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Guess What Happened The Last Time Bond Yields Crashed Like This?…

Question Cube - Public DomainIf a major financial crisis was approaching, we would expect to see the “smart money” getting out of stocks and pouring into government bonds that are traditionally considered to be “safe” during a crisis.  This is called a “flight to safety” or a “flight to quality“.  In the past, when there has been a “flight to quality” we have seen yields for German government bonds and U.S. government bonds go way down.  As you will see below, this is exactly what we witnessed during the financial crisis of 2008.  U.S. and German bond yields plummeted as money from the stock market was dumped into bonds at a staggering pace.  Well, it is starting to happen again.  In recent months we have seen U.S. and German bond yields begin to plummet as the “smart money” moves out of the stock market.  So is this another sign that we are on the precipice of a significant financial panic?

Back in 2008, German bonds actually began to plunge well before U.S. bonds did.  Does that mean that European money is “smarter” than U.S. money?  That would certainly be a very interesting theory to explore.  As you can see from the chart below, the yield on 10 year German bonds started to fall significantly during the summer of 2008 – several months before the stock market crash in the fall…

German Bond Yields 2007 And 2008

So what are German bonds doing today?

As you can see from this next chart, the yield on 10 year German bonds has been steadily falling since the beginning of last year.  At this point, the yield on 10 year German bonds is just barely above zero…

German Bond Yields 2013 To Today

And amazingly, most German bonds that have a maturity of less than 10 years actually have a negative yield right now.  That means that investors are going to get back less money than they invest.  This is how bizarre the financial markets have become.  The “smart money” is so concerned about the “safety” of their investments that they are actually willing to accept negative yields.  I don’t know why anyone would ever put their money into investments that have a negative yield, but it is actually happening.  The following comes from Yahoo

The world’s scarcest resource right now is safe yield, and the shortage is getting more extreme. Most German government bonds that mature in less than 10 years now have negative yields – part of some $2 trillion worth of paper with yields below zero.

This is what happens when the European Central Bank begins a trillion-euro bond-buying binge with rates already miniscule.

Yesterday, ECB boss Mario Draghi – unfazed by the protest stunt at his press conference – reaffirmed his plan to keep bidding for paper that yields more than -0.2% – that’s minus 0.2%.

Yes, the ECB is driving a lot of this, but it is still truly bizarre.

So what about the United States?

Well, first let’s take a look at what happened back in 2008.  In the chart below, you can see the “flight to safety” that took place in late 2008 as investors started to panic…

US Bond Yield 2007 And 2008

And we have started to witness a similar thing happen in recent months.  The yield on 10 year U.S. Treasuries has plummeted as investors have looked for safety.  This is exactly the kind of chart that we would expect to see if a financial crisis was brewing…

US 10 Year Yield 2014 And 2015

What makes all of this far more compelling is the fact that so many other patterns that we have witnessed just prior to past financial crashes are happening once again.

Yes, there are other potential explanations for why bond yields have been going down.  But when you add this to all of the other pieces of evidence that a new financial crisis is rapidly approaching, quite a compelling case emerges.

For those that do not follow my website regularly, I encourage you to check out the following articles to get an idea of what I am talking about…

-“Guess What Happened The Last Time The Price Of Oil Crashed Like This?…

-“Not Just Oil: Guess What Happened The Last Time Commodity Prices Crashed Like This?…

-“10 Key Events That Preceded The Last Financial Crisis That Are Happening Again RIGHT NOW

-“Guess What Happened The Last Time The U.S. Dollar Skyrocketed In Value Like This?…

-“7 Signs That A Stock Market Peak Is Happening Right Now

-“Guess What Happened The Last Two Times The S&P 500 Was Up More Than 200% In Six Years?

Of course no two financial crashes ever look exactly the same.

The crisis that we are moving toward is not going to be precisely like the crisis of 2008.

But there are similarities and patterns that we can look for.  When things start to get bad, investors act in predictable ways.  And so many of the things that we are watching right now are just what we would expect to see in the lead up to a major financial crisis.

Sadly, most people are not willing to learn from history.  Even though it is glaringly apparent that we are in a historic financial bubble, most investors on Wall Street cannot see it because they do not want to see it.  They want to believe that somehow “things are different this time” and that stocks will just continue to go up indefinitely so that they can keep making lots and lots of money.

And despite what you may think, I actually want this bubble to continue for as long as possible.  Despite all of our problems, life is still relatively good in America today – at least compared to what is coming.

I like to refer to this next crisis as our “third strike”.

Back in 2000 and 2001, the dotcom bubble burst and we experienced a painful recession, but we didn’t learn any lessons.  That was strike number one.

Then came the financial crash of 2008 and the worst economic downturn since the Great Depression.  But we didn’t learn any lessons from that either.  Instead, we just reinflated the same old financial bubbles and kept on making the exact same mistakes as before.  That was strike number two.

This next financial crisis will be strike number three.  After this next crisis, I don’t believe that there will ever be a return to “normal” for the United States.  I believe that this is going to be the crisis that unleashes hell in our nation.

So no, I am not eager for that to come.  Even though there is no way that this bubble of debt-fueled false prosperity can last indefinitely, I would like for it to last at least a little while longer.

Because what comes after it is going to be truly terrible.

The Six Too Big To Fail Banks In The U.S. Have 278 TRILLION Dollars Of Exposure To Derivatives

Bankers - Public DomainThe very same people that caused the last economic crisis have created a 278 TRILLION dollar derivatives time bomb that could go off at any moment.  When this absolutely colossal bubble does implode, we are going to be faced with the worst economic crash in the history of the United States.  During the last financial crisis, our politicians promised us that they would make sure that “too big to fail” would never be a problem again.  Instead, as you will see below, those banks have actually gotten far larger since then.  So now we really can’t afford for them to fail.  The six banks that I am talking about are JPMorgan Chase, Citibank, Goldman Sachs, Bank of America, Morgan Stanley and Wells Fargo.  When you add up all of their exposure to derivatives, it comes to a grand total of more than 278 trillion dollars.  But when you add up all of the assets of all six banks combined, it only comes to a grand total of about 9.8 trillion dollars.  In other words, these “too big to fail” banks have exposure to derivatives that is more than 28 times greater than their total assets.  This is complete and utter insanity, and yet nobody seems too alarmed about it.  For the moment, those banks are still making lots of money and funding the campaigns of our most prominent politicians.  Right now there is no incentive for them to stop their incredibly reckless gambling so they are just going to keep on doing it.

So precisely what are “derivatives”?  Well, they can be immensely complicated, but I like to simplify things.  On a very basic level, a “derivative” is not an investment in anything.  When you buy a stock, you are purchasing an ownership interest in a company.  When you buy a bond, you are purchasing the debt of a company.  But a derivative is quite different.  In essence, most derivatives are simply bets about what will or will not happen in the future.  The big banks have transformed Wall Street into the biggest casino in the history of the planet, and when things are running smoothly they usually make a whole lot of money.

But there is a fundamental flaw in the system, and I described this in a previous article

The big banks use very sophisticated algorithms that are supposed to help them be on the winning side of these bets the vast majority of the time, but these algorithms are not perfect.  The reason these algorithms are not perfect is because they are based on assumptions, and those assumptions come from people.  They might be really smart people, but they are still just people.

Today, the “too big to fail” banks are being even more reckless than they were just prior to the financial crash of 2008.

As long as they keep winning, everyone is going to be okay.  But when the time comes that their bets start going against them, it is going to be a nightmare for all of us.  Our entire economic system is based on the flow of credit, and those banks are at the very heart of that system.

In fact, the five largest banks account for approximately 42 percent of all loans in the United States, and the six largest banks account for approximately 67 percent of all assets in our financial system.

So that is why they are called “too big to fail”.  We simply cannot afford for them to go out of business.

As I mentioned above, our politicians promised that something would be done about this.  But instead, the four largest banks in the country have gotten nearly 40 percent larger since the last time around.  The following numbers come from an article in the Los Angeles Times

Just before the financial crisis hit, Wells Fargo & Co. had $609 billion in assets. Now it has $1.4 trillion. Bank of America Corp. had $1.7 trillion in assets. That’s up to $2.1 trillion.

And the assets of JPMorgan Chase & Co., the nation’s biggest bank, have ballooned to $2.4 trillion from $1.8 trillion.

During this same time period, 1,400 smaller banks have completely disappeared from the banking industry.

So our economic system is now more dependent on the “too big to fail” banks than ever.

To illustrate how reckless the “too big to fail” banks have become, I want to share with you some brand new numbers which come directly from the OCC’s most recent quarterly report (see Table 2)

JPMorgan Chase

Total Assets: $2,573,126,000,000 (about 2.6 trillion dollars)

Total Exposure To Derivatives: $63,600,246,000,000 (more than 63 trillion dollars)

Citibank

Total Assets: $1,842,530,000,000 (more than 1.8 trillion dollars)

Total Exposure To Derivatives: $59,951,603,000,000 (more than 59 trillion dollars)

Goldman Sachs

Total Assets: $856,301,000,000 (less than a trillion dollars)

Total Exposure To Derivatives: $57,312,558,000,000 (more than 57 trillion dollars)

Bank Of America

Total Assets: $2,106,796,000,000 (a little bit more than 2.1 trillion dollars)

Total Exposure To Derivatives: $54,224,084,000,000 (more than 54 trillion dollars)

Morgan Stanley

Total Assets: $801,382,000,000 (less than a trillion dollars)

Total Exposure To Derivatives: $38,546,879,000,000 (more than 38 trillion dollars)

Wells Fargo

Total Assets: $1,687,155,000,000 (about 1.7 trillion dollars)

Total Exposure To Derivatives: $5,302,422,000,000 (more than 5 trillion dollars)

Compared to the rest of them, Wells Fargo looks extremely prudent and rational.

But of course that is not true at all.  Wells Fargo is being very reckless, but the others are being so reckless that it makes everyone else pale in comparison.

And these banks are not exactly in good shape for the next financial crisis that is rapidly approaching.  The following is an excerpt from a recent Business Insider article

The New York Times isn’t so sure about the results from the Federal Reserve’s latest round of stress tests.

In an editorial published over the weekend, The Times cites data from Thomas Hoenig, vice chairman of the FDIC, who, in contrast to the Federal Reserve, found that capital ratios at the eight largest banks in the US averaged 4.97% at the end of 2014, far lower than the 12.9% found by the Fed’s stress test.

That doesn’t sound good.

So what is up with the discrepancy in the numbers?  The New York Times explains…

The discrepancy is due mainly to differing views of the risk posed by the banks’ vast holdings of derivative contracts used for hedging and speculation. The Fed, in keeping with American accounting rules and central bank accords, assumes that gains and losses on derivatives generally net out. As a result, most derivatives do not show up as assets on banks’ balance sheets, an omission that bolsters the ratio of capital to assets.

Mr. Hoenig uses stricter international accounting rules to value the derivatives. Those rules do not assume that gains and losses reliably net out. As a result, large derivative holdings are shown as assets on the balance sheet, an addition that reduces the ratio of capital to assets to the low levels reported in Mr. Hoenig’s analysis.

Derivatives, eh?

Very interesting.

And you know what?

The guys running these big banks can see what is coming.

Just consider the words that JPMorgan Chase chairman and CEO Jamie Dimon wrote to his shareholders not too long ago

Some things never change — there will be another crisis, and its impact will be felt by the financial market.

The trigger to the next crisis will not be the same as the trigger to the last one – but there will be another crisis. Triggering events could be geopolitical (the 1973 Middle East crisis), a recession where the Fed rapidly increases interest rates (the 1980-1982 recession), a commodities price collapse (oil in the late 1980s), the commercial real estate crisis (in the early 1990s), the Asian crisis (in 1997), so-called “bubbles” (the 2000 Internet bubble and the 2008 mortgage/housing bubble), etc. While the past crises had different roots (you could spend a lot of time arguing the degree to which geopolitical, economic or purely financial factors caused each crisis), they generally had a strong effect across the financial markets

In the same letter, Dimon mentioned “derivatives moved by enormous players and rapid computerized trades” as part of the reason why our system is so vulnerable to another crisis.

If this is what he truly believes, why is his firm being so incredibly reckless?

Perhaps someone should ask him that.

Interestingly, Dimon also discussed the possibility of a Greek exit from the eurozone

“We must be prepared for a potential exit,”  J. P. Morgan Chief Executive Officer Jamie Dimon said. in his annual letter to shareholders. “We continually stress test our company for possible repercussions resulting from such an event.”

This is something that I have been warning about for a long time.

And of course Dimon is not the only prominent banker warning of big problems ahead.  German banking giant Deutsche Bank is also sounding the alarm

With a U.S. profit recession expected in the first half of 2015 and investors unlikely to pay up for stocks, the risk of a stock market drop of 5% to 10% is rising, Deutsche  Bank says.

That’s the warning Deutsche Bank market strategist David Bianco zapped out to clients today before the opening bell on Wall Street.

Bianco expects earnings for the broad Standard & Poor’s 500-stock index to contract in the first half of 2015 — the first time that’s happened since 2009 during the financial crisis. And the combination of soft earnings and his belief that investors won’t pay top dollar for stocks in a market that is already trading at above-average valuations is a recipe for a short-term pullback on Wall Street.

The truth is that we are in the midst of a historic stock market bubble, and we are witnessing all sorts of patterns in the financial markets which also emerged back in 2008 right before the financial crash in the fall of that year.

When some of the most prominent bankers at some of the biggest banks on the entire planet start issuing ominous warnings, that is a clear sign that time is running out.  The period of relative stability that we have been enjoying has been fun, and hopefully it will last just a little while longer.  But at some point it will end, and then the pain will begin.

 

If Anyone Doubts That We Are In A Stock Market Bubble, Show Them This Article

Bubble In Hands - Public DomainThe higher financial markets rise, the harder they fall.  By any objective measurement, the stock market is currently well into bubble territory.  Anyone should be able to see this – all you have to do is look at the charts.  Sadly, most of us never seem to learn from history.  Most of us want to believe that somehow “things are different this time”.  Well, about the only thing that is different this time is that our economy is in far worse shape than it was just prior to the last major financial crisis.  That means that we are more vulnerable and will almost certainly endure even more damage this time around.  It would be one thing if stocks were soaring because the U.S. economy as a whole was doing extremely well.  But we all know that isn’t true.  Instead, what we have been experiencing is clearly artificial market behavior that has nothing to do with economic reality.  In other words, we are dealing with an irrational financial bubble, and all irrational financial bubbles eventually burst.  And as I wrote about yesterday, the way that stocks have moved so far this year is eerily reminiscent of the way that stocks moved in early 2008.  The warning signs are there – if you are willing to look at them.

The first chart that I want to share with you today comes from Doug Short.  It is a chart that shows that the ratio of corporate equities (stocks) to GDP is the second highest that it has been since 1950.  The only other time it has been higher was just before the dotcom bubble burst…

The Buffett Indicator from Doug Short

Does that look like a bubble to you?

It sure looks like a bubble to me.

In order for the corporate equities to GDP ratio to get back to the mean (average) level, stock prices would have to fall nearly 50 percent.

If that happens, people will be calling it a crash, but in truth it would just be a return to normalcy.

This next chart comes from Phoenix Capital Research.  The CAPE ratio (cyclically adjusted price-to-earnings ratio) is considered to be an extremely accurate measure of the true value of stocks…

As I’ve noted before, the single best predictor of stock market performance is the cyclically adjusted price-to-earnings ratio or CAPE ratio.

Corporate earnings are heavily influenced by the business cycle. Typically the US experiences a boom and bust once every ten years or so. As such, companies will naturally have higher P/E’s at some points and lower P/E’s at other. This is based solely on the business cycle and nothing else.

CAPE adjusts for this by measuring the price of stocks against the average of ten years’ worth of earnings, adjusted for inflation. By doing this, it presents you with a clearer, more objective picture of a company’s ability to produce cash in any economic environment.

Based on a study completed Vanguard, CAPE was the single best metric for measuring future stock returns.

When the CAPE ratio is too high, that means that stocks are overpriced and are not a good value.  And right now the CAPE ratio is the 3rd highest that it has been since 1890.  That only times it has been higher than this were in 1929 (we all remember what happened then) and just before the dotcom bubble burst…

CAPE - Phoenix Capital Research

The funny thing is that stocks have continued to rise even as corporate revenues have begun to fall.

According to Wolf Richter, in the first quarter of 2015 corporate revenues are projected to decline at the fastest pace that we have seen since the depths of the last recession…

Week after week, corporations and analysts have been whittling down their estimates. By now, revenues of the S&P 500 companies are expected to decline 2.8% in Q1 from a year ago – the worst year-over-year decline since Q3 of crisis year 2009.

This next chart I want to share with you shows how the Nasdaq has performed over the past decade.  Looking at this chart alone, you would think that the U.S. economy must have been absolutely roaring since the end of the last recession.  But what is really going on is rampant speculation.  Some of the tech companies that make up the Nasdaq are not making any profits at all and yet they are supposedly worth billions of dollars.  If you cannot see a bubble in this chart, you need to get your vision checked…

NASDAQ Chart

And this kind of irrational euphoria is not just happening in the United States.

For example, Chinese stocks are up nearly 80 percent over the past nine months.

Meanwhile, the overall Chinese economy is growing at the slowest pace that we have seen in about 20 years.

Right now, we are in the calm before the storm.  We are right at the door of the next great financial crisis, and most of the people that work in the industry know this.

And once in a while they let the cat out of the bag.

For example, consider what Hans-Jörg Vetter, the CEO of Landesbank Baden-Württemberg in Germany, had to say during one recent press conference

“Risk is no longer priced in,” he said. And these investors aren’t paid for the risks they’re taking. This applies to all asset classes, he said. The stock and the bond markets, he said, are now both seeing “the mother of all bubbles.”

This can’t go on forever. Or for very long. But he couldn’t see the future either and pin down a date, which is what everyone wants to know so that they can all get out in time. “I cannot tell you when it will rumble,” he said, “but eventually it will rumble again.”

By “again” he meant the sort of thing that had taken the bank down last time, the Financial Crisis. It had been triggered by horrendous risk-taking, where risks hadn’t been priced into all kinds of securities. When those securities – mortgage-backed securities, for example, that were hiding the inherent risks under a triple-A rating – blew up, banks toppled.

What Vetter is telling us is what I have been warning about for a long time.

Another great stock market crash is coming.

It is just a matter of time.

The Stock Market In 2015 Is Starting To Look Remarkably Similar To The Stock Market In 2008

Bubble Mirror - Public DomainAre we watching a replay of the last financial crisis?  Over the past six months, the price of oil has collapsed, the U.S. dollar has soared, and a whole bunch of other patterns that we witnessed just before the stock market crash of 2008 are repeating once again.  But what we have not seen yet is the actual stock market crash.  So will there be one this year?  In this article, I am going to compare the performance of the Dow Jones Industrial Average during the first three months of 2008 to the performance of the Dow Jones Industrial Average during the first three months of 2015.  As you will see, there are some striking similarities.  And without a doubt, we are overdue for a major market downturn.  The S&P 500 has risen for six years in a row, but it has never had seven up years consecutively.  In addition, there has not even been a 10 percent stock market “correction” is almost three and a half years.  So will stocks be able to continue to defy both gravity and the forces of economic reality?  Only time will tell.

Below is a chart that shows how the Dow Jones Industrial Average performed during the first three months of 2008.  It was a time of increased volatility, but the market pretty much went nowhere.  This is typical of what we see in the months leading up to a market crash.  The markets start getting really choppy with large ups and large downs…

Dow First 3 Months Of 2008

This next chart shows how the Dow Jones Industrial Average has performed during the first three months of 2015.  Once again, we are witnessing a time of increased volatility, but the market is not really going anywhere.  In fact, after falling about 200 points on Tuesday (not shown on this chart) it is just barely below where it started the year…

Dow First 3 Months Of 2015

When the market becomes quite restless but it doesn’t really move anywhere, that is a sign that we have reached a turning point.  The following is what a recent CNN article had to say about the rising volatility that we have been witnessing…

The Dow fell nearly 3.7% in January, surged 5.6% in February and is down about 2% this month. The S&P 500 and Nasdaq have gone through similar sentiment swings. The Dow ended the quarter slightly in the red while the S&P 500 and Nasdaq were up a little bit.

Charles Schwab chief investment officer Liz Ann Sonders summed up this volatility the best — with a nod to U2. “Running to Stand Still: Wild Swings Taking Market Nowhere” is the title of her most recent market commentary.

What can investors expect for the rest of 2015? Probably a lot more of the same.

Now let’s look at a chart for the entire year of 2008.  After peaking for the year in early May, the Dow started to slide.  Things started to get really crazy in September, and by the end of the year the U.S. economy was plunged into the greatest crisis since the Great Depression…

Dow Full Year Of 2008

Will the rest of 2015 follow a similar pattern?

A lot of investors are actually betting that this will be the case.

Right now, hundreds of millions of dollars are flowing into VXX – an ETF that makes money when the Chicago Board Options Exchange Volatility Index goes up.  In other words, these investors are betting that we are going to see a lot more stock market volatility in the weeks and months to come.

And as I have said so many times before, stocks tend to rise in calm markets and they tend to fall when the markets become volatile.

So essentially these investors are betting that we are headed for a stock market crash.

The following is more on the massive inflow of money into VXX that we have been seeing from the Crux

Ways to speculate on how noisy the stock market will be have exploded in the last decade with the advent of products tied to the Chicago Board Options Exchange Volatility Index. Strategies include relatively simple hedges against equity losses, such as owning a security that aims to mimic the VIX.

VXX, one of the most popular ways to bet on bigger market swings, has absorbed $715 million in seven consecutive weeks of inflows, its longest streak of inflows since one ending in July 2012. The infusion of fresh cash has continued this week, swelling its market value to $1.5 billion, the highest since September 2013.

At the same time, short-sellers in VXX — people effectively betting the bull market will persist — have dropped out. Short interest has slid 35 percent since October, falling to the lowest in more than seven months last week, data compiled by Markit Ltd. show.

And many of the exact same people that warned us about the financial crisis of 2008 in advance are warning that another crisis is rapidly approaching.  For example, check out the following quote from Ann Pettifor that recently appeared in an article in the Guardian

As Janet Yellen’s Federal Reserve prepares to raise interest rates, boosting the value of the dollar, while the plunging price of crude puts intense pressure on the finances of oil-exporting countries, there are growing fears of a new debt crisis in the making.

Ann Pettifor of Prime Economics, who foreshadowed the credit crunch in her 2003 book The Coming First World Debt Crisis, says: “We’re going to have another financial crisis. Brazil’s already in great trouble with the strength of the dollar; I dread to think what’s happening in South Africa; then there’s Malaysia. We’re back to where we were, and that for me is really frightening.”

Pettifor is right on two counts – another major financial crisis is approaching, and it is going to be global in scope.

Before I end this article, there are two more items that I would like to share with you.

Firstly, it is being reported that the IPO market has really cooled off in 2015.  When the number of companies going public starts to decline, that is a clear sign that a stock market bubble is on borrowed time.  The following comes from Business Insider

The number of US companies going public has really dropped off lately.

“After a record year in 2014, the IPO market slowed dramatically in the first quarter of 2015,” Renaissance Capital analysts said.

The first quarter of 2015, which ended Tuesday, was the slowest quarter for IPOs since the first quarter of 2013. While stock prices have been near all-time highs, market volatility has been escalating, turning companies off from trying to unload shares onto the public markets.

Secondly, the San Francisco housing market has been a pretty reliable indicator of previous economic booms and busts.  The San Francisco housing market started to cool off before the dotcom bubble burst, it started to cool off before the stock market crash of 2008, and now it is cooling off once again.  The following chart comes from Zero Hedge

San Francisco - Zero Hedge

The warning signs are there.

But as with so many other things in life, most people are going to end up believing precisely what they want to believe.

So what do you believe about what the rest of the year will bring?  Please feel free to share your thoughts by posting a comment below…

The Price Of Ground Beef Has DOUBLED Since The Last Financial Crisis

Burger And Fries - Photo by Ewan MunroSince the depths of the last recession, the price of ground beef in the United States has doubled.  Has your paycheck doubled since then?  Even though the Federal Reserve insists that we are in a “low inflation” environment, the government’s own numbers show that the price of ground beef has been on an unprecedented run over the past six years.  In early 2009, the average price of a pound of ground beef was hovering near 2 dollars.  In February, it hit a brand new all-time record high of $4.238 per pound.  Even just 12 months ago, the price of ground beef was sitting at $3.555 per pound.  So we are talking about a huge increase.  And this hits American families where they really live.  Each year, the average American consumes approximately 270 pounds of meat.  The only nation in the world that eats more meat than we do is Luxembourg.  If the paychecks of American workers were going up fast enough to deal with this increase, it wouldn’t be that big of a deal.  But of course that is not happening.  In an article just last week, I showed that real median household income is a couple thousand dollars lower now than it was during the depths of the last recession.  The middle class is being squeezed, and we are rapidly getting to the point where burgers are going to be considered a “luxury” item.

The following chart was posted by the Economic Policy Journal on Wednesday, and it incorporates the latest data from the Bureau of Labor Statistics.  When I first saw it, I was rather stunned.  I knew that the price of ground beef had become rather outrageous in my local grocery stores, but I had no idea just how much damage had been done over the past six years…

Beef Price - Economic Policy Journal

The biggest reason why the price of ground beef has been going up is the fact that the U.S. cattle herd has been shrinking.  It shrunk seven years in a row, and on January 1st, 2014 it was the smallest that it had been since 1951.

The good news is that the decline appears to have stopped, at least for the moment.  According to the Wall Street Journal, the size of the U.S. cattle herd actually increased by 1 percent last year…

The U.S. cattle herd expanded in 2014 for the first time in eight years, offering hope to consumers that beef prices could start to subside after soaring to a series of records.

The nation’s cattle supply increased 1% in the year through Jan. 1 to 89.8 million head, according to data released Friday by the U.S. Agriculture Department, reversing a steady decline fueled by prolonged drought in the southern U.S. Great Plains and industry consolidation that encouraged many ranchers to thin herds.

But an increase of 1 percent is just barely going to keep up with the official population growth rate.  If you factor in illegal immigration, we are still losing ground.

And if we have another major drought in cattle country this summer, the cattle herd is going to start shrinking again.

In addition, the price of food overall has been steadily rising for years.  Here is a chart that I shared the other day

Presentation Food Inflation

It boggles the mind that the Federal Reserve can claim that we are in a “low inflation” environment.  Anyone that goes grocery shopping feels the pain of these rising prices every time that they go to the store.

In the list that I put together yesterday, I included the following statistic…

Almost half of all Americans (47 percent) do not put a single penny out of their paychecks into savings.

One of the primary reasons why so many Americans are not saving any money is because many families simply cannot save any money.  Their paychecks are stagnant while the cost of living just keeps going up and up.

There simply are not enough “good jobs” out there anymore.  Our economy continues to bleed middle class jobs and the competition for the jobs that remain is quite intense.

Do you know what the two most common occupations in America today are?

According to the Bureau of Labor Statistics, they are “retail sales clerk” and “cashier”.

And of course neither of those “occupations” pays even close to what is required to support a middle class family.

On average, a retail sales clerk makes $24,020 a year, and a cashier makes $20,670 a year.

Because the quality of our jobs has declined so much, there are millions of American families today in which both the mother and the father are working multiple jobs in a desperate attempt to make ends meet each month.

But don’t worry, the Federal Reserve says that we are nearly at “full employment“, and Barack Obama says that everything is going to be just fine.

Actually, the truth is that things are about to get a lot worse.  At this point, we are even getting pessimistic numbers out of the Federal Reserve.  Just this week we learned that the Fed is now projecting that economic growth for the first quarter of 2015 will be barely above zero

From almost 2.5% GDP growth expectations in February, The Atlanta Fed’s GDPNow model has now collapsed its estimates of Q1 GDP growth to just 0.2%plunging from +1.4% just 2 weeks ago. The reality of plunging capex and no decoupling is starting to rear its ugly head in the hard data and as the sun warms things up, weather will start to lose its ability to sway sentiment.

We are at a turning point.  The bubble of false stability that we have been living in is rapidly coming to an end, and when people start to realize that another great economic crisis is coming there is going to be a lot of panic.

And as far as food prices go, they are just going to keep taking a bigger chunk out of all of our wallets.

As high as prices are already, the truth is that your food dollars are never going to go farther than they do right now.

So let us hope for the best, but let us also get prepared for the worst.

10 Charts Which Show We Are Much Worse Off Than Just Before The Last Economic Crisis

10 Charts Economic CrisisIf you believe that ignorance is bliss, you might not want to read this article.  I am going to dispel the notion that there has been any sort of “economic recovery”, and I am going to show that we are much worse off than we were just prior to the last economic crisis.  If you go back to 2007, people were feeling really good about things.  Houses were being flipped like crazy, the stock market was booming and unemployment was relatively low.  But then the financial crisis of 2008 struck, and for a while it felt like the world was coming to an end.  Of course it didn’t come to an end – it was just the first wave of our problems.  The waves that come next are going to be the ones that really wipe us out.  Unfortunately, because we have experienced a few years of relative stability, many Americans have become convinced that Barack Obama, Janet Yellen and the rest of the folks in Washington D.C. have fixed whatever problems caused the last crisis.  Even though all of the numbers are screaming otherwise, there are millions upon millions of people out there that truly believe that everything is going to be okay somehow.  We never seem to learn from the past, and when this next economic downturn strikes it is going to do an astonishing amount of damage because we are already in a significantly weakened state from the last one.

For each of the charts that I am about to share with you, I want you to focus on the last shaded gray bar on each chart which represents the last recession.  As you will see, our economic problems are significantly worse than they were just before the financial crisis of 2008.  That means that we are far less equipped to handle a major economic crisis than we were the last time.

#1 The National Debt

Just prior to the last recession, the U.S. national debt was a bit above 9 trillion dollars.  Since that time, it has nearly doubled.  So does that make us better off or worse off?  The answer, of course, is obvious.  And even though Barack Obama promises that “deficits are under control”, more than a trillion dollars was added to the national debt in fiscal year 2014.  What we are doing to future generations by burdening them with so much debt is beyond criminal.  And so what does Barack Obama want to do now?  He wants to ramp up government spending and increase the debt even faster.  This is something that I covered in my previous article entitled “Barack Obama Says That What America Really Needs Is Lots More Debt“.

Presentation National Debt

#2 Total Debt

Over the past 40 years, the total amount of debt in the United States has skyrocketed to astronomical heights.  We have become a “buy now, pay later” society with devastating consequences.  Back in 1975, our total debt level was sitting at about 2.5 trillion dollars.  Just prior to the last recession, it was sitting at about 50 trillion dollars, and today we are rapidly closing in on 60 trillion dollars.

Presentation Credit Market Instruments

#3 The Velocity Of Money

When an economy is healthy, money tends to change hands and circulate through the system quite rapidly.  So it makes sense that the velocity of money fell dramatically during the last recession.  But why has it kept going down since then?

Presentation Velocity Of M2

#4 The Homeownership Rate

Were you aware that the rate of homeownership in the United States has fallen to a 20 year low?  Traditionally, owning a home has been a sign that you belong to the middle class.  And the last recession was really rough on the middle class, so it makes sense that the rate of homeownership declined during that time frame.  But why has it continued to steadily decline ever since?

Presentation Homeownership Rate

#5 The Employment Rate

Barack Obama loves to tell us how the unemployment rate is “going down”.  But as I will explain later in this article, this decline is primarily based on accounting tricks.  Posted below is a chart of the civilian employment-population ratio.  Just prior to the last recession, approximately 63 percent of the working age population of the United States was employed.  During the recession, this ratio fell to below 59 percent and it stayed there for several years.  Just recently it has peeked back above 59 percent, but we are still very, very far from where we used to be, and now the next economic downturn is rapidly approaching.

Presentation Employment Population Ratio

#6 The Labor Force Participation Rate

So how can Obama get away with saying that the unemployment rate has gone down dramatically?  Well, each month the government takes thousands upon thousands of long-term unemployed workers and decides that they have been unemployed for so long that they no longer qualify as “part of the labor force”.  As a result, the “labor force participation rate” has fallen substantially since the end of the last recession…

Presentation Labor Force Participation Rate

#7 The Inactivity Rate For Men In Their Prime Working Years

If things are “getting better”, then why are so many men in their prime working years doing nothing at all?  Just prior to the last recession, the inactivity rate for men in their prime working years was about 9 percent.  Today it is just about 12 percent.

Presentation Inactivity Rate

#8 Real Median Household Income

Not only is a smaller percentage of Americans employed today than compared to just prior to the last recession, the quality of our jobs has gone down as well.  This is one of the factors which has resulted in a stunning decline of real median household income.

Presentation Real Median Household Income

I have shared these next numbers before, but they bear repeating.  In America today, most Americans do not make enough to support a middle class lifestyle on a single salary.  The following figures come directly from the Social Security Administration

-39 percent of American workers make less than $20,000 a year.

-52 percent of American workers make less than $30,000 a year.

-63 percent of American workers make less than $40,000 a year.

-72 percent of American workers make less than $50,000 a year.

We all know people that are working part-time jobs because that is all that they can find in this economy.  As the quality of our jobs continues to deteriorate, the numbers above are going to become even more dismal.

#9 Inflation

Even as our incomes have stagnated, the cost of living just continues to rise steadily.  For example, the cost of food and beverages has gone up nearly 50 percent just since the year 2000.

Presentation Food Inflation

#10 Government Dependence

As the middle class shrinks and the number of Americans that cannot independently take care of themselves soars, dependence on the government is reaching unprecedented heights.  For instance, the federal government is now spending about twice as much on food stamps as it was just prior to the last recession.  How in the world can anyone dare to call this an “economic recovery”?

Presentation Government Spending On Food Stamps

So you tell me – are things “getting better” or are they getting worse?

To me, it is crystal clear that we are in much worse condition than we were just prior to the last economic crisis.

And now things are setting up in textbook fashion for the next great economic crisis.  Unfortunately, most Americans are totally clueless about what is going on and the vast majority are completely and totally unprepared for what is coming.

Or could it be possible that I am wrong?  Whether you agree or disagree with me, please feel free to add to the discussion by posting a comment below…

Why I Wouldn’t Want To Be A Police Officer In America Today

Police - Public DomainCan you imagine going to work each day knowing that there are lots of people out there that would love to see you dead?  Despite what a lot of Americans may think, it takes real courage to be a police officer in this country today.  Every time you put on that uniform and walk out the front door, it might be the very last time that you ever see your spouse and family.  Yes, there is a whole lot of needless police brutality in the United States in 2015, and I am going to address that later in this article.  But most police officers are just regular people that are trying to do their jobs and serve their communities.  And on Wednesday, we got a reminder of just how dangerous those jobs can be.  At around midnight on Wednesday, two Ferguson police officers were ambushed.  A 32-year-old officer named Webster Groves was shot just beneath his right eye, and another 41-year-old officer was hit in the shoulder.  Sadly, this is probably only just the beginning.  Racial tensions continue to escalate, and we are on the verge of a great financial crisis which will cause economic conditions in our cities to deteriorate rapidly.  By the end of this decade, I fully expect civil unrest, rioting, looting and mindless violence to become commonplace in large cities all across America.  In such an environment, it will be extremely dangerous to be a police officer.

The good news for the two police officers that got shot in Ferguson is that it looks like they are going to be okay.

But the same cannot be said for many other police officers that have been ambushed over the past year.

According to CNN, the number of police officers that were shot to death increased by more than 50 percent in 2014…

The number of law enforcement officers shot to death in the line of duty is up by more than 50% this year, and the leading method of those shootings was ambush-style attack.

That’s according to the nonprofit Washington-based National Law Enforcement Officers Memorial Fund, which released its findings Tuesday.

And like I said, this is probably only just the beginning.

Sadly, a whole lot more police are going to die before this is all over.

You can try to blame this latest incident in Ferguson on a “deranged individual” if you want, but I think that the reactions that we saw on social media to these police shootings say a whole lot about where we are as a country.

In the immediate aftermath of the shootings, a lot of people were actually celebrating.  The following is a sampling of comments  from Twitter

-#ChiefJackson steps down and two pigs get shot? Best day #Ferguson has had in years

-im glad 2 pigs wounded in #Ferguson lol

-#Ferguson kill the pigs

-serves those two pigs right, i hope organized public militancy continues #ferguson

-#Ferguson pigs shouldnt grab ppl; thugs deserved it. Wish it was #DarrenWilson. Sound familiar? #MichaelBrown #VonderittMyers #AntonioMartin

-Racist cops shot not gonna cry 4 pigs #Ferguson

-I heard two pigs in #Ferguson got shot? We’re they left on the ground bleeding out and dead like Mike Brown?

-hopefully they’ll be off the street for a long time. two less pigs out harassing & kidnapping people. #Ferguson

Could you imagine trying to be a police officer in Ferguson in this kind of environment?

And it isn’t as if we didn’t see this coming.  Just consider an excerpt from an article that I authored a while back entitled “It’s WAR On The Streets Of America“…

The mainstream media and many national leaders on the left end of the spectrum have been stirring up strife and division for months on end.  So now a toxic environment has been created which is inevitably going to lead to even more violence.  At some recent “protest marches”, we have heard demonstrators enthusiastically chant extremely threatening slogans such as this: “What do we want? Dead cops!”  And when news broke that Ismaaiyl Brinsley had brutally murdered two NYPD police officers, lots of very twisted people on Twitter were actually celebrating.

The sick thing is that there are a lot of people out there that actually want to turn this into a full-blown war.  Some want a race war, some want a “war on cops”, and others just seem to want a general excuse for crime, looting and mayhem.

Unfortunately, if I am right, this is just a small preview of what we can expect in the years ahead.  Just like we have witnessed in Ferguson, I anticipate that we will eventually see a number of our larger cities burn.

And it never had to be this way.

Why can’t we all just love, respect and honor one another?

Yes, police brutality in the United States is wildly out of control.  In many areas of the nation, police officers are actually trained to bark orders, act like thugs and physically abuse people at the drop of a hat.  Our entire culture of policing needs to change.

I think that John W. Whitehead put it very aptly in one of his recent commentaries

For those of us who have managed to survive 2014 with our lives intact and our freedoms hanging by a thread, it has been a year of crackdowns, clampdowns, shutdowns, showdowns, shootdowns, standdowns, knockdowns, putdowns, breakdowns, lockdowns, takedowns, slowdowns, meltdowns, and never-ending letdowns.

We’ve been held up, stripped down, faked out, photographed, frisked, fracked, hacked, tracked, cracked, intercepted, accessed, spied on, zapped, mapped, searched, shot at, tasered, tortured, tackled, trussed up, tricked, lied to, labeled, libeled, leered at, shoved aside, saddled with debt not of our own making, sold a bill of goods about national security, tuned out by those representing us, tossed aside, and taken to the cleaners.

As I point out in my book A Government of Wolves: The Emerging American Police State, we’ve had our freedoms turned inside out, our democratic structure flipped upside down, and our house of cards left in a shambles.

We’ve had our children burned by flashbang grenades, our dogs shot, and our old folks hospitalized after accidental” encounters with marauding SWAT teams. We’ve been told that as citizens we have no rights within 100 miles of our own border, now considered “Constitution-free zones.” We’ve had our faces filed in government databases, our biometrics crosschecked against criminal databanks, and our consumerist tendencies catalogued for future marketing overtures.

Now a large segment of our population either detests the police or is extremely fearful of ever dealing with them.

Is that a recipe for a healthy society?

Police brutality has become a permanent part of our culture, and that has got to change.  If it doesn’t, protests against the police are going to get worse and worse.

But what most protesters don’t seem to understand is that we actually need the police.

Without the police, our society would descend into utter chaos very rapidly.  Thanks to unchecked illegal immigration, there are approximately 1.4 million gang members roaming our cities now.  And the moral decay that we see all around us is getting worse with each passing year.  We are a nation that is absolutely teeming with addicts, sickos, perverts and psychopaths.  I don’t even want to imagine what our society would look like without police.

Like I said, most police officers are just average people that are trying to do their jobs and serve their communities.

Unfortunately for them, their jobs are becoming a lot more difficult and a lot more dangerous.

So what do you think?  Please feel free to share your thoughts by posting a comment below…

It’s Germany vs. Greece, And The Very Survival Of The Eurozone Is At Stake

Boxing - Public DomainIs this the beginning of the end for the eurozone?  On Thursday, Germany rejected a Greek request for a six-month loan extension.  The Germans insisted that the Greek proposal did not require the Greeks to adhere to the austerity restrictions which previous agreements had forced upon them.  But Greek voters have already very clearly rejected the status quo, and the new Greek government has stated unequivocally that it will not be bound by the current bailout arrangement.  So can Germany and Greece find some sort of compromise that will be acceptable to both of them?  It certainly does not help that some Greek politicians have been comparing the current German government to the Nazis, and the Germans have fired back with some very nasty comments about the Greeks.  Unfortunately for both of them, time is running out.  The Greek government will run out of money in just a couple of weeks, and without a deal there is a very good chance that Greece will be forced to leave the euro.  In fact, this week Commerzbank AG increased the probability of a “Grexit” to 50 percent.  And if Greece does leave the eurozone, it could spark a full blown European financial crisis which would be absolutely catastrophic.

What the Greeks want right now is a six month loan extension which would give them much more economic flexibility than under the current agreement.  Unfortunately for the Greeks, Germany has rejected this proposal

Germany rejected a Greek proposal for a six-month extension to its euro zone loan agreement on Thursday, saying it was “not a substantial solution” because it did not commit Athens to stick to the conditions of its international bailout.

Berlin’s stance set the scene for tough talks at a crucial meeting of euro zone finance ministers on Friday when Greece’s new leftist-led government, racing to avoid running out of money within weeks, will face pressure to make further concessions.

As the biggest creditor and EU paymaster, Germany has the clout to block a deal and cast Greece adrift without a financial lifeline, potentially pushing it toward the euro zone exit.

Even though Germany is already saying no to this deal, Greece is still hoping that the Eurogroup will accept the deal that it has proposed…

“The Greek government submitted a letter to the Eurogroup asking for a six-month extension of the loan agreement. Tomorrow’s Eurogroup has only two options: either to accept or reject the Greek request,” a government  official said. “It will then be clear who wants to find a solution and who doesn’t.” Earlier on Thursday, the German finance ministry rejected Athens’ request for an extension by saying it fell short of the conditions set out earlier this week by the euro zone.

At this point, the odds of a deal going through don’t look good.

But there is always next week.  It is possible that something could still happen.

However, if there is no deal and Greece is forced out of the euro, the consequences for Greece and for the rest of the eurozone could be quite dramatic.

The following is how the Independent summarized what could happen to Greece…

An immediate financial crisis and a new, deep, recession. Without external financial support the country would have to default on its debts and, probably, start printing its own currency again in order to pay civil servants. Its banks would also lose access to funding from the European Central Bank.

To prevent these institutions collapsing Athens would have impose controls on the movement of money out of the country. The international value of the new Greek currency would inevitably be much lower than the euro. That would mean an instant drop in living standards for Greeks as import prices spike. And if Greeks have foreign debts which they have to pay back in euros they will also be instantly worse off. There could be a cascade of defaults.

That doesn’t sound pretty at all.

The most frightening part for those that have money in Greek banks would be the capital controls that would be imposed.  People would have to deal with strict restrictions on how much money they could take out of their accounts and on how much money they could take out of the country.

In anticipation of this happening, people are already pulling money out of Greek banks at a staggering pace

In the midst of the dramatic showdown in Brussels between the new Greek government and its European creditors, many Greek depositors—spooked by the prospect of a Greek default or, worse, an exit from the euro zone and a possible return to the drachma—have been pulling euros out of the nation’s banks in record amounts over the last few days.

The Bank of Greece and the European Central Bank won’t report official cash outflows for January until the end of the month. But sources in the Greek banking sector have told Greek newspapers that as much as 25 billion euros (US $28.4 billion) have left Greek banks since the end of December. According to the same sources, an estimated 900 million euros flowed out of Greek banks on Tuesday alone, the day after the talks broke up in Brussels, sparking fears that measures will be taken to stem the outflow. On Thursday, by mid-afternoon, deposits had shrunk by about 680 million euros (US $77.3 million).

If outflows reach 1 billion euros, capital controls might need to be imposed,” said Thanasis Koukakis, a financial editor for Estia a conservative daily, and To Vima, an influential Sunday newspaper.

And if we do indeed witness a “Grexit”, the rest of Europe would be deeply affected as well.

The following is how the Independent summarized what could happen to the rest of the continent…

There would probably be some financial contagion as financial investors wake up to the fact that euro membership is not irreversible. There could a “flight to safety” as depositors pull euros out of other potentially vulnerable eurozone members such as Portugal, Spain or Italy to avoid taking a hit. European company share prices could also fall sharply if investors panic and divert their cash into the government bonds of states such as Germany and Finland.

The question is how severe this contagion would be. The continent’s politicians and regulators seem to think the impact would be relatively small, saying that Europe’s banks have reduced their cross-border exposure to Greece and that general confidence in the future of the eurozone is much stronger than it was a few years ago. But others think this is too complacent. The truth is that no one knows for sure.

To be honest, I think that the rest of the eurozone is being far too complacent about what Greece leaving would mean.

There are all kinds of implications that most people are not even discussing yet.

For example, just consider what a “Grexit” would mean for the European interbank payment system known as Target2.  The following comes from an article by Ambrose Evans-Pritchard

In normal times, Target2 adjustments are routine and self-correcting. They occur automatically as money is shifted around the currency bloc. The US Federal Reserve has a similar internal system to square books across regions. They turn nuclear if monetary union breaks up.

The Target2 “debts” owed by Greece’s central bank to the ECB jumped to €49bn in December as capital flight accelerated on fears of a Syriza victory. They may have reached €65bn or €70bn by now.

A Greek default – unavoidable in a Grexit scenario – would crystallize these losses. The German people would discover instantly that a large sum of money committed without their knowledge and without a vote in the Bundestag had vanished.

Ouch.

And in a previous article, I discussed some of the other things that are at stake…

If there is no deal, we could see a Greek debt default, Greece could be forced to leave the eurozone and go back to the drachma, the euro could collapse to all time lows, all the banks all over Europe that are exposed to Greek government debt could be faced with absolutely massive losses, and the 26 trillion dollars in derivatives that are directly tied to the value of the euro could start to unravel.  In essence, if things go badly this could be enough to push us into a global financial crisis.

At the end of the day, there are essentially only two choices for Europe…

#1) Find a way to make a deal, which would maybe keep the current financial house of cards together for another six months.

#2) A horrifying European financial crisis starting almost immediately.

In the long-term, nothing is going to stop the economic horror which is coming to Europe, and once it starts it is going to drag down the entire planet.

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