14 Reasons Why The U.S. Economy’s Bubble Of False Prosperity May Be About To Burst

Bubbles - Public DomainDid you know that a major event just happened in the financial markets that we have not seen since the financial crisis of 2008?  If you rely on the mainstream media for your news, you probably didn’t even hear about it.  Just prior to the last stock market crash, a massive amount of money was pulled out of junk bonds.  Now it is happening again.  In fact, as you will read about below, the market for high yield bonds just experienced “a 6-sigma event”.  But this is not the only indication that the U.S. economy could be on the verge of very hard times.  Retail sales are extremely disappointing, mortgage applications are at a 14 year low and growing geopolitical storms around the world have investors spooked.  For a long time now, we have been enjoying a period of relative economic stability even though our underlying economic fundamentals continue to get even worse.  Unfortunately, there are now a bunch of signs that this period of relative stability is about to end.  The following are 14 reasons why the U.S. economy’s bubble of false prosperity may be about to burst…

#1 The U.S. junk bond market just experienced “a 6-sigma event” earlier this month.  In other words, it is an event that is only supposed to have a chance of 1 in 500 million of happening.  Billions of dollars are being pulled out of junk bonds right now, and that has some analysts wondering if a financial crash is right around the corner.

#2 The last time that we saw a junk bond rout of this magnitude was back during the financial crash of 2008.  In fact, as the Telegraph recently explained, bonds usually crash before stocks do…

The credit market usually leads the equity market during turning points, as happened when credit markets cracked first in 2008.

Will the same thing happen this time around?

#3 Retail sales have missed expectations for three months in a row and we just had the worst reading since January.

#4 Things have gotten so bad that even Wal-Mart is really struggling.  Same-store sales at Wal-Mart have declined for five quarters in a row and the outlook for the future is not particularly promising.

#5 The four week moving average for mortgage applications just hit a 14 year low.  It is now even lower than it was during the worst moments of the financial crisis of 2008.

#6 The tech industry is supposed to be booming, but mass layoffs in the tech industry are actually 68 percent ahead of last year’s pace.

#7 According to the Federal Reserve, 40 percent of all households in the United States are currently showing signs of financial stress.

#8 The U.S. homeownership rate has fallen to the lowest level since 1995.

#9 According to one survey, 76 percent of Americans do not have enough money saved to cover six months of expenses.

#10 Rumblings of a stock market correction have become so loud that even the mainstream media is reporting on it.  For example, just check out this CNN headline from earlier this month: “Is a correction near? Wall Street on edge“.

#11 The civil war in Iraq is spiraling out of control, and Barack Obama has just announced that he is going to send 130 troops to the country in a “humanitarian” capacity.  Iraq is the 7th largest oil producing nation on the entire planet, and if the flow of oil is disrupted that could have serious consequences.

#12 As a result of the conflict in Ukraine, the United States, Canada and the European Union have slapped sanctions on Russia.  In return, Russia has slapped sanctions on them.  Will this slowdown in global trade significantly harm the U.S. economy?

#13 The three day cease-fire between Hamas and Israel is about to end, and Hamas officials are saying that they are preparing for a “long battle“.  If a resolution is not found soon, we could potentially see a full-blown regional war erupt in the Middle East.

#14 The number of Ebola deaths continues to grow at an exponential rate, and if the virus starts spreading inside the United States it has the potential to pretty much shut down our entire economy.

Meanwhile, things look even more dire in much of the rest of the globe.

For example, the economic slowdown has gotten so bad in some nations over in Europe that they are actually experiencing deflation

Portugal has crashed into deep deflation and Italy’s inflation rate has fallen to zero as the eurozone flirts with recession, automatically pushing these countries further towards a debt compound spiral.

The slide comes amid signs of a deepening slowdown in the eurozone core, with even Germany flirting with possible recession. Germany’s ZEW index of investor confidence plunged from 27.1 to 8.6 in July, the sharpest fall since June 2012, during the European sovereign debt crisis. “The European Central Bank has to act now,” said Andrew Roberts, credit chief at RBS.

And in Japan, GDP just contracted at a 6.8 percent annual rate during the second quarter…

Japan’s economy suffered its worst contraction since 2011 in the second quarter as consumer spending on big items slumped in the wake of a sales tax rise.

Gross domestic product shrunk by an annualized 6.8% in the three months ended June, Japan’s Cabinet Office said Wednesday. The result was actually better than the 7% contraction expected by economists.

On a quarterly basis, Japan’s GDP dropped by 1.7% as business and housing investment declined. Japan’s economy last suffered a hit of this magnitude after the 2011 tsunami and nuclear disaster.

There is no way that this bubble of false prosperity was going to last forever.  It was never real to begin with.  It was just based on a pyramid of debt and false promises.  In fact, the condition of the global financial system is now far worse than it was just prior to the financial crisis of 2008.

Sadly, most people do not understand these things.  Most people just assume that our leaders have fixed whatever caused the problems last time.  And when the next crisis arrives, they will be totally blindsided by it.

12 Clear Signals That The U.S. Economy Is About To Really Slow Down

A member of the U.S. Navy aboard the Arleigh Burke-class guided-missile destroyer USS James E. WilliamsA lot of things that have not happened since the last recession are starting to happen again.  As you read the list below, you will notice that the year “2009” comes up again and again.  There is a reason for that.  Many of the same patterns that we witnessed during the last major economic downturn are starting to repeat themselves.  In fact, many of the things that are happening right now have not happened in quite a few years.  For example, manufacturing activity in the U.S. has contracted for the first time in four years.  The inventory to sales ratio is the highest that it has been in four years.  Average hourly compensation just experienced the largest decline that we have seen in four years.  We also just witnessed the largest decline in the number of mortgage applications that we have seen in four years.  After everything that Barack Obama, the U.S. Congress and the Federal Reserve have tried to do, there has been no real economic recovery and now the U.S. economy is suddenly behaving as if it is 2009 all over again.  A whole host of recent surveys indicate that the American people are starting to feel a bit better about the economy, but the underlying economic numbers tell an entirely different story.  The following are 12 clear signals that the U.S. economy is about to really slow down…

#1 The average interest rate on a 30 year mortgage has risen above 4 percent for the first time in more than a year.

#2 The decline in the number of mortgage applications last week was the largest drop that we have seen since June 2009.

#3 Mark Hanson is reporting that “mass layoffs” have occurred at three large mortgage institutions…

This morning I was made aware that three large private mortgage bankers I follow closely for trends in mortgage finance ALL had mass layoffs last Friday and yesterday to the tune of 25% to 50% of their operations staff (intake, processing, underwriting, document drawing, funding, post-closing).

This obviously means that my reports of refi apps being down 65% to 90% in the past 3 weeks are far more accurate than the lagging MBA index, which is likely on its’ way to print multi-year lows in the next month.

#4 It was just announced that average hourly compensation in the United States experienced its largest drop since 2009 during the first quarter of 2013.

#5 As I wrote about the other day, the Institute for Supply Management manufacturing index declined to 49.0 in May.  Any reading below 50 indicates contraction.  That was the first contraction in manufacturing activity in the U.S. that we have seen since 2009.

#6 The inventory to sales ratio has hit a level not seen since 2009.  That means that there is a lot of inventory sitting out there that people are not buying.

#7 According to the Commerce Department, the demand for computers dropped by a stunning 9 percent during the month of April.

#8 As I noted in a previous article, corporate revenues are falling at Wal-Mart, Proctor and Gamble, Starbucks, AT&T, Safeway, American Express and IBM.

#9 Job growth at small businesses is now at about half the level it was at the beginning of the year.

#10 The stock market is starting to understand that all of these numbers indicate that the U.S. economy is really starting to slow down.  The Dow was down 216.95 points on Wednesday, and it dropped below 15,000 for the first time since May 6th.

#11 The S&P 500 has now fallen more than 4 percent since May 22nd.  Is this the beginning of a market “correction”, or is this something much bigger than that?

#12 Japanese stocks are now down about 17 percent from the peak of May 22nd.  Japan has the third largest economy on the planet and it is one of the most important trading partners for the United States.  A major financial crisis in Japan would have very serious implications for the U.S. economy.

If we were going to have an “economic recovery”, it should have happened in 2010, 2011 and 2012.  Unfortunately, as a recent Los Angeles Times article detailed, an economic recovery never materialized…

Real GDP growth — the value of goods and services produced after adjusting for inflation — is 15.4% below the 3% growth trend of past recoveries, wrote Edward Leamer, director of the UCLA Anderson Forecast. More robust growth will be necessary to bring this recovery in line with previous ones.

“It’s not a recovery,” he wrote. “It’s not even normal growth. It’s bad.”

Now we are rapidly approaching another major economic downturn.

But poverty in America has continued to experience explosive growth since the end of the last recession and dependence on the federal government is already at an all-time high.

How much worse can things get?

Sadly, they are going to get much, much worse.

What the U.S. economy is experiencing right now is not just a cyclical downturn.  Rather, we are in the midst of a long-term economic decline that is the result of decades of very foolish decisions by our leaders.

It is imperative that we get the American people educated about what is happening.  If people do not understand what is happening, they are not going to get prepared for the hard years that are coming.

If you have a family member or a friend that does not understand the long-term economic collapse that is unfolding all around us, please show them my article entitled “40 Statistics About The Fall Of The U.S. Economy That Are Almost Too Crazy To Believe“.  It goes a good job of pointing out many of the reasons why we are heading for complete and total economic disaster.

And the point is not to fill people with fear.  Rather, there is a lot of hope in understanding what is happening and in getting prepared.  As we have seen over in Europe, those that get blindsided by economic problems often become totally consumed with despair.  Suicide rates have soared in economically-troubled nations such as Greece, Spain and Italy.

And the same thing is going to happen in the United States too.  In fact, the suicide rate in the United States has already been rising according to the New York Times

From 1999 to 2010, the suicide rate among Americans ages 35 to 64 rose by nearly 30 percent, to 17.6 deaths per 100,000 people, up from 13.7.

In fact, today more Americans are killed by suicide than by car accidents.

Isn’t that crazy?

Unfortunately, this is only just the beginning.  When the system fails, millions of Americans are going to be convinced that their lives are over.  A lot of them are going to do some very stupid things.  We want to try to prevent as much of that as possible.

Thanks to decades of incredibly foolish decisions by our leaders, an economic collapse is inevitable.  This is especially true considering the fact that our leaders in Washington D.C. and elsewhere will not even consider many of the potential solutions which could help start turning our economic problems around.

So since there are no solutions on the horizon, we need to explain to people what is happening and help them to get as prepared as possible.

The years ahead are going to be very hard, but we have a choice as to how we will respond to the challenges in front of us.

We can face those challenges with fear, or we can face them with courage.

Choose wisely.

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