Even though I write about our ongoing long-term economic collapse every day, I didn’t realize that things were this bad. In this article, I am going to show you that the average rate of growth for the U.S. economy over the past 10 years is exactly equal to the average rate that the U.S. economy grew during the 1930s. Perhaps this fact shouldn’t be that surprising, because we already knew that Barack Obama was the only president in the entire history of the United States not to have a single year when the economy grew by at least 3 percent. Of course the mainstream media continues to push the perception that the U.S. economy is in “recovery mode”, but the truth is that this current era has far more in common with the Great Depression than it does with times of great economic prosperity.
Earlier today I came across an article about President Trump’s new budget from Fox News, and in this article the author makes a startling claim…
The hard fact is that the past decade’s $10 trillion in deficit spending has produced the worst economic growth as measured by Gross Domestic Product in our nation’s history. You read that right, in the past decade our nation’s economy grew slower than even during the Great Depression. This stagnant, new normal, low-growth economy is leaving millions of working age people behind who have given up even trying to participate, and has led to a malaise where many doubt that the American dream is attainable.
When I first read that, I thought that this claim could not possibly be true. But I was curious, and so I looked up the numbers for myself.
What I found was absolutely astounding.
The following are U.S. GDP growth rates for every year during the 1930s…
When you average all of those years together, you get an average rate of economic growth of 1.33 percent.
That is really bad, but it is the kind of number that one would expect from “the Great Depression”.
So then I looked up the numbers for the last ten years…
When you average these years together, you get an average rate of economic growth of 1.33 percent.
I thought that was a really strange coincidence, and so I pulled up my calculator and ran all of the numbers again and I got the exact same results.
The 1930s certainly had more big ups and downs, but the average rate of economic growth during that decade was exactly the same as we have seen over the past 10 years.
And of course the early 1940s turned out to be a boom time for the U.S. economy, while it appears that our rate of economic growth is actually slowing down. As I noted yesterday, U.S. GDP growth during the first quarter of 2017 was just 0.7 percent.
But you don’t hear any talk like this on the mainstream news, do you?
Instead, they tell us that everything is just peachy.
I often wonder what things would be like right now if Barack Obama and his minions in Congress had not added more than 9 trillion dollars to the national debt. By stealing all of that money from future generations of Americans and spending it now, Obama was able to artificially prop up the U.S. economy. If we were able to go back and remove 9 trillion dollars of government spending from the economy over the past 8 years, we would be in a rip-roaring economic depression right now. For an extended analysis of this, please see my previous article entitled “The Shocking Truth About How Barack Obama Was Able To Prop Up The U.S. Economy”…
But even though we have been adding more than a trillion dollars to the national debt each year, and even though the Federal Reserve pushed interest rates all the way to the floor during the Obama era, the U.S. economy has not grown by three percent or more on an annual basis since 2005.
When you take an honest look at the numbers, there is no way that anyone can possibly claim that the U.S. economy is doing well. The best that you can say is that we have been staving off a complete economic meltdown and another Great Depression, but of course the measures that our leaders have been taking to do this have just been making our long-term problems even worse.
I feel bad for President Trump, because he has inherited the biggest economic mess in U.S. history. When we finally reach the point when it is impossible to artificially prop up the U.S. economy any longer, he is going to get most of the blame, but he won’t deserve it.
It is not going to be possible for Trump or anyone else to fix our system, because it was fundamentally flawed from the very beginning. The Federal Reserve was designed to create an endless spiral of government debt, and since the day it was created the U.S. national debt has gotten more than 5000 times larger and the value of the U.S. dollar has declined by about 98 percent.
If we truly want to fix the economy, the Federal Reserve must be abolished. If I was President Trump, I would look to start issuing debt-free U.S. currency just like President Kennedy did in 1963 as soon as possible.
In addition, we need to push tax rates as low as possible. Personally, I would like to see the day when the personal income tax is completely eliminated and the IRS is shut down. The greatest period of economic growth in all of U.S. history was when there was no income tax and no Federal Reserve. America once thrived in such an environment, and I believe that we can do it again.
Of course we need to also dramatically reduce the size and scope of the federal government. Our founders intended to create a very limited federal government, but instead the left has just kept pushing to make it larger and larger.
Businesses all over America are being strangled to death by mountains of federal regulations, and if we could just get the government off of their backs the business community could start thriving again. There are quite a few government agencies that could be shut down entirely, and I think that the EPA would be a good place to start.
Once upon a time the United States showed the world the power of free markets and capitalism, and if we want to make America great again, we should go back and do the things that made America great in the first place.
But would the American people be willing to go down that path?
Why are so many men in their prime working years unemployed? The Obama administration would have us believe that unemployment is low in this country, but that is not true at all. In fact, one author quoted by NPR says that “it’s kind of worse than it was in the depression in 1940”. Most Americans don’t realize this, but more men from ages 25 to 54 are “inactive” right now than was the case during the last recession. We have millions upon millions of strong young men just sitting around doing nothing. They aren’t employed and they aren’t considered to be looking for employment either, and so they don’t show up in the official unemployment numbers. But they don’t have jobs, and nothing the Obama administration does can eliminate that fact.
According to NPR, “nearly 100 percent of men between the ages of 25 and 54 worked” in the 1960s.
In those days, just about any dependable, hard working American man could get hired almost immediately. The economy was growing and the demand for labor was seemingly insatiable.
But today, one out of every six men in their prime working years does not have a job…
In a recent report, President Obama’s Council of Economic Advisers said 83 percent of men in the prime working ages of 25-54 who were not in the labor force had not worked in the previous year. So, essentially, 10 million men are missing from the workforce.
“One in six prime-age guys has no job; it’s kind of worse than it was in the depression in 1940,” says Nicholas Eberstadt, an economic and demographic researcher at American Enterprise Institute who wrote the book Men Without Work: America’s Invisible Crisis. He says these men aren’t even counted among the jobless, because they aren’t seeking work.
So why is this happening?
If you look at the inactivity rate for men in the 25 to 54 age bracket, it was sitting at just 8.1 percent in January 2000.
In January 2008, right at the beginning of the last recession, it was sitting at 9.2 percent, and by the end of the recession it had risen to 10.3 percent.
Today, it is sitting at 11.5 percent.
Remember, these are men that don’t even count toward the official unemployment rate. They are not working, but they are not considered to be “looking for work” either.
So what are these men doing?
You may be tempted to think that many of them have decided to stay home and raise the kids as their wives go off to work. But according to NPR, that is not what is happening…
What the missing men aren’t doing in large numbers is staying home to take care of family. Forty percent of nonworking women are primary caregivers; that’s true of only 5 percent of men out of the workforce.
We do have the largest prison population in the entire world by far, and without a doubt that does play a role in these numbers. However, a far bigger factor is the millions of men that have become content being dependents of the federal government. More than 100 million Americans receive money from the government each month, and a lot of people (both men and women) have found that it is just easier to sit back and collect government checks than it is to go out and try to work hard for a living.
But of course the number one factor is the lack of jobs available. I personally know people that have been looking for work in their fields for years and have not been able to get hired. We have a major employment crisis in this nation, and it is only going to get worse in the years ahead as we continue to lose jobs to technology and millions more good jobs get shipped overseas.
And a lot of the “jobs” that have been created during the Obama administration have been very low quality jobs. Since December 2014, we have gained about half a million jobs for waiters and bartenders, but meanwhile we have actually lost good paying manufacturing jobs. If we continue down this road, the middle class will continue to shrink.
In addition to everything that I have just shared, here are some other facts that are pertinent to this discussion…
-Right at this moment, there are approximately 102 million working age Americans that do not have a job.
-Nearly one out of every five young adults are currently living with their parents.
-The Wall Street Journal recently declared that this is the weakest “economic recovery” since 1949.
-Barack Obama is on track to be the only president in U.S. history to never have a single year when the U.S. economy grew by at least 3 percent.
The economy is far weaker than you are being told, the employment crisis is far worse than you are being told, and as I mentioned yesterday, the stage is clearly set for a new financial crisis of epic proportions.
And if we are going to see markets crash, this time of the year is a good time for it. In fact, CNBC says that history tells us that this is the “worst period of the year for stocks”…
The worst period of the year for stocks has just begun — at least based on market history.
Over the entire 120-year history of the Dow Jones industrial average, Sept. 6 to Oct. 29 tends to be the worst period for the market. And more specifically, the last few weeks of September have been an especially bad time.
Someday when people look back at this time in history, they will not be surprised by how horrific the coming collapse will be. The truth is that anyone with a lick of common sense can see that the greatest debt bubble in the history of the world is going to end badly.
No, what is going to amaze them is that the system was able to hold together as long as it did. It truly is incredible that the debt-based, fiat currency Ponzi scheme that the central banks of the world have been desperately trying to prop up has been able to keep chugging along all the way to the middle of 2016.
How much longer can they keep the magic going?
I don’t know, but history tells us that time is not on their side…
We just got more evidence that global trade is absolutely imploding. Chinese exports dropped 25.4 percent during the month of February compared to a year ago, and Chinese imports fell 13.8 percent compared to a year ago. For Chinese exports, that was the worst decline that we have seen since 2009, and Chinese imports have now fallen for 16 months in a row on a year over year basis. The last time we saw numbers like this, we were in the depths of the worst economic downturn since the Great Depression of the 1930s. China accounts for more global trade than any other nation (including the United States), and so this is a major red flag. Anyone that is saying that the global economy is in “good shape” is clearly not paying attention.
If someone would have told me a year ago that Chinese exports would be 25 percent lower next February, I would not have believed it. This is not just a slowdown – this is a historic implosion. The following comes from Zero Hedge…
Things are not getting better in China as Exports crashed 25.4% YoY (the 3rd largest drop in history), almost double the 14.5% expectation and Imports tumbled 13.8%, the 16th month of YoY decline – the longest ever. Altogether this sent the trade surplus down to $32.6bn (missing expectations of $51bn) to 11-month lows.
So much for that whole “devalue yourself to export growth” idea…
I don’t know how anyone can possibly dismiss the importance of these numbers. As you can see, this is not just a one month aberration. Chinese trade numbers have been declining for months, and that decline appears to be accelerating.
Another very interesting piece of news that has come out in recent days regards the massive layoffs that are coming at state industries in China. According to Reuters, five to six million Chinese workers are going to be losing their jobs during this transition…
China aims to lay off 5-6 million state workers over the next two to three years as part of efforts to curb industrial overcapacity and pollution, two reliable sources said, Beijing’s boldest retrenchment program in almost two decades.
China’s leadership, obsessed with maintaining stability and making sure redundancies do not lead to unrest, will spend nearly 150 billion yuan ($23 billion) to cover layoffs in just the coal and steel sectors in the next 2-3 years.
For years, the Chinese economic miracle has been fueling global economic growth, but now things are changing dramatically.
Another factor that we should discuss is the fact that the relationship between the United States and China is going downhill very rapidly. This is something that I wrote about yesterday. China has seized control of several very important islands in the South China Sea, and in response the Obama administration has been sailing military vessels past the islands in a threatening manner. Most recently, Obama decided to have an aircraft carrier task force cruise past the islands, and this provoked a very angry response from the Chinese…
The four-ship U.S. strike group that patrolled the disputed South China Sea was followed by Chinese warships, a show of force that prompted a hard-line response from China doubling down on its claim to nearly all of the resource-rich sea.
China’s foreign minister said his country’s sovereignty claims are supported by history and made a veiled reference to the 5-day patrol by the Stennis Carrier Strike Group, as well as recent passes by China’s man-made islands by destroyers Lassen and Curtis Wilbur in recent months.
“The South China Sea has been subject to colonial invasion and illegal occupation and now some people are trying to stir up waves, while some others are showing off forces,” Wang Yi said, according to an Associated Press report, a day after the Stennis CSG departed the South China Sea. “However, like the tide that comes and goes, none of these attempts will have any impact. History will prove who is merely the guest and who is the real host.”
Most Americans are not even paying attention to this dispute, but in China there is talk of war. The Chinese are absolutely not going to back down, and it does not look like Obama is going to either. Needless to say, a souring of the relationship between the largest economy on the planet and the second largest economy on the planet would not be a good thing for the global economy.
And of course China is far from the only country that is having economic problems. Yesterday, I discussed how Italy’s banking system is on the verge of completely collapse. A few days before that I discussed the economic depression that has gripped much of South America. A new global economic crisis has already begun, and just because the United States is feeling less pain than the rest of the world so far does not mean that everything is going to be okay.
There are huge red flags in Europe, Asia and South America right now. In addition, our neighbor to the north (Canada) is experiencing a very significant slowdown. The irrational optimists can continue to believe that the U.S. economy will somehow escape relatively unscathed if they would like, but that is not going to be what happens.
Just like virtually everyone else on the planet, we are heading into hard times too, and this is going to become a dominant theme in the presidential campaign as we move forward into the months ahead.
All over the United States, cities of refuge are being created. Now when I say “cities”, I don’t mean vast areas of land that can hold hundreds of thousands or millions of people. Rather, I am talking about much smaller places of refuge that can accommodate dozens or hundreds of people. In a few cases, I know of places of refuge that will be able to take in thousands of people, but that is about as big as they get. There are individuals all across America that have specifically felt called to build communities where large numbers of people will be able to gather when society totally collapses. So why is this happening? Why do so many people feel such an urgency to create cities of refuge that would presumably never be used if we don’t ever see full-blown societal breakdown?
In the headline, I claimed that hundreds of these “cities of refuge” are being created, but the truth is that it could easily be thousands. I have personally talked to countless numbers of people that are like my wife and I and are planning to be able to take in members of their own extended families when things get really crazy. But there are others that are taking things to an entirely different level.
I was recently contacted by a man in New York state that plans to convert a hotel and surrounding facilities into a place of refuge that could potentially accommodate hundreds of people for an extended period of time. I know of a ranch in southern Idaho where the staff has been feverishly preparing to take in thousands of people when society starts completely falling apart. And I have corresponded with so many others both inside the United States and outside the country that are creating these types of communities.
It has been estimated that there are three million preppers in America today. But those that are creating these places of refuge are not just “prepping” for themselves. Instead, they feel called to prepare a place of safety where others will be able to gather when times get really crazy.
Due to the wide reach of my articles, I have had a lot of people involved in these communities reach out to me over time. Some have graciously let my wife and I know that there is a place for us if needed during a major emergency, and others have wanted for us to become personally involved in what they are doing. I wish that I could get involved in all of them, but there is a limit to what any one of us can do. But I always encourage people to keep pressing forward with their preparations, because without a doubt they will be needed someday.
In addition to what is happening inside the United States, there are others that have already left this country and are creating places of refuge abroad. There are people that are doing this in South America, Canada, Australia, New Zealand and the Middle East.
And of course every “place of refuge” looks different. As I mentioned above, some plan on transforming existing hotels or ranches into places of refuge. Others plan to use open land to host large numbers of RVs or to construct vast tent cities.
But there are five big things that all places of refuge need to be thinking about…
1. Food – It is going to take vast quantitites of food to even feed dozens of people. When you are talking about hundreds or thousands of people, the amount of food required for a place of refuge will be off the charts.
2. Water – None of us can live without water, and it has been estimated that the average American uses 80 to 100 gallons of water every single day. Of course we would all use a lot less during an emergency situation, but if your “place of refuge” does not have easy access to water that could become a major problem very rapidly.
3. Shelter – It is nice to think that you are going to take in a lot of people, but where are all of them going to sleep? Most people don’t think of mattresses or cots as “survival items”, but the truth is that they are going to be greatly in demand when things get crazy.
4. Power – If the electricity goes off and stays off for an extended period of time, what are you going to do? How will people stay warm, how will you cook food, and how will your community function without any artificial light whatsoever? Having an alternative source of power for your place of refuge is very important.
5. Security – If there was a full-blown collapse of society, any place that still has ample resources is automatically going to become a target. So it is great if you have everything that your community will need, but if you have no way to protect it you can end up losing it all very quickly.
For even more tips on preparing for what is ahead, please see my recent article entitled “70 Tips That Will Help You Survive What Is Going To Happen To America“.
There are a lot of preppers out there that are only preparing for themselves and their immediate families, and anyone else that comes looking for assistance when things get really hard will end up looking down the barrel of a shotgun.
But there are so many others that feel called by God to prepare a place for large numbers of people to gather during the coming storm. They are doing this by faith, because such places have never been needed before in modern American history. Perhaps if you go all the way back to the Great Depression of the 1930s you could find large groups of people that needed somewhere to go, but since that time we have generally been regarded as the wealthiest and most prosperous nation on the entire planet.
Unfortunately, things are rapidly changing in this country. Our economy is in the process of crumbling, there is evidence of social decay all around us, natural disasters are increasing in frequency and intensity, and World War 3 could erupt in the Middle East at any time.
If I am right, the time when these cities of refuge will be needed is not that far away. Unfortunately, the vast majority of Americans are not preparing for what is ahead, and so most of them will be absolutely devastated by the great trials that are directly ahead of us.
On Monday, the price of U.S. oil dropped below 38 dollars a barrel for the first time in six years. The last time the price of oil was this low, the global financial system was melting down and the U.S. economy was experiencing the worst recession that it had seen since the Great Depression of the 1930s. As I write this article, the price of U.S. oil is sitting at $37.65. For months, I have been warning that the crash in the price of oil would be extremely deflationary and would have severe consequences for the global economy. Nations such as Japan, Canada, Brazil and Russia have already plunged into recession, and more than half of all major global stock market indexes are down at least 10 percent year to date. The first major global financial crisis since 2009 has begun, and things are only going to get worse as we head into 2016.
The global head of oil research at Societe Generale, Mike Wittner, says that his “head is spinning” after the stunning drop in the price of oil on Monday. Just like during the last financial crisis, we have broken the psychologically important 40 dollar barrier, and there are concerns that we could go much lower from here…
One analyst told CNBC that he believes that we could soon see the price of U.S. oil go all the way down to 32 dollars a barrel…
“We’re in a tug-of-war between a heavily shorted market and a glut of oil in the U.S. and globally, as Saudi Arabia continues to produce oil at elevated levels to maintain market share,” said Chris Jarvis at Caprock Risk Management, an energy markets consultancy in Frederick, Maryland.
“Couple this with a strengthening dollar as the market anticipates a U.S. rate hike this month, oil is heading lower with a near term target of $32 for WTI.”
Analysts at Goldman Sachs are even more pessimistic than that. According to Business Insider, they are saying that we could eventually see the price of oil go below 20 dollars a barrel…
At OPEC’s meeting on Friday, member countries decided to set its production level at 31.5 million barrels per day, and did not agree on what the new limit should be.
After OPEC’s meeting, commodity strategists at Goldman put out a note saying that oil prices could plunge another 50% in the coming months, as the oil market tries to rebalance the supply and demand situation.
That may sound really good to you, especially if you fill up your gas tank frequently. But the truth is that plunging oil prices are exceedingly bad for the U.S. economy as a whole. In recent years, the energy industry has been the primary engine for the creation of good jobs in this country, and now those firms are having to lay off people at a frightening pace. Not only that, CNBC’s Jim Cramer is warning that many of these firms may actually start going under if the price of oil doesn’t start going back up soon…
“This is not ‘longer and lower;’ this is ‘longer and much lower.’ There’s companies that are not going to be able to fund with futures; there’re companies that are not going to be able to get credit,” Cramer said on “Squawk on the Street.”
Cramer made his remarks after the Organization of the Petroleum Exporting Countries decided not to lower production on Friday.
“This was a devastating blow for the U.S. oil industry,” Cramer said.
On Monday, we witnessed another benchmark that we have not seen since the last financial crisis.
I watch a high yield bond ETF known as JNK very closely. On Monday, JNK broke below 35 for the first time since the financial crisis of 2008. Just like 40 dollar oil, this is a key psychological barrier.
So why is this important?
As I discussed last week, junk bonds crashed before stocks did in 2008, and now it is happening again. If form holds true, we should expect U.S. stocks to start tumbling significantly very shortly.
Meanwhile, another notable expert has come forward with a troubling forecast for the global economy in 2016. Just like Citigroup, Raoul Pal believes that there is a very significant chance that we will see a recession next year…
Former global macro fund manager Raoul Pal says there’s now a 65% chance of a global recession.
In July, Pal predicted that the Institute of Supply Management’s (ISM) manufacturing index would break the key level of 50 late in 2015.
On December 1, the ISM broke the 50 level for the first time since the 2008 recession, reaching 48.6.
“I use the ISM as a guide to the global business cycle, not just the US cycle,” Pal told Business Insider.
What amazes me is that so many people out there cannot see what is happening even though the next great crisis has already started. The evidence is all around us, and yet so many choose to be willingly blind.
Instead of fixing our problems after the last crisis, we just papered them over with lots of money printing and lots more debt. And of course all of this manipulation just made our long-term problems even worse. I really like how Peter Schiff put it recently…
What’s happening is pretty much what we would anticipate. I don’t see from the data any real economic recovery, certainly not in the United States.
We’re spending more money, but it’s not because we’re generating more wealth. We’re generating more debt. We’re using that borrowed money to consume and so temporarily it feels that we’re wealthier because we get to spend all that money… but we have to come to terms with paying the bill.
The bills are going to come due. Right now interest rates are being kept at zero which makes it possible to service the debt even though it’s impossible to repay it… at least we can service it. But once interest rates go up then we can’t even service it let alone repay it.
And then the party is going to come to an end.
Indeed – the party is coming to an end, and a new financial crisis is playing out in textbook fashion right in front of our eyes.
Hopefully you are already prepared for what is coming next, because it is going to be extremely painful for the U.S. economy.
The worst stock market crashes in U.S. history have come during the month of October. There is just something about this time of the year that seems to be conducive to financial panic. For example, on October 28th, 1929 the biggest stock market crash in U.S. history up until that time helped usher in the Great Depression of the 1930s. And the largest percentage crash in the history of the Dow Jones Industrial Average by a very wide margin happened on October 19th, 1987. Overall, 9 of the 16 largest single day percentage crashes that we have ever seen happened during the month of October. Of course that does not mean that something will happen this October, but after what we just witnessed in September we should all be on alert.
Clearly, there is a tremendous amount of momentum toward the downside right now. As you can see from the chart below, all of the gains for the Dow since the end of the 2013 calendar year have already been wiped out…
And as I wrote about just the other day, last quarter we witnessed the loss of 11 trillion dollars in “paper wealth” on stock markets all over the planet. The following comes from Justin Spittler…
The S&P 500 fell 8%… and so did the Dow and the NASDAQ. It was the worst quarter for U.S. stocks since 2011.
Stocks around the world dropped too. The MSCI All-Country World Index, which tracks 85% of global stocks, also had its worst quarter since 2011. The STOXX Europe 600 Index, which tracks 600 of Europe’s largest companies, fell 10%. It was the worst quarter for European stocks since 2011 as well.
China’s Shanghai Composite fell 28% last quarter, its largest quarterly decline in seven years. The MSCI Emerging Markets Index fell 19%. It was the worst quarterly decline for emerging market stocks in four years.
In total, last quarter’s selloff erased nearly $11 trillion in value from stocks around the world.
Sadly, the mainstream media is assuring everyone that things are going to be just fine, and a lot of people on the Internet seem to have the attitude that “nothing is happening“. Just like in 1929, a brief period of stabilization after the initial fall has lulled many into a false sense of security. The following comes from Zero Hedge…
Just as in 1929, the market was performing fantastic and the continuous wealth increase seemed to be unstoppable. A short 10% correction was seen as ‘healthy’ and soon a new uptrend was starting (the green line). This is exactly the same scenario we saw in the past few weeks. Market commenters said the 10% drop in the Dow Jones was a ‘healthy correction’ and we’re on our way to the next uptrend and Christmas rally.
Most people seem to assume that since I run a website called “The Economic Collapse Blog” that I must be rooting for a stock market collapse and an economic implosion, but that is not true at all. The longer that the financial markets can hold together, the longer all of our lives can stay quiet, peaceful and “normal”. Once the chaos begins, all of our lives will change dramatically. No matter how much any of us have prepared, what is coming is going to deeply affect all of us at least to a certain degree.
It would be far better for me, my extended family and my friends if I am wrong about an imminent financial collapse. Most of the people that I personally know are not even close to ready for what is coming. And during the coming credit crunch it is inevitable that people that I personally know will lose jobs and suffer business setbacks.
Sadly, the truth is that life in America is never going to be any better than it is right now. At some point, this stock market bubble will fully implode. At some point, our debt-fueled prosperity will disappear. At some point, the extraordinary recklessness of the big banks will catch up with them in a major way.
As we witnessed in 2008, our financial system is not designed to handle a severe bear market. We should have learned some very hard lessons from the last time around, but we didn’t. Instead, our financial system is even more vulnerable to a crisis today than it was back then. A huge turn down by the financial markets will rip many of our top financial companies to shreds. So a bear market would be extremely bad news, but unfortunately many prominent analysts seem to believe that this is precisely what we are now facing…
Jim Cramer, the ex-hedge fund manager and host of CNBC’s show “Mad Money,” has been vocal recently on air, saying repeatedly that he doesn’t like the market now, and last week said “we have a first-class bear market going.” Similarly, Gary Kaltbaum, president of Kaltbaum Capital Management, has been sending out notes to clients and this newspaper for weeks, saying the poor price action of the stock market and many hard-hit sectors, such as energy and the recently clobbered biotech sector, has all the earmarks of a bear market. Over the weekend, Kaltbaum said: “We remain in a worldwide bear market for stocks.”
On the way up, all of the extreme risk-taking didn’t seem to matter much because everyone was making a lot of money.
But on the way down, all of the extreme risk-taking is just going to accelerate the collapse.
Personally, I do not know exactly what will happen over the next few weeks, but without a doubt I have a very bad feeling about the rest of this year.
What about you?
What do you think will happen?
Please feel free to add to the discussion by posting a comment below…
Over the past decade, there has been only one other time when the value of the U.S. dollar has increased by so much in such a short period of time. That was in mid-2008 – just before the greatest financial crash since the Great Depression. A surging U.S. dollar also greatly contributed to the Latin American debt crisis of the early 1980s and the Asian financial crisis of 1997. Today, the globe is more interconnected than ever. Most global trade is conducted in U.S. dollars, and much of the borrowing done by emerging markets all over the planet is denominated in U.S. dollars. When the U.S. dollar goes up dramatically, this can put a tremendous amount of financial stress on economies all around the world. It also has the potential to greatly threaten the stability of the 65 trillion dollars in derivatives that are directly tied to the value of the U.S. dollar. The global financial system is more vulnerable to currency movements than ever before, and history tells us that when the U.S. dollar soars the global economy tends to experience a contraction. So the fact that the U.S. dollar has been skyrocketing lately is a very, very bad sign.
Most of the people that write about the coming economic collapse love to talk about the coming collapse of the U.S. dollar as well.
But in the initial deflationary stage of the coming financial crisis, we are likely to see the U.S. dollar actually strengthen considerably.
As I have discussed so many times before, we are going to experience deflation first, and after that deflationary phase the desperate responses by the Federal Reserve and the U.S. government to that deflation will cause the inflationary panic that so many have written about.
Yes, someday the U.S. dollar will essentially be toilet paper. But that is not in our immediate future. What is in our immediate future is a “flight to safety” that will push the surging U.S. dollar even higher.
This is what we witnessed in 2008, and this is happening once again right now.
Just look at the chart that I have posted below. You can see the the U.S. dollar moved upward dramatically relative to other currencies starting in mid-2008. And toward the end of the chart you can see that the U.S. dollar is now experiencing a similar spike…
At the moment, almost every major currency in the world is falling relative to the U.S. dollar.
For example, this next chart shows what the euro is doing relative to the dollar. As you can see, the euro is in the midst of a stunning decline…
Instead of focusing on the U.S. dollar, those that are looking for a harbinger of the coming financial crisis should be watching the euro. As I discussed yesterday, analysts are telling us that if Greece leaves the eurozone the EUR/USD could fall all the way down to 0.90. If that happens, the chart above will soon resemble a waterfall.
And of course it isn’t just the euro that is plummeting. The yen has been crashing as well. The following chart was recently posted on the Crux…
Unfortunately, most Americans have absolutely no idea how important all of this is. In recent years, growing economies all over the world have borrowed gigantic piles of very cheap U.S. dollars. But now they are faced with the prospect of repaying those debts and making interest payments using much more expensive U.S. dollars.
Investors are starting to get nervous. At one time, investors couldn’t wait to pour money into emerging markets, but now this process is beginning to reverse. If this turns into a panic, we are going to have one giant financial mess on our hands.
The truth is that the value of the U.S. dollar is of great importance to every nation on the face of the Earth. The following comes from U.S. News & World Report…
In the early ’80s, a bullish U.S. dollar contributed to the Latin American debt crisis, and also impacted the Asian Tiger crisis in the late ’90s. Emerging markets typically have higher growth, but carry much higher risk to investors. When the economies are doing well, foreign investors will lend money to emerging market countries by purchasing their bonds.
They also deposit money in foreign banks, which facilitates higher lending. The reason for this is simple: Bond payments and interest rates in emerging markets are much higher than in the U.S. Why deposit cash in the U.S. and earn 0.25 percent, when you could earn 6 percent in Indonesia? With the dollar strengthening, the interest payments on any bond denominated in U.S. dollars becomes more expensive.
Additionally, the deposit in the Indonesian bank may still be earning 6 percent, but that is on Indonesian rupiahs. After converting the rupiahs to U.S. dollars, the extra interest doesn’t offset the loss from the exchange. As investors get nervous, the higher interest on emerging market debt and deposits becomes less alluring, and they flee to safety. It may start slowly, but history tells us it can quickly spiral out of control.
Over the past few months, I have been repeatedly stressing that so many of the signs that we witnessed just prior to previous financial crashes are happening again.
Now you can add the skyrocketing U.S. dollar to that list.
If you have not seen my previous articles where I have discussed these things, here are some places to get started…
“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”
The warnings signs are really starting to pile up.
When we look back at past financial crashes, there are recognizable patterns that can be identified.
Anyone with half a brain should be able to see that a large number of those patterns are unfolding once again right before our eyes.
Unfortunately, most people in this world end up believing exactly what they want to believe.
No matter how much evidence you show them, they will not accept the truth until it is too late.
The signs of the times are everywhere – all you have to do is open up your eyes and look at them. When a pregnant woman first goes into labor, the birth pangs are usually fairly moderate and are not that close together. But as the time for delivery approaches, they become much more frequent and much more intense. Economically, what we are experiencing right now are birth pangs of the coming Great Depression. As we get closer to the crisis that is looming on the horizon, they will become even more powerful. This week, we learned that the Baltic Dry Index has fallen to the lowest level that we have seen in 29 years. The Baltic Dry Index also crashed during the financial collapse of 2008, but right now it is already lower than it was at any point during the last financial crisis. In addition, “Dr. Copper” and other industrial commodities continue to plunge. This almost always happens before we enter an economic downturn. Meanwhile, as I mentioned the other day, orders for durable goods are declining. This is also a traditional indicator that a recession is approaching. The warning signs are there – we just have to be open to what they are telling us.
And of course there are so many more parallels between past economic downturns and what is happening right now.
For example, volatility has returned to the markets in a big way. On Tuesday the Dow was down about 300 points, on Wednesday it was down another couple hundred points, and then on Thursday it was up a couple hundred points.
This is precisely how markets behave just before they crash. When markets are calm, they tend to go up. When markets get really choppy and start behaving erratically, that tells us that a big move down is usually coming.
At the same time, almost every major global currency is imploding. For much more on this, see the amazing charts in this article.
In particular, I am greatly concerned about the collapse of the euro. The Swiss would not have decoupled their currency from the euro if it was healthy. And political events in Greece are certainly not going to help things either. Economic conditions across Europe just continue to get worse, and the future of the eurozone itself is very much in doubt at this point. And if the eurozone does break up, a European economic depression is almost virtually assured – at least in the short term.
And I haven’t even mentioned the oil crash yet.
There is only one other time in all of history when the price of oil collapsed by more than 60 dollars, and that was just prior to the horrific financial crisis of 2008.
Since the last financial crisis, the oil industry has been a huge source for job growth in this country. The following is an excerpt from a recent CNN article…
The oil sector has added over a half million jobs — many of them high paying — since the recession ended in June 2009. That’s 13% of all US job growth over that period.
Now energy companies and related sectors are laying off thousands. Expect that trend to continue, bears say.
But losing good jobs is just the tip of the iceberg of this oil crisis.
At this point, the price of oil has already dropped to a catastrophically low level. The longer it stays at this level, the more damage that it is going to do. If the price of oil stays at this level for all of 2015, we are going to have a complete and total financial nightmare on our hands…
For the first time in 18 years, oil exporters are pulling liquidity out of world markets rather than putting money in. The world is now fast approaching a world reserve currency shift. If we see 8 to 12 months at these oil prices; U.S. shale industry will be wiped out. The effect on junk bonds will cascade to the rest of the stock market and U.S. economy.
…and this time there will be nothing left to catch the falling knife before it hits the American economy right in the heart. Not the FED nor the U.S. government can stop what’s coming. Liquidity will freeze up, our credit will be downgraded, the stock market will start to collapse, and then we can expect the FED to come in and hyper-inflate the dollar. This will cause the world to finish abandoning the world reserve currency in the last rungs of trade. This will be the end of the petrodollar.
Something that I have not discussed so far this year is the looming crisis in emerging market debt.
As economic problems spread around the world, a number of “emerging markets” are in danger of having their debt downgraded. And many investment funds have rules that prohibit them from holding any debt that is not “investment grade”. Therefore, we could potentially see some of these giant funds dumping massive amounts of emerging market debt if downgrades happen.
This is a really big deal. As a Business Insider article recently detailed, we could be talking about hundreds of billions of dollars…
Russia this week became the first of the major economies to lose its investment grade status from Standard & Poor’s, falling out off the top ratings category for credits deemed to have a low risk of default for the first time in a decade.
If Moody’s and Fitch follow, conservative investors barred from owning junk securities must sell their holdings. JPMorgan estimates this means they may ditch $6 billion in Russian government rouble and dollar debt.
Russia may have company. Almost $260 billion worth of sovereign and corporate bonds – nearly a tenth of outstanding emerging market (EM) debt – is in danger of being relegated to junk, according to David Spegel, head of emerging debt at BNP Paribas, who calls such credits “falling angels”.
And no article of this nature would be complete without mentioning derivatives.
I could not possibly overemphasize the danger that the 700 trillion dollar derivatives bubble poses to the global financial system.
As we enter the coming Great Depression, derivatives are going to play a starring role. Wall Street has been pumped full of funny money by global central banks, and our financial markets have been transformed into the greatest casino in the history of the world. When this house of cards comes crashing down, and it will, it is going to be a financial disaster unlike anything that the planet has ever seen.
And yes, global central banks are very much responsible for setting the stage for what we are about to experience.
I really like the way that David Stockman put it the other day…
The global financial system is literally booby-trapped with accidents waiting to happen owing to six consecutive years of massive money printing by nearly every central bank in the world.
Over that span, the collective balance sheet of the major central banks has soared by nearly $11 trillion, meaning that honest price discovery has been virtually destroyed. This massive “bid” for existing financial assets based on credit confected from thin air drove long-term bond yields to rock bottom levels not seen in 600 years since the Black Plague; and pinned money market costs at zero—-for 73 months running.
What is the consequence of this drastic financial repression along the entire yield curve? The answer is bond prices which keep rising regardless of credit risk, inflation or taxes; and rampant carry trade speculation that can’t get out of its own way because central banks have made the financial gamblers’ cost of goods—the “funding” cost of their trades—-essentially zero.
Of course I am not the only one warning that a new Great Depression is coming. For instance, just consider what British hedge fund manager Crispin Odey is saying…
British hedge fund manager Crispin Odey thinks we’ve entered an economic downturn that is “likely to be remembered in a hundred years,” and central banks won’t be able to stop it.
In his Odey Asset Management investor letter dated Dec. 31, Odey writes that the shorting opportunity “looks as great as it was in 07/09.”
“My point is that we used all our monetary firepower to avoid the first downturn in 2007-09,” he writes, “so we are really at a dangerous point to try to counter the effects of a slowing China, falling commodities and EM incomes, and the ultimate First World Effects. This is the heart of the message. If economic activity far from picks up, but falters, then there will be a painful round of debt default.”
Even though most average citizens are completely oblivious to what is happening, many among the elite are heeding the warning signs and are feverishly getting prepared. As Robert Johnson told a stunned audience at the World Economic Forum the other day, they are “buying airstrips and farms in places like New Zealand“. They can see the horrifying storm forming on the horizon and they are preparing to get out while the getting is good.
It can be very frustrating to write about economics, because things in the financial world can take an extended period of time to play out. Sadly, most people these days have extremely short attention spans. We live in a world of iPhones, iPads, YouTube videos, Facebook updates and 48 hour news cycles. People no longer are accustomed to thinking in long-term time frames, and if something does not happen right away we tend to get bored with it.
But the economic world is not like a game of “Angry Birds”. Rather, it is very much like a game of chess.
And unfortunately for us, checkmate is right around the corner.
If you were waiting for a “black swan event” to come along and devastate the global economy, you don’t have to wait any longer. As I write this, the price of U.S. oil is sitting at $45.76 a barrel. It has fallen by more than 60 dollars a barrel since June. There is only one other time in history when we have seen anything like this happen before. That was in 2008, just prior to the worst financial crisis since the Great Depression. But following the financial crisis of 2008, the price of oil rebounded fairly rapidly. As you will see below, there are very strong reasons to believe that it will not happen this time. And the longer the price of oil stays this low, the worse our problems are going to get. At a price of less than $50 a barrel, it is just a matter of time before we see a huge wave of energy company bankruptcies, massive job losses, a junk bond crash followed by a stock market crash, and a crisis in commodity derivatives unlike anything that we have ever seen before. So let’s hope that a very unlikely miracle happens and the price of oil rebounds substantially in the months ahead. Because if not, the price of oil is going to absolutely rip the global economy to shreds.
What amazes me is that there are still many economic “experts” in the mainstream media that are proclaiming that the collapse in the price of oil is going to be a good thing for the U.S. economy.
The only precedent that we can compare the current crash to is the oil price collapse of 2008. You can see both crashes on the chart below…
If rapidly falling oil prices are good economic news, that collapse should have pushed the U.S. economy into overdrive.
But that didn’t happen, did it? Instead, we plunged into the deepest recession that we have seen since the Great Depression.
And unless there is a miracle rebound in the price of oil now, we are going to experience something similar this time.
Already, we are seeing oil rigs shut down at a staggering pace. The following is from Bloomberg…
U.S. oil drillers laid down the most rigs in the fourth quarter since 2009. And things are about to get much worse.
The rig count fell by 93 in the three months through Dec. 26, and lost another 17 last week, Baker Hughes Inc. data show. About 200 more will be idled over the next quarter as U.S. oil explorers make good on their promises to curb spending, according to Moody’s Corp.
But that was just the beginning of the carnage. 61 more oil rigs shut down last week alone, and hundreds more are being projected to shut down in the months ahead.
For those that cannot connect the dots, that is going to translate into the loss of large numbers of good paying jobs. Just check out what is happening in Texas…
A few days ago, Helmerich & Payne, announced that it would idle 50 more drilling rigs in February, after having already idled 11 rigs. Each rig accounts for about 100 jobs. This will cut its shale drilling activities by 20%. The other two large drillers, Nabors Industries and Patterson-UTI Energy are on a similar program. All three combined are “likely to cut approximately 15,000 jobs out of the 50,000 people they currently employ,” said Oilpro Managing Director Joseph Triepke.
Unfortunately, this crisis will not just be localized to states such as Texas. There are tens of thousands of small and mid-size firms that will be affected. The following is from a recent CNBC report…
More than 20,000 small and midsize firms drive the “hydrocarbon revolution” in the U.S. that has helped the oil and gas industry thrive in recent years, and they produce more than 75 percent of the nation’s oil and gas output, according to the Manhattan Institute for Policy Research’s February 2014 Power & Growth Initiative Report. The Manhattan Institute is a conservative think tank in New York City.
A sustained decline in prices could lead to layoffs at these firms, say experts. “The energy industry has been one of the job-growth areas leading us out of the recession,” said Chad Mabry, a Houston-based analyst in the energy and natural resources research department of boutique investment bank MLV & Co. in New York City. “In 2015, that changes in this price environment,” he said. “We’re probably going to see some job losses on a fairy significant scale if this keeps up.”
If the price of oil makes a major comeback, the carnage will ultimately not be that bad.
But if it stays at this level or keeps going down for an extended period of time, it is inevitable that a whole bunch of those firms will go bankrupt and their debt will go bad.
That would mean a junk bond crash unlike anything that Wall Street has ever experienced.
And as I have written about previously, a stock market crash almost always follows a junk bond crash.
These are things that happened during the last financial crisis and that are repeating again right in front of our eyes.
Another thing that happened in 2008 that is happening again is a crash in industrial commodity prices.
At this point, industrial commodity prices have hit a 12 year low. I am talking about industrial commodities such as copper, iron ore, steel and aluminum. This is a huge sign that global economic activity is slowing down and that big trouble is on the way.
So what is driving this? The following excerpt from a recent Zero Hedge article gives us a clue…
Globally there are over $9 trillion worth of borrowed US Dollars in the financial system. When you borrow in US Dollars, you are effectively SHORTING the US Dollar.
Which means that when the US Dollar rallies, your returns implode regardless of where you invested the borrowed money (another currency, stocks, oil, infrastructure projects, derivatives).
Take a look at commodities. Globally, there are over $22 TRILLION worth of derivatives trades involving commodities. ALL of these were at risk of blowing up if the US Dollar rallied.
Unfortunately, starting in mid-2014, it did in a big way.
This move in the US Dollar imploded those derivatives trades. If you want an explanation for why commodities are crashing (aside from the fact the global economy is slowing) this is it.
Once again, much of this could be avoided if the price of oil starts going back up substantially.
Unfortunately, that does not appear likely. In fact, many of the big banks are projecting that it could go even lower…
Goldman Sachs, CitiGroup, Societe General and Commerzbank are among the latest investment banks to reduce crude oil price estimates, and without production cuts, there appears to be more room for lower prices.
“We’re going to keep on going lower,” says industry analyst Brian Milne of energy manager Schneider Electric. “Even with fresher new lows, there’s still more downside.”
OPEC could stabilize global oil prices with a single announcement, but so far OPEC has refused to do this. Many believe that the OPEC countries actually want the price of oil to fall for competitive reasons…
Representatives of Saudi Arabia, the United Arab Emirates and Kuwait stressed a dozen times in the past six weeks that the group won’t curb output to halt the biggest drop in crude since 2008. Qatar’s estimate for the global oversupply is among the biggest of any producing country. These countries actually want — and are achieving — further price declines as part of an attempt to hasten cutbacks by U.S. shale drillers, according to Barclays Plc and Commerzbank AG.
The oil producing countries in the Middle East seem to be settling in for the long haul. In fact, one prominent Saudi prince made headlines all over the world this week when he said that “I’m sure we’re never going to see $100 anymore.”
Never is a very strong word.
Could there be such a massive worldwide oil glut going on right now that the price of oil will never get that high again?
Well, without a doubt there is a huge amount of unsold oil floating around out there at the moment.
It has gotten so bad that some big trading companies are actually hiring supertankers to store large quantities of unsold crude oil at sea…
Some of the world’s largest oil traders have this week hired supertankers to store crude at sea, marking a milestone in the build-up of the global glut.
Trading firms including Vitol, Trafiguraand energy major Shell have all booked crude tankers for up to 12 months, freight brokers and shipping sources told Reuters.
They said the flurry of long-term bookings was unusual and suggested traders could use the vessels to store excess crude at sea until prices rebound, repeating a popular 2009 trading gambit when prices last crashed.
The fundamentals for the price of oil are so much worse than they were back in 2008.
We could potentially be looking at sub-$50 oil for an extended period of time.
If that is indeed the case, there will be catastrophic damage to the global economy and to the global financial system.
So hold on to your hats, because it looks like we are going to be in for quite a bumpy ride in 2015.