in tax rates that went into effect in January.“
#7 According to the Conference Board, consumer confidence in the U.S. has hit its lowest level in more than a year.
#8 Sales of the Apple iPhone have been slower than projected, and as a result Chinese manufacturing giant FoxConn has instituted a hiring freeze. The following is from a CNET report that was posted on Wednesday…
The Financial Times noted that it was the first time since a 2009 downturn that the company opted to halt hiring in all of its facilities across the country. The publication talked to multiple recruiters.
The actions taken by Foxconn fuel the concern over the perceived weakened demand for the iPhone 5 and slumping sentiment around Apple in general, with production activity a leading indicator of interest in the product.
#9 In 2012, global cell phone sales posted their first decline since the end of the last recession.
#10 We appear to be in the midst of a “retail apocalypse“. It is being projected that Sears, J.C. Penney, Best Buy and RadioShack will also close hundreds of stores by the end of 2013.
#11 An internal memo authored by a Wal-Mart executive that was recently leaked to the press said that February sales were a “total disaster” and that the beginning of February was the “worst start to a month I have seen in my ~7 years with the company.”
#12 If Congress does not do anything and “sequestration” goes into effect on March 1st, the Pentagon says that approximately 800,000 civilian employees will be facing mandatory furloughs.
#13 Barack Obama is admitting that the “sequester” could have a crippling impact on the U.S. economy. The following is from a recent CNBC article…
Obama cautioned that if the $85 billion in immediate cuts — known as the sequester — occur, the full range of government would feel the effects. Among those he listed: furloughed FBI agents, reductions in spending for communities to pay police and fire personnel and teachers, and decreased ability to respond to threats around the world.
He said the consequences would be felt across the economy.
“People will lose their jobs,” he said. “The unemployment rate might tick up again.”
#14 If the “sequester” is allowed to go into effect, the CBO is projecting that it will cause U.S. GDP growth to go down by at least 0.6 percent and that it will “reduce job growth by 750,000 jobs“.
#15 According to a recent Gallup survey, 65 percent of all Americans believe that 2013 will be a year of “economic difficulty“, and 50 percent of all Americans believe that the “best days” of America are now in the past.
#16 U.S. GDP actually contracted at an annual rate of 0.1 percent during the fourth quarter of 2012. This was the first GDP contraction that the official numbers have shown in more than three years.
#17 For the entire year of 2012, U.S. GDP growth was only about 1.5 percent. According to Art Cashin, every time GDP growth has fallen this low for an entire year, the U.S. economy has always ended up going into a recession.
The world’s richest countries saw their economies contract for the first time in almost four years during the final three months of 2012, the Organisation for Economic Co-operation and Development said.
The Paris-based thinktank said gross domestic product across its 34 member states fell by 0.2% – breaking a period of rising activity stretching back to a 2.3% slump in output in the first quarter of 2009.
All the major economies of the OECD – the US, Japan, Germany, France, Italy and the UK – have already reported falls in output at the end of 2012, with the thinktank noting that the steepest declines had been seen in the European Union, where GDP fell by 0.5%. Canada is the only member of the G7 currently on course to register an increase in national output.
#19 Corporate insiders are dumping enormous amounts of stock right now. Do they know something that we don’t?
#20 Even some of the biggest names on Wall Street are warning that we are heading for an economic collapse. For example, Seth Klarman, one of the most respected investors on Wall Street, said in his year-end letter that the collapse of the U.S. financial system could happen at any time…
“Investing today may well be harder than it has been at any time in our three decades of existence,” writes Seth Klarman in his year-end letter. The Fed’s “relentless interventions and manipulations” have left few purchase targets for Baupost, he laments. “(The) underpinnings of our economy and financial system are so precarious that the un-abating risks of collapse dwarf all other factors.”
So what do you think is going to happen to the U.S. economy in the months ahead?
Please feel free to express your opinion by leaving a comment below…
Is America really “the land of the free”? Most people think of money as simply a medium of exchange that makes economic transactions more convenient, but the truth is that it is much more than that. Money is also a form of social control. Just think about it. What did you do this morning? Well, if you are like most Americans, you either got up and went to work (to make money) or to school (to learn the skills that you will need to make money). We spend a great deal of our lives pursuing the almighty dollar, and there are literally millions of laws, rules and regulations about how we earn our money, about how we spend our money and about how much of our money the government gets to take from us. Not that money is a bad thing in itself. Without money, it would be really hard to have a modern society. Unfortunately, our money is based on debt, and debt levels in the United States have exploded to absolutely unprecedented levels in recent years. The borrower is the servant of the lender, and if you are like most Americans, nearly every major purchase that you make in your life is going to involve debt. Do you want to get a college education so that you can get a “good job”? You are told to get a student loan. Do you want a car? You are encouraged to get an auto loan and to stretch out the payments for as long as possible. Do you want a home? You are probably going to end up with a big fat mortgage. And of course I could go on and on and on. The cold, hard truth of the matter is that most Americans are debt slaves. Most of us spend our entire lives trapped in an endless cycle of debt that we never escape until we die, and meanwhile our years of hard labor are greatly enriching those that own our debts.
Have you ever found yourself wondering why you can never seem to get ahead financially no matter how hard you work?
Well, it is probably because you have gotten yourself enslaved to debt.
On the debt side of things, how much does your credit card company earn if you carry just an average of a $5,000 credit card balance, paying, say, 22% annual interest rate (compounding monthly) for the next 10 years?
In your mind you owe a balance of only $5,000, which is not a huge amount, especially for someone gainfully employed. After all, $5,000 is just a quick Disney trip, or a moderately priced ski-trip, or that week in Hawaii. You think to yourself, “how bad could it be?”
The answer, including the cost of monthly compounding, is $44,235, or about 9 times what it appears to cost you at face value.
But a large percentage of Americans never pay off their credit cards at all. They make small payments each month, but then they just keep on adding to their balances.
In the end, that is financial suicide.
If you carry an “average balance” on your credit cards each month, and those credit cards have 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
Sadly, approximately 46% of all Americans carry a credit card balance from month to month.
How stupid can we be as a nation?
When you become enslaved to the credit card companies, your toil and sweat makes them much wealthier. It is a form of slavery that does not require anyone pointing a gun at you.
But we never seem to learn. Incredibly, 43 percent of all American families spend more than they earn each year.
As the chart below demonstrates, consumer credit actually declined for a short while during the last recession, but now it has turned around and the growth of consumer credit is on the same trajectory as it was before the last economic crisis…
Today, the total amount of consumer credit in the United States is 15 times larger than it was 40 years ago.
And every major “milestone” in our lives typically involves even more debt.
-The total amount of student loan debt in the United States recently passed a trillion dollars, and approximately two-thirds of all college students graduate with student loan debt at this point.
-Total home mortgage debt in the United States is now about 5 times larger than it was just 20 years ago, and mortgage debt as a percentage of GDP has more than tripled since 1955.
-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.
-Want to get married? That average cost of a wedding is now $26,989 which is probably going to mean even more debt unless you have wealthy parents.
-Do you have a serious medical problem? 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.
And I have not even begun to talk about our collective debts yet.
Government debt is a collective form of debt. You may not have voted for any of the politicians that have been racking up debt in your name, but part of it still belongs to you.
Since the year 2000, state and local government debt has more than doubled. These are collective debts for which we are all responsible…
And of course the biggest collective debt of all is the U.S. national debt.
In a previous article, I discussed how the national debt has exploded out of control in recent years. If you can believe it, the U.S. debt to GDP ratio has increased from 66.6 percent to 103 percent since 2007, and the U.S. government accumulated more new debt during Barack Obama’s first term than it did under the first 42 U.S. presidents combined.
When you break things down by household, the numbers look even more frightening.
During Barack Obama’s first four years in the White House, the amount of new debt accumulated by the federal government breaks down to approximately $50,521 for every single household in the United States.
And as I have mentioned previously, if you started paying off just the new debt that the federal government has accumulated during the Obama administration at the rate of one dollar per second, it would take more than 184,000 years to pay it off.
Well, you might argue, none of that debt will ever be paid off in our lifetimes.
And you would be right.
But what we are doing is consigning our children, our grandchildren and all future generations of Americans to a lifetime of debt slavery.
How nice of us, eh?
Over the past 10 years, the U.S. national debt has grown by an average of 9.3 percent per year, but the overall U.S. economy has only grown by an average of just 1.8 percent per year.
How do we expect to continue doing this?
Fortunately, more Americans are starting to wake up to how foolish all of this is.
For example, the following is what Home Depot Founder Kenneth Langone told CNBC on Tuesday…
“The fundamentals haven’t changed … And we don’t know when the storm is going to hit,” he predicted. “It has to happen.If you look at our debt to GDP, eventually you reach a point where there’s no turning back.”
He used an analogy to make his point. “If you had one meal left, and you had your grandchild with you, would you eat if or give it to your grandchild?”
He said all people would say “give it to my grandchild.”
But pursuing the president’s vision, he argued, “[Is] eating the grandchildren’s breakfast, lunch and dinner right now. And the [grandchildren] haven’t been born yet.”
What we are doing to our children and our grandchildren is beyond criminal. We are selling away their futures in order to make our lives more pleasant.
Right now, we are stealing more than 100 million dollars from our children and our grandchildren every single hour of every single day.
So where is the outrage over this theft?
Sadly, most Americans don’t even realize that all of this is by design. When the Federal Reserve system was created back in 1913, it was designed to get the U.S. government trapped in an endless spiral of debt.
And it worked. Today, the U.S. national debt is now more than 5000 times larger than it was when the Federal Reserve was first created.
Our society has become addicted to debt, and that means that we have become addicted to slavery.
We are not the “land of the free”. The truth is that we are now the “land of the servants”.
Over the past 40 years, the total amount of debt owed in the United States (government, business, consumer, etc.) has grown from less than 2 trillion dollars to more than 55 trillion dollars…
So who benefits from all of this?
I talked about this in a previous article. The ultra-wealthy and the international bankers make enormous profits by lending money to all the rest of us.
According to a stunning report that was released last summer, the global elite have up to 32 trillion dollars stashed away in offshore tax havens around the globe.
How did they get so much money?
The borrower is the servant of the lender. They have gotten rich at our expense.
But most people live their entire lives without ever understanding how the game is being played.
Today, most Americans see that the Dow is back above 14,000 and they hear the mainstream media telling them that happy days are here again and so they just believe that things are going to turn out okay somehow.
And it certainly does not help that most people seem to let others do their thinking for them. In fact, about 23% of all Americans can’t even read at this point.
So is there any hope for us?
Please feel free to post a comment with your opinion below…
Why is the global economy in so much trouble? How can so many people be so absolutely certain that the world financial system is going to crash? Well, the truth is that when you take a look at the cold, hard numbers it is not difficult to see why the global financial pyramid scheme is destined to fail. In the United States today, there is approximately 56 trillion dollars of total debt in our financial system, but there is only about 9 trillion dollars in our bank accounts. So you could take every single penny out of the banks, multiply it by six, and you still would not have enough money to pay off all of our debts. Overall, there is about 190 trillion dollars of total debt on the planet. But global GDP is only about 70 trillion dollars. And the total notional value of all derivatives around the globe is somewhere between 600 trillion and 1500 trillion dollars. So we have a gigantic problem on our hands. The global financial system is a very shaky house of cards that has been constructed on a foundation of debt, leverage and incredibly risky derivatives. We are living in the greatest financial bubble in world history, and it isn’t going to take much to topple the entire thing. And when it falls, it is going to be the largest financial disaster in the history of the planet.
Denial Is Not Just A River In Egypt: 10 Hilarious Examples Of How Clueless Our Leaders Are About The Economy
Sadly, many Americans are not even going to see the crash coming because they still have faith in the “experts”. They haven’t figured out that the “experts” really do not know what they are doing.
The blind are leading the blind, and in the end the results are going to be absolutely tragic.
The following are 10 hilarious examples of how clueless our leaders are about the economy…
#1 When I first came across the following chart the other day, it made me chuckle. It is a chart that supposedly tells us the “probability” of a recession, and it was taken from the website of the Federal Reserve Bank of St. Louis. According to the chart, right now there is a 0.16% chance of a recession…
#2 Federal Reserve Chairman Ben Bernanke has also been proclaiming his belief that the U.S. economy will continue to grow. The following is an excerpt from his recent remarks to Congress…
And Bernanke also insists that the labor market is “improving”…
Of course the labor market is not actually improving. I showed this using the Fed’s own numbers the other day.
And you can put stock in Bernanke’s forecasting ability if you like, but considering his track record of failure in the past, that might not be too wise. Just check out what he was saying before the last financial crisis: “30 Ben Bernanke Quotes That Are So Stupid That You Won’t Know Whether To Laugh Or Cry“.
#3 Although Bernanke has such a nightmarish track record of failure, Warren Buffett still has faith in him. In fact, Buffett loves all of the money printing that Bernanke has been doing…
If Buffett thinks the wild money printing that the Fed has been doing is so wonderful, then he probably would have absolutely loved living in the Weimar Republic.
#4 Barack Obama continues to insist that we do not have a debt crisis, but that we will not be able to balance the budget any time in the foreseeable future either.
Even though the national debt has grown by more than 6 trillion dollars under his leadership and our debt to GDP ratio is now well over 100%, Obama does not believe that it is a significant problem…
And Obama certainly does not plan to even come close to balancing the budget during his second term. In fact, he openly admits that we won’t see a balanced budget at any point within the next decade…
Sadly, the truth is that the U.S. will never have a balanced budget ever again under our current system, but most of our politicians are not willing to go that far and admit that sad fact to the American people just yet.
#5 But of course it would certainly help if the U.S. government would stop wasting so much money. For example, did you know that the federal government is helping dead people get free cell phones? The following is from a recent article in the New York Post…
And of course a lot of living people are abusing the free cell phone program as well. Rep. Griffin says that he has heard of some people getting as many as 10 free cell phones from the government…
#6 Meanwhile, the most prominent economic journalist in the United States, Paul Krugman of the New York Times, continues to insist that it is a good thing for the government to be running up so much debt…
Krugman is also operating under the delusion that the federal government “can’t run out of cash”, that it can just print money whenever it wants and that printing giant piles of money would not hurt anything.
It is frightening that the top economic journalist in America has such little understanding of how our system actually works. I would encourage Krugman to read a couple of my previous articles so that he won’t be so ignorant in the future…
-“Where Does Money Come From? The Giant Federal Reserve Scam That Most Americans Do Not Understand”
-“10 Things That Every American Should Know About The Federal Reserve”
#7 Many Americans have wondered why the federal government never seems to go after the big Wall Street banks. Well, now we know why. The other day, the Attorney General of the United States admitted that the federal government is very hesitant to prosecute anyone from the big banks because of what it might do to the global economy…
So I guess we now live in a world where there is a different set of rules for the big banks, eh?
Most of us already knew that this was the case, but it is quite chilling to hear the Attorney General of the United States publicly admit this.
#8 Many of the big Wall Street banks are absolutely giddy that the Dow keeps setting new all-time highs, and many of them are projecting wonderful things ahead for the U.S. economy. For example, here is one forecast from Morgan Stanley’s Vincent Reinhart …
#9 Vice-President Joe Biden is pushing economic optimism to ridiculous levels. Apparently he believes that most Americans are “no longer worried” that a major economic crisis is coming…
#10 Right now, many in the financial world are projecting that this will be a year to remember for the stock market. During a recent interview with Fox Business, Wharton School of Business Finance Professor Jeremy Siegel declared that the Dow will cross the 16,000 mark by the end of this year…
Of course it is true that other analysts have a much different view of things. Many of them are absolutely amazed that the U.S. economy has become so disconnected from economic reality. For example, just check out what Steve Russell and Hamish Baillie, fund managers at the Ruffer Investment Company, recently had to say…
So who is right and who is wrong?
Time will tell.
Fortunately, it appears that the American people are getting fed up with the constant stream of lies that they have been told.
According to a new Pew Research survey, just 26 percent of all Americans trust the government to do the right thing.
So what about you?
Do you trust what the government and the “experts” are telling you?
Do you trust them to do the right thing?
Feel free to post a comment with your thoughts below…