Retail sales during the four day Thanksgiving weekend were down a whopping 11 percent from last year. This is a “make or break” time of the year for many retailers, and if things don’t turn around during the coming weeks we could see a tsunami of store closings in January and February. As you read this article, there is already more than a billion square feet of retail space sitting empty in the United States. Many have described the ongoing collapse of the retail industry as an “apocalypse”, and this apocalypse appears to be accelerating. Yes, the shift to online retailers is a significant factor, but as you will see below even online retailers struggled over the holiday weekend. The sad truth of the matter is that U.S. consumers are tapped out and are drowning in debt at this point, so they simply do not have as much money to spend as they once did.
According to the National Retail Federation, 5.2 percent fewer Americans shopped online or at retail stores over the past weekend. Those that did shop spent an average of 6.4 percent less money than consumers did last year.
So if less people shopped, and they spent less money on average, that means that total retail sales must have been way down.
And indeed they were. As the New York Times has reported, total retail sales were down an astounding 11 percent…
Sales, both in stores and online, from Thanksgiving through the weekend were estimated to have dropped 11 percent, to $50.9 billion, from $57.4 billion last year, according to preliminary survey results released Sunday by the National Retail Federation. Sales fell despite many stores’ opening earlier than ever on Thanksgiving Day.
And though many retailers offered the same aggressive discounts online as they did in their stores, the web failed to attract more shoppers or spending over the four-day holiday weekend than it did last year, the group said. The average person who shopped over the weekend spent $159.55 at online retailers, down 10.2 percent from last year.
No wonder there was less violence on Black Friday this year.
Traffic at retailers was way down.
Of course some analysts are trying to put a positive spin on all of this. For example, the CEO of the National Retail Federation says that this could actually be a sign that the economy is improving…
As the WSJ reports, NRF’s CEO Matt Shay attributed the drop to a combination of factors, including the fact that retailers moved promotions earlier this year in attempt to get people out sooner and avoid what happened last year when people didn’t finish their shopping because of bad weather.
Also did we mention the NRF is perpetually cheery and always desperate to put a metric ton of lipstick on a pig? Well, hold on to your hats folks:
He also attributed the declines to better online offerings and an improving economy where “people don’t feel the same psychological need to rush out and get the great deal that weekend, particularly if they expected to be more deals,” he said.
And of course the sprint vs marathon comparisons, such as this one: “The holiday season and the weekend are a marathon not a sprint,” NRF Chief Executive Officer Matthew Shay said on a conference call. Odd how that metaphor is never used when the (seasonally-adjusted) sprint beats the marathoners.
So there you have it: a 11% collapse in retail spending has just been spun as super bullish for the US economy, whereby US consumers aren’t spending because the economy is simply too strong, and the only reason they don’t spend is because they will spend much more later. Or something.
The retail industry is absolutely brutal at this point. It is flooded with very large competitors that are chasing fewer and fewer disposable dollars.
In order to thrive, retailers need financially healthy consumers. But over time, U.S. consumers have been getting deeper and deeper into debt. The chart posted below shows that consumer credit in the United States has doubled since the year 2000…
Meanwhile, the long-term trend for real median household income since the year 2000 has been down…
In order for Americans to spend money, they have to make money first.
Unfortunately, the quality of our jobs continues to plummet.
As I have written about previously, 50 percent of all American workers currently make less than $28,031 a year at their jobs. And here are some more numbers from a report that the Social Security Administration recently released…
-39 percent of American workers made less than $20,000 last year
-52 percent of American workers made less than $30,000 last year
-63 percent of American workers made less than $40,000 last year
-72 percent of American workers made less than $50,000 last year
So in order for a typical American family to bring in $50,000 a year or more both parents usually have to work.
Sometimes they both have to work more than one job.
And with the cost of living constantly rising, family budgets are being squeezed more than ever. That is why families have less money to spend at retail stores these days. For even more on the current financial condition of American families, please see my previous article entitled “Are You Better Off This Thanksgiving Than You Were Last Thanksgiving?”
It is time for retailers in America to face the fact that economic conditions have fundamentally changed. U.S. consumers simply are not in as good shape as they used to be.
In addition, online retailers are going to continue to steal sales from traditional retail locations. This means that more stores are going to close and more retail space is going to be abandoned.
As I mentioned above, more than a billion square feet of retail space is aleady sitting vacant in the United States. And retail consultant Howard Davidowitz is projecting that up to half of all shopping malls in the U.S. may shut down within the next couple of decades…
Within 15 to 20 years, retail consultant Howard Davidowitz expects as many as half of America’s shopping malls to fail. He predicts that only upscale shopping centers with anchors like Saks Fifth Avenue and Neiman Marcus will survive.
In the years ahead, it is going to become normal to see boarded up strip malls and abandoned shopping centers all over the country.
The golden age of retail is over, and now most retailers will have to work incredibly hard to survive the apocalypse that is unfolding right before our eyes.
Did you know that 77 million Americans have unpaid debts that are “in collections” and that Congress is actually thinking about letting post offices offer payday loans? We live in a country where almost everyone is drowning in debt and where most people are either flat broke or very close to flat broke. Years ago, “your Mama is so broke” jokes were all the rage, and at the rate we are going they could make a big comeback. Some of my favorites were “your Mama is so broke she went to McDonald’s and put a milkshake on layaway” and “your Mama is so broke your family ate cereal with a fork to save milk”. Unfortunately, the facts that I am about to share with you are not funny at all. In fact, they are quite sobering. Yes, things are going fairly well for the elitists that live in the good areas of New York City, Washington D.C. and San Francisco right now, but most of the country is deeply struggling as our economic fundamentals continue to crumble. Please share these numbers with as many people as you can, because we need people to understand that there has not been an “economic recovery” for most of America. In fact, in many ways things just continue to get even worse. The following are 21 ways to end the phrase “Americans are so broke”…
1. Americans are so broke that about a third of them have debt collectors on their heels. One recent study discovered that more than one out of every three adults in the United States has an unpaid debt that is “in collections“. That is a total of 77 million people. In other words, the debt collection business in America is absolutely booming.
2. Americans are so broke that Congress is now actually considering allowing post offices to provide payday loans and check cashing services.
3. Americans are so broke that they are keeping their vehicles longer than ever. The average age of vehicles on America’s roads recently set a new all-time high of 11.4 years.
4. Americans are so broke that car dealers are having to go to extreme lengths to get new customers. Last year, one out of every four auto loans in the United States was made to someone with subprime credit.
5. Americans are so broke that 52 percent of them cannot even afford the homes that they are living in right now.
6. Americans are so broke that they are falling farther behind on their student loans than ever. The total amount of student loan debt in the U.S. has now reached a whopping 1.2 trillion dollars, and approximately seven million Americans are in default on their student loans at this point.
7. Young Americans are so broke that half of all college graduates are still relying on their parents financially when they are two years out of school.
8. Young Americans are so broke that only 36 percent of American adults under the age of 35 currently own a home. That is the lowest level that has ever been recorded.
9. Americans are so broke that many of them can’t even afford to shop at Wal-Mart and dollar stores anymore…
Discount stores are slowly dying.
Yesterday, Dollar Tree announced it would buy Family Dollar, a chain that is in the process of closing hundreds of stores and firing workers.
Other discount stores have been struggling as well, writes Heidi Moore at The Guardian. Fashion discounter Loehmann’s filed for bankruptcy, while Wal-Mart’s sales have declined for the past five quarters.
“There’s just not enough money deployed by American families to keep all the discount chains in business,” Moore writes.
10. Americans are so broke that they are running up record levels of debt. Overall, U.S. households are 11.68 trillion dollars in debt right now.
11. Americans are so broke that the wealth of the “typical American household” has fallen by 36 percent over the past decade.
12. Americans are so broke that one out of every four part-time workers in America is living below the poverty line.
13. Americans are so broke that more than 37 million Americans are now being served by food pantries and soup kitchens.
14. Americans are so broke that there are 49 million Americans that are dealing with food insecurity.
15. Americans are so broke that the number of people on food stamps has increased by about 14 million while Obama has been in the White House. Ten years ago, the number of women in the U.S. that had jobs outnumbered the number of women in the U.S. on food stamps by more than a 2 to 1 margin. But now the number of women in the U.S. on food stamps actually exceeds the number of women that have jobs.
16. Americans are so broke that the U.S. government has had to spend an astounding 3.7 trillion dollars on welfare programs over the past five years.
17. Americans are so broke that more than 20 percent of all children in the U.S. are living in poverty.
18. Americans are so broke that we have a record number of kids sleeping in the streets. In fact, we have more than a million public school children that are homeless at this point.
19. Americans are so broke that 76 percent of all Americans are living paycheck to paycheck.
20. Americans are so broke that 26 percent of Americans have absolutely no emergency savings whatsoever.
21. Americans are so broke that approximately two-thirds of all Americans do not have enough money saved up to cover six months of expenses if an emergency arose.
If things are this bad now, during the so-called “economic recovery”, how bad will things get during the next major economic downturn?
Unfortunately, most Americans have been lulled into a false sense of security. The financial crisis of 2008 seems like ancient history to most of them now, and most people appear to believe that our leaders have “fixed” whatever was wrong the last time.
Of course that is not the case at all. In fact, our long-term problems have just continued to grow since then.
The truth is that what we are experiencing right now is about as good as things are going to get for the U.S. economy. When the next crisis arrives, all of the numbers in the list above are going to rapidly get a lot worse.
So enjoy the rest of this “bubble” while you still can. It certainly will not last for too much longer.
What would you say if I told you that Americans are nearly 60 TRILLION dollars in debt? Well, it is true. When you total up all forms of debt including government debt, business debt, mortgage debt and consumer debt, we are 59.4 trillion dollars in debt. That is an amount of money so large that it is difficult to describe it with words. For example, if you were alive when Jesus Christ was born and you had spent 80 million dollars every single day since then, you still would not have spent 59.4 trillion dollars by now. And most of this debt has been accumulated in recent decades. If you go back 40 years ago, total debt in America was sitting at about 2.2 trillion dollars. Somehow over the past four decades we have allowed the total amount of debt in the United States to get approximately 27 times larger. This is utter insanity, and anyone that thinks this is sustainable is completely deluded. We are living in the greatest debt bubble of all time, and there is no way that this is going to end well. Just check out the chart…
When the last recession hit, total debt in America actually started going down for a short period of time.
But then the Federal Reserve and our politicians in Washington worked feverishly to reinflate the bubble and they assured everyone that everything was going to be just fine. So Americans once again resorted to their free spending ways, and now total debt in the United States is rising at almost the same trajectory as before and has hit a new all-time record high.
We see a similar thing when we look at a chart for consumer debt in America…
For a while after the recession it was trendy to cut up your credit cards and get out of debt.
But that fad wore off rather quickly, didn’t it?
It is almost as if 2008 never happened. We are making the same mistakes with debt that we did before.
As I noted recently, total consumer credit in the U.S. has risen by 22 percent over the past three years alone, and at this point 56 percent of all Americans have a subprime credit rating.
And have you noticed that a lot of people are not afraid to extend themselves in order to buy shiny new vehicles these days?
During the first quarter 0f this year, the size of the average vehicle loan soared to a new all-time record high of $27,612.
Five years ago, that number was just $24,174.
And as I noted in one recent article, the size of the average monthly car payment in this country is now up to $474.
That is practically a mortgage payment.
Speaking of mortgage payments, even though home sales have been falling and the rate of homeownership in the United States is the lowest that it has been in 19 years, a very large percentage of those who own homes are still overextended.
In fact, one recent survey discovered that a whopping 52 percent of Americans cannot even afford the house that they are living in right now.
At the same time, an increasing number of Americans are acting as if the last financial crisis never happened and are treating their homes like piggy banks. Home equity loans are soaring again, and when the next great crisis strikes a lot of those people are going to end up getting into a lot of financial trouble.
There has been much written about what is wrong with the housing industry, but the truth is that home prices are still way too high and young adults cannot afford to purchase homes because they are already loaded down by huge amounts of debt even before they get to the point where they are ready to buy.
In fact, a newly released survey found that 47 percent of millennials are spending at least half of their paychecks on paying off debt…
Four in 10 millennials say they are “overwhelmed” by their debt — nearly double the number of baby boomers who feel that way, according to a Wells Fargo survey of more than 1,600 millennials between 22 and 33 years old, and 1,500 baby boomers between 49 and 59 years old.
To try to get out from underneath it, 47% said they spend at least half of their monthly paychecks on paying off their debts.
When I read that I was absolutely astounded.
Of course the biggest debt that many young adults are facing is student loan debt. According to the Federal Reserve, there is now more than 1.2 trillion dollars of student loan debt in this country, and about 124 billion dollars of that total is more than 90 days delinquent.
What we have done to our young people is shameful. We have encouraged them to sign up for a lifetime of debt slavery before they even understand what life is all about. The following is an excerpt from my previous article entitled “Is College A Waste Of Time And Money?“…
In America today, approximately two-thirds of all college students graduate with student loan debt, and the average debt level has been steadily rising. In fact, one study found that “70 percent of the class of 2013 is graduating with college-related debt – averaging $35,200 – including federal, state and private loans, as well as debt owed to family and accumulated through credit cards.”
That would be bad enough if most of these students were getting decent jobs that enabled them to service that debt.
But unfortunately, that is often not the case. It has been estimated that about half of all recent college graduates are working jobs that do not even require a college degree.
Considering what you just read, is it a surprise that half of all college graduates in America are still financially dependent on their parents when they are two years out of college?
According to the U.S. Census Bureau, only 36 percent of all Americans under the age of 35 own a home at this point. That is the lowest level that has ever been recorded.
And we are passing on to our young people the largest single debt in all of human history. Weighing in at 17.5 trillion dollars, the U.S. national debt is a colossal behemoth. And almost all of that debt has been accumulated over the past 40 years. In fact, 40 years ago the U.S. national debt was less than half a trillion dollars.
But this is just the beginning. As the Baby Boomer “demographic tsunami” washes through our economy, we are going to be facing a wave of red ink unlike anything we have ever contemplated before.
Meanwhile, the rest of the planet is drowning in debt as well.
As I wrote about the other day, the total amount of debt in the world has risen to a new all-time record high of $223,300,000,000,000.
Our “leaders” keep acting as if these debt levels can keep growing much faster than the overall level of economic growth indefinitely.
But anyone with even a shred of common sense knows that you can’t spend more money that you bring in forever.
At some point, a day of reckoning arrives.
2008 should have been a major wake up call that resulted in massive changes. But instead, our leaders just patched up the old system and reinflated the old bubbles so that they are now even larger than they were before.
They assure us that they know exactly what they are doing and that everything will be just fine.
Unfortunately, they are dead wrong.
Today, more than 10,000 Baby Boomers will retire. This is going to happen day after day, month after month, year after year until 2030. It is the greatest demographic tsunami in the history of the United States, and we are woefully unprepared for it. We have made financial promises to the Baby Boomers worth tens of trillions of dollars that we simply are not going to be able to keep. Even if we didn’t have all of the other massive economic problems that we are currently dealing with, this retirement crisis would be enough to destroy our economy all by itself. During the first half of this century, the number of senior citizens in the United States is being projected to more than double. As a nation, we are already drowning in debt. So where in the world are we going to get the money to take care of all of these elderly people?
The Baby Boomer generation is so massive that it has fundamentally changed America with each stage that it has gone through. When the Baby Boomers were young, sales of diapers and toys absolutely skyrocketed. When they became young adults, they pioneered social changes that permanently altered our society. Much of the time, these changes were for the worse.
According to the New York Post, overall household spending peaks when we reach the age of 46. And guess what year the peak of the Baby Boom generation reached that age?…
People tend, for instance, to buy houses at about the same age — age 31 or so. Around age 53 is when people tend to buy their luxury cars — after the kids have finished college, before old age sets in. Demographics can even tell us when your household spending on potato chips is likely to peak — when the head of it is about 42.
Ultimately the size of the US economy is simply the total of what we’re all spending. Overall household spending hits a high when we’re about 46. So the peak of the Baby Boom (1961) plus 46 suggests that a high point in the US economy should be about 2007, with a long, slow decline to follow for years to come.
And according to that same article, the Congressional Budget Office is also projecting that an aging population will lead to diminished economic growth in the years ahead…
Lost in the discussion of this week’s Congressional Budget Office report (which said 2.5 million fewer Americans would be working because of Obamacare) was its prediction that aging will be a major drag on growth: “Beyond 2017,” said the report, “CBO expects that economic growth will diminish to a pace that is well below the average seen over the past several decades [due in large part to] slower growth in the labor force because of the aging of the population.”
So we have a problem. Our population is rapidly aging, and an immense amount of economic resources is going to be required to care for them all.
Unfortunately, this is happening at a time when our economy is steadily declining.
The following are some of the hard numbers about the demographic tsunami which is now beginning to overtake us…
1. Right now, there are somewhere around 40 million senior citizens in the United States. By 2050 that number is projected to skyrocket to 89 million.
2. According to the Employee Benefit Research Institute, 46 percent of all American workers have less than $10,000 saved for retirement, and 29 percent of all American workers have less than $1,000 saved for retirement.
3. One poll discovered that 26 percent of all Americans in the 46 to 64-year-old age bracket have no personal savings whatsoever.
4. According to a survey conducted by the Employee Benefit Research Institute, “60 percent of American workers said the total value of their savings and investments is less than $25,000″.
5. 67 percent of all American workers believe that they “are a little or a lot behind schedule on saving for retirement”.
6. A study conducted by Boston College’s Center for Retirement Research found that American workers are $6.6 trillion short of what they need to retire comfortably.
7. Back in 1991, half of all American workers planned to retire before they reached the age of 65. Today, that number has declined to 23 percent.
8. According to one recent survey, 70 percent of all American workers expect to continue working once they are “retired”.
9. A poll conducted by CESI Debt Solutions found that 56 percent of American retirees still had outstanding debts when they retired.
10. A study by a law professor at the University of Michigan found that Americans that are 55 years of age or older now account for 20 percent of all bankruptcies in the United States. Back in 2001, they only accounted for 12 percent of all bankruptcies.
11. Today, only 10 percent of private companies in the U.S. provide guaranteed lifelong pensions for their employees.
12. According to Northwestern University Professor John Rauh, the total amount of unfunded pension and healthcare obligations for retirees that state and local governments across the United States have accumulated is 4.4 trillion dollars.
13. Right now, the American people spend approximately 2.8 trillion dollars on health care, and it is being projected that due to our aging population health care spending will rise to an astounding 4.5 trillion dollars in 2019.
14. Incredibly, the United States spends more on health care than China, Japan, Germany, France, the U.K., Italy, Canada, Brazil, Spain and Australia combined.
15. If the U.S. health care system was a country, it would be the 6th largest economy on the entire planet.
16. When Medicare was first established, we were told that it would cost about $12 billion a year by the time 1990 rolled around. Instead, the federal government ended up spending $110 billion on the program in 1990, and the federal government spent approximately $600 billion on the program in 2013.
17. It is being projected that the number of Americans on Medicare will grow from 50.7 million in 2012 to 73.2 million in 2025.
18. At this point, Medicare is facing unfunded liabilities of more than 38 trillion dollars over the next 75 years. That comes to approximately $328,404 for every single household in the United States.
19. In 1945, there were 42 workers for every retiree receiving Social Security benefits. Today, that number has fallen to 2.5 workers, and if you eliminate all government workers, that leaves only 1.6 private sector workers for every retiree receiving Social Security benefits.
20. Right now, there are approximately 63 million Americans collecting Social Security benefits. By 2035, that number is projected to soar to an astounding 91 million.
21. Overall, the Social Security system is facing a 134 trillion dollar shortfall over the next 75 years.
22. The U.S. government is facing a total of 222 trillion dollars in unfunded liabilities during the years ahead. Social Security and Medicare make up the bulk of that.
So where are we going to get the money?
That is a very good question.
The generations following the Baby Boomers are going to have to try to figure out a way to navigate this crisis. The bright future that they were supposed to have has been destroyed by our foolishness and our reckless accumulation of debt.
But do they actually deserve a “bright future”? Perhaps they deserve to spend their years slaving away to support previous generations during their golden years. Young people today tend to be extremely greedy, self-centered and lacking in compassion. They start blogs with titles such as “Selfies With Homeless People“. Here is one example from that blog…
Of course not all young people are like that. Some are shining examples of what young Americans should be.
Unfortunately, those that are on the right path are a relatively small minority.
In the end, it is our choices that define us, and ultimately America may get exactly what it deserves.
Did you know that the U.S. national debt has increased by more than a trillion dollars in just over 12 months? On September 30th, 2012 the U.S. national debt was sitting at $16,066,241,407,385.89. Today, it is up to $17,075,590,107,963.57. These numbers come directly from official U.S. government websites and can easily be verified. For a long time the national debt was stuck at just less than 16.7 trillion dollars because of the debt ceiling fight, but now that the debt ceiling crisis has been delayed for a few months the national debt is soaring once again. In fact, just one day after the deal in Congress was reached, the U.S. national debt rose by an astounding 328 billion dollars. In the blink of an eye we shattered the 17 trillion dollar mark with no end in sight. We are stealing about $100,000,000 from our children and our grandchildren every single hour of every single day. This goes on 24 hours a day, month after month, year after year without any interruption.
Over the past five years, the U.S. government has been on the greatest debt binge in history. Unfortunately, most Americans don’t realize just how bad things have gotten because the true budget deficit numbers are not reported on the news. The following is where the U.S. national debt has been on September 30th during the five years previous to this one…
09/30/2009: $ 11,909,829,003,511.75
The U.S. national debt is now 37 times larger than it was 40 years ago, and we are on pace to accumulate more new debt under the 8 years of the Obama administration than we did under all of the other presidents in U.S. history combined.
Of course all of the blame can’t be placed at the feet of Obama. During the last two elections the American people have given the Republicans a solid majority in the U.S. House of Representatives, and the government cannot spent a single penny without their approval.
Unfortunately, House Speaker John Boehner and the Republicans that are allied with him have repeatedly turned their backs on the people that gave the Republicans the majority and they have authorized trillions of dollars of new debt which will be passed on to future generations of Americans…
Since John Boehner became speaker of the U.S. House of Representatives on Jan. 5, 2011, the debt of the federal government has increased by $3,064,063,380,067.72. That is more than the total federal debt accumulated in the first 200 years of the U.S. Congress–during the terms of the first 48 speakers of the House.
In fact, if all of that debt had been given directly to the American people, every household in America would have been able to buy a new truck…
The $26,722 in new debt per household accumulated under Speaker Boehner would have been more than enough to buy every household in the United States a minivan or pickup truck–or to pay three years of in-state tuition (not counting room and board) at the typical state college.
Sometimes we forget just how much money a trillion dollars is. In a previous article, I included some illustrations that I believe are helpful…
-If you were alive when Jesus Christ was born and you spent one million dollars every single day since that point, you still would not have spent one trillion dollars by now.
-If right this moment you went out and started spending one dollar every single second, it would take you more than 31,000 years to spend one trillion dollars.
We are doing the exact same thing that Greece did, only on a much larger scale. What we are doing is not even close to sustainable, and it will inevitably end very, very badly. The following is what Michael Pento, the president of Pento Portfolio Strategies, told RT the other day…
“That $17 trillion everybody says its 107 percent of GDP, that’s true. But who really cares about the percentage of GDP? It’s the percentage of the debt as a percentage of the revenue – its 700 percent of our revenue. Deficits are growing at 30 percent of our revenue every year added to the deficits we have already. So it’s unsustainable. What is going to happen eventually – a currency and bond market collapse! And it’s not going out 20 years, as I also heard someone mention. In 2016 we’ll probably be spending 40 percent of all of our revenue just to service our debt. That is what the interest payments will equal.”
The U.S. debt situation is so bad that even the Prime Minister of Cyprus is scolding us…
“The U.S. has been fortunate in the sense that it’s like a bank, it prints the money that other people accept. So you can live beyond your means over an extended period of time without being punished by the market.”
Unfortunately, we will not be able to live way beyond our means forever. Reality is going to catch up with us at some point.
Right now, the rest of the world is lending us giant mountains of money at interest rates that are far below the real rate of inflation. This is extremely irrational behavior, and this state of affairs will probably not last too much longer.
But if interest rates go up, it will absolutely cripple the U.S. economy. For much more on this, please see this article.
And what would make things much, much worse is if the rest of the globe starts moving away from using the U.S. dollar. At the moment, the U.S. dollar is the de facto reserve currency of the planet and this creates a tremendous demand for U.S. dollars and U.S. debt.
If that changes, it will be absolutely catastrophic for the United States, and unfortunately there are already lots of signs that this is already starting to happen. I wrote about this in my recent article entitled “9 Signs That China Is Making A Move Against The U.S. Dollar“.
But don’t just take my word for it. Just a couple of days ago a major U.K. newspaper came to the same conclusions…
China has overtaken the US as the world’s largest oil importer and goods trading nation. Over the next five years, it will surpass the rest of the world combined in its consumption of base metals.
Given the scale of the country’s consumption of fossil fuels and raw materials, it is only a matter of time before the renminbi replaces the dollar as the primary currency for trading commodities and resources such as crude oil and iron ore.
The debt ceiling farce in Washington and China’s growing reluctance to continue underwriting the US economy by buying up its bonds and adding to America’s near $17 trillion (£10.5 trillion) debt mountain suggests that this tectonic shift in the global trade system could be just around the corner.
So what will happen when the rest of the world decides that they don’t need to use our dollars or buy our debt any longer?
At that point the consequences of decades of incredibly foolish decisions will result in an avalanche of economic pain that the American people are not prepared for.
Earlier today, I came across a photograph that perfectly captures what America is heading for. The following photo of Mt. Rushmore crying has not been photoshopped. It was taken by Megan Ahrens and it was posted on the Tea Party Command Center. If George Washington was alive today, this is probably exactly how he would feel about the nation that he helped establish…
There is a reason why every fiat currency in the history of the world has eventually failed. At some point, those issuing fiat currencies always find themselves giving in to the temptation to wildly print more money. Sometimes, the motivation for doing this is good. When an economy is really struggling, those that have been entrusted with the management of that economy can easily fall for the lie that things would be better if people just had “more money”. Today, the Federal Reserve finds itself faced with a scenario that is very similar to what the Weimar Republic was facing nearly 100 years ago. Like the Weimar Republic, the U.S. economy is also struggling and like the Weimar Republic, the U.S. government is absolutely drowning in debt. Unfortunately, the Federal Reserve has decided to adopt the same solution that the Weimar Republic chose. The Federal Reserve is recklessly printing money out of thin air, and in the short-term some positive things have come out of it. But quantitative easing worked for the Weimar Republic for a little while too. At first, more money caused economic activity to increase and unemployment was low. But all of that money printing destroyed faith in German currency and in the German financial system and ultimately Germany experienced an economic meltdown that the world is still talking about today. This is the path that the Federal Reserve is taking America down, but most Americans have absolutely no idea what is happening.
It is really easy to start printing money, but it is incredibly hard to stop. Like any addict, the Fed is promising that they can quit at any time, but this month they refused to even start tapering their money printing a little bit. The behavior of the Fed is so shameful that even CNBC is comparing it to a drug addict at this point…
The danger with addictions is they tend to become increasingly compulsive. That might be one moral of this week’s events.
A few days ago, expectations were sky-high that the Federal Reserve was about to reduce its current $85 billion monthly bond purchases. But then the Fed blinked, partly because it is worried that markets have already over-reacted to the mere thought of a policy shift.
Faced with a choice of curbing the addiction or providing more hits of the QE drug, in other words, it chose the latter.
So why won’t the Fed cut back on the reckless money printing?
Well, as Peter Schiff recently noted, Fed officials seem to be convinced that any “tapering” could result in the bursting of the massive financial bubbles that they have created…
The Fed understands, as the market seems not to, that the current “recovery” could not survive without continuation of massive monetary stimulus. Mainstream economists have mistaken the symptoms of the Fed’s monetary expansion, most notably rising stock and real estate prices, as signs of real and sustainable growth. But the current asset price bubbles have nothing to do with the real economy. To the contrary, they are setting up for a painful correction that will likely be worse than the one we experienced five years ago.
As I have written about previously, the Federal Reserve is usually very careful not to do anything which will hurt the short-term interests of the financial markets and the big banks.
But at this point the Fed is caught in a trap. If it continues to pump, the financial bubbles that it has created will get even worse. If it stops, those bubbles will burst. But as Doug Kass noted recently, it is inevitable that these financial bubbles will burst at some point one way or another…
“Getting in was easy. Getting out—not so much. The Fed is trapped and can’t end tapering or else the bond and stock markets will blow up. The longer this continues the bigger the inevitable burst.”
In essence, we can have disaster now or disaster later.
But most Americans don’t care much about what is happening on Wall Street. They just want economic conditions to get better for them and for those around them. And to this day, the mainstream media continues to sell quantitative easing to the American people as an “economic stimulus” program by the Federal Reserve.
So has quantitative easing actually been good for the U.S. economy?
For example, while the Fed has been recklessly printing money out of thin air, household incomes have actually been going down for five years in a row…
What about employment?
Don’t more Americans have jobs now?
Actually, that is not the case at all. Posted below is a chart that shows how the percentage of working age Americans with a job has changed since the year 2000. As you can see, the employment to population ratio fell from about 63 percent before the last recession down to underneath 59 percent at the end of 2009 and it has stayed there ever since…
So where is the “employment recovery”?
Can you point it out to me? Because I have been staring at this chart for a long time and I still can’t find it.
So if quantitative easing has not been good for average Americans, who has it been good for?
The wealthy, of course.
Just check out what billionaire hedge fund manager Stanley Druckenmiller told CNBC about quantitative easing the other day…
“This is fantastic for every rich person,” he said Thursday, a day after the Fed’s stunning decision to delay tightening its monetary policy. “This is the biggest redistribution of wealth from the middle class and the poor to the rich ever.”
“Who owns assets—the rich, the billionaires. You think Warren Buffett hates this stuff? You think I hate this stuff? I had a very good day yesterday.”
Druckenmiller, whose net worth is estimated at more than $2 billion, said that the implication of the Fed’s policy is that the rich will spend their wealth and create jobs—essentially betting on “trickle-down economics.”
“I mean, maybe this trickle-down monetary policy that gives money to billionaires and hopefully we go spend it is going to work,” he said. “But it hasn’t worked for five years.”
Sadly, Druckenmiller is exactly correct.
Since the end of the last recession, the Dow has been on an unprecedented tear…
Of course these stock prices have nothing to do with economic reality at this point, but for the moment those that are making giant piles of cash on Wall Street don’t really care.
Sadly, what very few people seem to understand is that what the Fed is doing is going to absolutely destroy confidence in our currency and in our financial system in the long-term. Yeah, many investors have been raking in huge gobs of cash right now, but in the long run this is going to be bad for everybody.
We have now entered a money printing spiral from which there is no easy exit. According to Graham Summers, the Fed has “crossed the Rubicon” and we are now “in the End Game”…
If tapering even $10-15 billion per month from $85 billion month QE programs would damage the economy, then we’re all up you know what creek without a paddle.
Put it this way… here we are, five years after 2008, and the Fed is stating point blank that the economy would absolutely collapse if it spent any less than $85 billion per month. This admission has proven just how long ago we crossed the Rubicon. We’re already in the End Game. Period.
Most Americans don’t really understand what quantitative easing is, and most don’t really try to understand it because “quantitative easing” sounds very complicated.
But it really isn’t that complicated.
The Federal Reserve is creating gigantic mountains of money out of thin air every month, and the Fed is using all of that newly created money to buy government debt and mortgage-backed securities. Over the past several years, the value of the financial securities that the Fed has accumulated is greater than the total amount of publicly held debt that the U.S. government accumulated from the presidency of George Washington though the end of the presidency of Bill Clinton…
The same day that the Federal Reserve’s Federal Open Market Committee announced last week that the Fed would continue to buy $40 billion in mortgage-backed securities (MBS) and $45 billion in U.S. Treasury securities per month, the Fed also released its latest weekly accounting sheet indicating that it had already accumulated more Treasuries and MBS than the total value of the publicly held U.S. government debt amassed by all U.S. presidents from George Washington though Bill Clinton.
To say that this is a desperate move by the Fed would be a massive understatement. We have never seen anything like this before in U.S. history.
And look at what all of this wild money printing has done to our money supply…
In many ways, the chart above is reminiscent of what the Weimar Republic did during the early years of their hyperinflationary spiral…
Just like the Weimar Republic, our money supply is beginning to grow at an exponential pace.
So far, complete and total disaster has not struck, so most people think that everything must be okay.
But it is not.
In a previous article, I included an outstanding illustration from Simon Black that I think would be extremely helpful here as well…
Let’s say you’re at a party in a small apartment that’s about 500 square feet in size. Then suddenly, at 11pm, a pipe bursts, starting a trickle into the living room.
Aside from the petty annoyance, would you feel like you were in danger? Probably not. This is a linear problem– the rate at which the water is leaking is more or less constant, so the guests can keep partying through the night without worry.
But let’s assume that it’s an exponential leak.
At first, there’s just one drop of water. But each minute, the rate doubles. So by 11:01pm, there’s 2 drops. By 11:02, 4 drops. And so forth.
By 11:27pm, there’s only six inches of standing water. Yet by 11:31pm, just four minutes later, the entire room is under nearly 8 feet of water. And the party’s over.
For nearly half an hour, it all seemed safe and manageable. People had all the time in the world to leave, right up until the bitter end. 11:27, 11:28, 11:29. Then it all went from benign to deadly in a matter of minutes.
Are you starting to get the picture?
What the Federal Reserve is doing is systematically destroying the U.S. dollar, and the rest of the world is starting to take notice.
Why should they continue to lend us trillions of dollars at super low interest rates when we are exploding the size of our money supply?
It is simply not rational for other nations to continue to lend us money at less than 3 percent a year when the real rate of inflation is somewhere around 8 to 10 percent and reckless money printing by the Fed threatens to greatly accelerate the devaluation of our currency.
When QE first started, the added demand for U.S. government debt by the Federal Reserve helped drive long-term interest rates down to record low levels.
But in the long-term, the only rational response by all other buyers of U.S. government debt will be to demand a much higher rate of return because of the rapid devaluation of U.S. currency.
So QE drives down long-term interest rates in the short-term, but in the long-term the only rational direction for long-term interest rates to go is much, much higher and in recent months we have already started to see this.
The only way that the Fed can stop this is by increasing the amount of quantitative easing.
Right now, the Fed is buying roughly half a trillion dollars worth of U.S. Treasuries a year, but the U.S. government issues close to a trillion dollars of new debt and must roll over about 3 trillion dollars of existing debt each year.
If the Federal Reserve eventually decides to buy all of the debt, then interest rates won’t be a major problem. But if the Fed goes that far our financial system would be regarded as a total joke by the remainder of the globe and we would reach hyperinflation much more rapidly.
If the Federal Reserve stops buying debt completely, the financial bubbles that they have created will burst and we will rapidly be facing a financial crisis even worse than what we experienced back in 2008.
But almost whatever the Fed does at this point, the rest of the world will probably continue to start to move away from the U.S. dollar as the de facto reserve currency of the planet. This move is just beginning, but it is going to have major implications for us in the years ahead. This is a topic that I will be addressing extensively in future articles.
Most of the debate about quantitative easing has focused on the impact that it will have on the U.S. economy in the short-term.
That is a huge mistake.
Of much greatest importance is what quantitative easing means for the long-term.
The rest of the world is losing confidence in the U.S. dollar and in U.S. debt because of the reckless money printing that the Fed has been doing.
But we desperately need the rest of the world to use “the petrodollar” and to lend us the money that we need to pay our bills.
As the rest of the planet starts to reject the U.S. dollar and starts to demand a much higher rate of return to lend us money, the U.S. economy is going to experience a tremendous amount of pain.
It is hard to put into words how foolish the Federal Reserve has been. The Fed is systematically destroying what was once the strongest financial system in the world, and in the end we are all going to pay the price.
Never before has the world faced such a serious debt crisis. Yes, in the past there have certainly been nations that have gotten into trouble with debt, but we have never had a situation where virtually all of the major powers around the globe were all drowning in debt at the same time. And what makes this crisis even more unprecedented is that everyone on the planet is using fiat currency that is backed up by nothing. It is all just a bunch of paper and data points that people have faith in. Right now, confidence in this system is being shaken as debt levels skyrocket to extremely dangerous levels. Many are openly wondering how much longer this can possibly go on.
Just consider what is going on over in Europe right now. Even the countries that have supposedly “tried austerity” continue to rack up debt at a mind blowing pace. New numbers that have just been released show that government debt to GDP ratios for some of the most financially troubled nations in Europe are absolutely soaring…
- Euroarea: 92.2%, up from 88.2% a year ago
- Greece: 160.5%, up from 136.5% a year ago
- Italy: 130.3%; up from 123.8% a year ago
- Portugal: 127.2%, up from 112.3% a year ago
- Ireland: 125.1%, up from 106.8% a year ago
- Spain: 88.2%, up from 73.0% a year ago
- Netherlands: 72.0%, up from 66.7% a year ago
Meanwhile, the debt to GDP ratio in Japan is now well past the 200% mark and continues to march upward with no apparent end in sight. The following is from a recent MSN article…
In Japan, the good news is that the nation’s budget for the fiscal year, which started on April 1, will see the government raise a higher percentage of spending from tax revenue than at any other time in the past four years. The bad news is that the government will still cover 46.3% of its spending from borrowing. The Organisation for Economic Cooperation and Development estimates that Japan’s budget deficit for 2013 amounted to 10.3% of gross domestic product.
In China, the big problem is the absolutely stunning growth of private domestic debt. According to a recent World Bank report, the total amount of credit in China has risen from 9 trillion dollars in 2008 to 23 trillion dollars today.
That increase is roughly equivalent to the entire U.S. commercial banking system.
According to financial journalist Ambrose Evans-Pritchard, the ratio of private domestic debt to GDP in China is now wildly out of control…
The 160pc debt ratio for China is based on a conservative measure of credit. Fitch says it is 200pc if you count all offshore vehicles, trusts, letters of credit etc.
This morning China Securities Journal – an arm of the regulators – said it may really be 221pc.
Well, what about the United States?
As I noted the other day, our ratio of federal government debt to GDP has shot up like a rocket since 2008…
At this point, the U.S. already has more government debt per capita than Greece, Portugal, Italy, Ireland or Spain. It is a giant mess, and yet our politicians continue to recklessly spend more money.
And of course state and local governments all over the nation are drowning in debt too. The bankruptcy of Detroit is forcing people to come to grips with how bad things really are. Sadly, as Meredith Whitney explained the other day, there are going to be a lot more municipal bankruptcies coming down the pipeline…
As jarring as the reality may be to accept, Detroit’s decision last week to declare bankruptcy should not be regarded as a one-off in the US municipal market – which is what the bond-peddlers are now telling their clients. The aftershocks of the largest municipal bankruptcy in US history will be staggering, and Detroit will set important precedents.
Municipal bankruptcies have historically been rare for a number of reasons – including the states’ determination to preserve their credit ratings, their access to cheap funding and the stigma of bankruptcy. But, these days, things are very different in the world of municipal finance.
At the root of the problem is the incentive system that elected officials used to face. For decades, across the US, local leaders ran up tabs for future taxpayers; they promised pensions and other benefits for public employees that have strong legal protection. That has been a great source of patronage for elected officials: they can promise all sorts of future perks to loyal supporters (state and local workers) with very little accountability on the delivery of those promises.
And of course the overall debt level in the United States continues to grow much, much faster than our overall economy is growing.
The greatest debt bubble in the history of the planet is still expanding.
How long will it be before it bursts?
That is a very good question. For now, our “leaders” appear to just be trying to keep the party going for as long as possible. They know that if they suddenly change course hard times will hit almost immediately. For example, just check out what Federal Reserve Chairman Ben Bernanke told Congress last week…
With the economy still facing risks, especially from government spending cuts, Bernanke told a congressional panel on Wednesday the Fed is still planning to trim its quantitative easing stimulus, if growth continues at a steady pace.
But expectations that the Fed was poised to start tightening monetary policy, which have sent interest rates jumping and sparked turmoil in global markets, were unwarranted, he stressed.
“I don’t think the Fed can get interest rates up very much, because the economy is weak, inflation rates are low,” Bernanke told the House Financial Services Committee.
“If we were to tighten policy, the economy would tank.”
Nobody wants the economy to “tank”, but the truth is that the more debt that we run up, the larger our long-term economic problems become.
And a growing percentage of Americans realize that something has seriously gone wrong. According to a recent Pew Research survey, 44% of all Americans believe that an economic recovery is still “a long way off“.
Unfortunately, the reality of the matter is that we are already living in the “economic recovery”.
This is about as good as it is going to get.
The truth is that the real storm has not even hit yet. When the debt bubble finally bursts, we are going to see economic chaos in this country unlike anything that we have ever experienced before.
I hope that you are getting ready.