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Why Donald Trump Needs The Next Recession To Start As Quickly As Possible

Donald Trump Accepts The Nomination - Public DomainA new recession is coming, and Donald Trump needs it to begin sooner rather than later.  As I explained last week, most American voters tend to care about their pocketbooks more than anything else.  If the next recession were to officially start during the first quarter of 2017, it would be very easy for Trump to blame it on Obama, and then he could portray himself as the one that pulled the U.S. economy out of recession in time for the 2020 election.  But if the next recession does not begin until 2018 or 2019, everybody is going to blame it on Trump even if it is not his fault.  In politics, who gets the blame for whatever goes wrong is often the most important thing, and if Trump wants to avoid blame for the next recession he needs for it to start as quickly as possible.

For most of 2016, the mainstream media was warning that a new recession was probably coming no matter who won the election.  For one example, just check out this Bloomberg article.

And for once, the mainstream media was precisely correct.  Barack Obama left us with an enormous economic mess, and it would take an economic miracle of unprecedented proportions to keep the U.S. economy from going into a recession at this point.

During the Obama years, the U.S. went on a debt binge unlike anything we have ever seen before.

The U.S. national debt almost doubled.  During Obama’s time in the White House, it increased from 10.6 trillion dollars to nearly 20 trillion dollars, and that means that over 9 trillion dollars of future consumption was brought into the present.  That incredible boost to spending would have shot U.S. economic growth into the stratosphere during normal times, but because we were struggling so much all we got out of it was eight years of economic stagnation.

In fact, Barack Obama was the only president in modern American history never to have a single year when the U.S. economy grew by at least 3 percent, and he had two terms to try to accomplish that goal.

And remember, Obama also had the benefit of doctored economic numbers.  John Williams of shadowstats.com tracks what the figures would look like if honest numbers were being used, and according to his calculations the U.S. economy has actually continually been in a recession since 2005.

In addition to government debt, other forms of debt are way out of control as well.  The total amount of consumer debt in the United States has now hit 12 trillion dollars, and corporate debt has approximately doubled since the last recession.

When levels of debt grow much, much faster than the overall economy, it is inevitable that a crash will come.

If you look back throughout history, I don’t know if you can find a single example where debt has grown this quickly and a crash has not happened afterwards.

By some miracle if we are able to avoid a major economic downturn this time, we will literally be defying the laws of economics.

The employment crisis also threatens to get a lot worse in the months ahead.  The mainstream media keeps trying to tell us that we are almost at “full employment”, but the truth is that more than 100 million Americans do not have a job right now.

Yes, there are a few areas of the country where jobs appear to be plentiful, but there are many more areas where they are not.

For example, you will never, ever be able to convince 23-year-old Tyler Moore that the job market is good

Tyler Moore’s late-December drive to Louisville, Ky., was one of desperation. He was headed four hours west on Interstate 64 to interview for a job. Even if he landed the position, filling his gas tank had left him with $8 to his name. He would have to sleep at a friend’s place until he could earn enough to pay rent.

The 23-year-old had run out of options. He’d applied for dozens of jobs within an hour and a half of his hometown of Lovely, once a coal-mining stronghold. Instead of opportunities, he had found waiting lists.

“Minimum-wage jobs, fast-food restaurants, Wal-Mart, anything like that, a lot of them has already been took,” he says in an Appalachian drawl, explaining that the backlog just to interview was as long as a year. “There are no jobs.”

If the U.S. economy is in “good shape”, then why can’t people like Moore find a job?

Yes, there is a tremendous amount of optimism in the financial markets right now and the stock market has been soaring.

But the exact same things were true in 2007, and we remember how that turned out.

There is no possible way that the S&P 500 can continue to generate an 18% annual return without corresponding economic growth.  The following comes from David Stockman

Altogether the S&P 500 now stands at 3.4X its post-crisis low, having generated an 18% annual return (including dividends) for nearly eight years running.

To be sure, in an honest free market that very fact would be a flashing red light, warning that exceptionally high gains over an extended period necessitate a regression to the mean in the period ahead.

A lot of people get caught up in trying to predict exactly when the stock market will crash, but what everybody should be able to agree on is that it will crash.

There is no possible way that stocks can stay at such ridiculously overpriced levels indefinitely.

Throughout history, stocks have always moved back in the direction of the long-term averages, and this time will be no exception.

And just like last time, the beginning of a new recession will likely be accompanied by a major financial correction.

In recent articles, I have been highlighting some of the reasons why it appears that a new recession is imminent…

-Federal tax receipts have gone negative for the first time since the last recession.

-Job growth at S&P 500 companies has gone negative for the very first time since the last recession.

-The U.S. trade deficit in 2016 was the largest in four years.

-Lending standards have tightened up for medium and large sized firms for six quarters in a row.

-Lending standard are also tightening up for consumers.

-We just saw the largest percentage decline in average weekly hours since the recession of 2008.

-Gross private domestic investment is down.

-Consumer bankruptcies are rising.

-Commercial bankruptcies are rising.

All of this is not necessarily bad news for Trump.

A horrible recession started during the early years of Ronald Reagan’s presidency, but the U.S. economy turned around later in his first term and that momentum helped propel him to an easy victory in 1984.

Similarly, Trump could actually take advantage of the coming economic downturn as long as he is able to pin all of the blame for it on the previous administration.

If there is one thing that is true about U.S. voters, it is the fact that they tend to care about their own economic well-being more than anything else.

If you doubt this, just check out the results of a recent Fox News poll

The latest Fox News Poll also asks, what defines the American Dream today? At the top, according to the national survey released Wednesday, is “retiring comfortably.” Some 88 percent feel that is extremely or very important to realizing the dream.

Next, 76 percent say “having a successful career” is important. That’s followed by “raising a family” (74 percent) and “making a valuable contribution” to their community (74 percent).

“Owning a home” is seen as a big part of achieving the dream for nearly 7 in 10 (69 percent). About 6 in 10 say “graduating college” (61 percent) and “being better off” than their parents (57 percent).

To most Americans, being “successful in life” comes down to how much money they have.

That should not be true, but it is.

And this is ultimately what Trump will be judged on.

If the economy is improving by 2020, voters will tend to evaluate him favorably.  But if the economy is faltering during the next election season, it will be more difficult for him to get a second term.

So what Trump and all those that support Trump should want is for the coming recession to begin and end as quickly as possible.

However, there is also the possibility that the next recession may be a particularly bad one.  Because we are in the midst of the biggest debt bubble in human history, any major downturn could ultimately spiral completely out of control.  In other words, we may be facing the kind of crisis from which we never quite recover.

One expert that is warning about such a scenario is legendary investor Jim Rogers

…get prepared because we’re going to have the worst economic problems we’ve had in your lifetime or my lifetime and when that happens a lot of people are going to disappear.

In 2008 Bear Stearns disappeared, Bear Stearns had been around over 90 years. Lehman Brothers disappeared. Lehman Brothers had been around over 150 years. A long, long time, a long glorious history they’ve been through wars, depression, civil war they’ve been through everything and yet they disappear.

So the next time around it’s going to be worse than anything we’ve seen and a lot of institutions, people, companies even countries, certainly governments and maybe even countries are going to disappear. I hope you get very worried.

when you start having bear markets as you I’m sure well know one bad thing happens and another bad thing happens and these things snowball just like in bull markets good news comes out then more good news comes out the next thing you know you’re five or six or seven years into a bull market.

Well bear markets do the same thing and so we have a lot of bad news on the horizon. I haven’t even gotten to war. I haven’t even gotten to trade war or anything like that but you know things do go wrong.

If it is as bad as Rogers is suggesting, it wouldn’t be too long before conditions in America would begin to resemble those portrayed in my novel.

Let’s hope that does not turn out to be the case.

Let’s hope that the next recession begins and ends as quickly as possible and that the U.S. economy is on a solid upswing by 2020.

And if you are a Trump supporter, don’t be too dismayed if the U.S. economy takes a major downturn in 2017.  As I discussed above, it could actually be just the thing that Trump needs to set the stage for another election victory in 2020.

We Are Being Set Up For Higher Interest Rates, A Major Recession And A Giant Stock Market Crash

bear-market-bull-market-public-domainSince Donald Trump’s victory on election night we have seen the worst bond crash in 15 years.  Global bond investors have seen trillions of dollars of wealth wiped out since November 8th, and analysts are warning of another tough week ahead.  The general consensus in the investing community is that a Trump administration will mean much higher inflation, and as a result investors are already starting to demand higher interest rates.  Unfortunately for all of us, history has shown that higher interest rates always cause an economic slowdown.  And this makes perfect sense, because economic activity naturally slows down when it becomes more expensive to borrow money.  The Obama administration had already set up the next president for a major recession anyway, but now this bond crash threatens to bring it on sooner rather than later.

For those that are not familiar with the bond market, when yields go up bond prices go down.  And when bond prices go down, that is bad news for economic growth.

So we generally don’t want yields to go up.

Unfortunately, yields have been absolutely soaring over the past couple of weeks, and the yield on 10 year Treasury notes has now jumped “one full percentage point since July”

The 10-year Treasury yield jumped to 2.36% in late trading on Friday, the highest since December 2015, up 66 basis point since the election, and up one full percentage point since July!

The 10-year yield is at a critical juncture. In terms of reality, the first thing that might happen is a rate increase by the Fed in December, after a year of flip-flopping. A slew of post-election pronouncements by Fed heads – including Yellen’s “relatively soon” – have pushed the odds of a rate hike to 98%.

As I noted the other day, so many things in our financial system are tied to yields on U.S. Treasury notes.  Just look at what is happening to mortgages.  As Wolf Richter has noted, the average rate on 30 year mortgages is shooting into the stratosphere…

The carnage in bonds has consequences. The average interest rate of the a conforming 30-year fixed mortgage as of Friday was quoted at 4.125% for top credit scores. That’s up about 0.5 percentage point from just before the election, according to Mortgage News Daily. It put the month “on a short list of 4 worst months in more than a decade.”

If mortgage rates continue to shoot higher, there will be another housing crash.

Rates on auto loans, credit cards and student loans will also be affected.  Throughout our economic system it will become much more costly to borrow money, and that will inevitably slow the overall economy down.

Why bond investors are so on edge these days is because of statements such as this one from Steve Bannon

In a nascent administration that seems, at best, random in its beliefs, Bannon can seem to be not just a focused voice, but almost a messianic one:

“Like [Andrew] Jackson’s populism, we’re going to build an entirely new political movement,” he says. “It’s everything related to jobs. The conservatives are going to go crazy. I’m the guy pushing a trillion-dollar infrastructure plan. With negative interest rates throughout the world, it’s the greatest opportunity to rebuild everything. Ship yards, iron works, get them all jacked up. We’re just going to throw it up against the wall and see if it sticks. It will be as exciting as the 1930s, greater than the Reagan revolution — conservatives, plus populists, in an economic nationalist movement.”

Steve Bannon is going to be one of the most influential voices in the new Trump administration, and he is absolutely determined to get this “trillion dollar infrastructure plan” through Congress.

And that is going to mean a lot more borrowing and a lot more spending for a government that is already on pace to add 2.4 trillion dollars to the national debt this fiscal year.

Sadly, all of this comes at a time when the U.S. economy is already starting to show significant signs of slowing down.  It is being projected that we will see a sixth straight decline in year-over-year earnings for the S&P 500, and industrial production has now contracted for 14 months in a row.

The truth is that the economy has been barely treading water for quite some time now, and it isn’t going to take much to push us over the edge.  The following comes from Lance Roberts

With an economy running at below 2%, consumers already heavily indebted, wage growth weak for the bulk of American’s, there is not a lot of wiggle room for policy mistakes.

Combine weak economics with higher interest rates, which negatively impacts consumption, and a stronger dollar, which weighs on exports, and you have a real potential of a recession occurring sooner rather than later.

Yes, the stock market soared immediately following Trump’s election, but it wasn’t because economic conditions actually improved.

If you look at history, a stock market crash almost always follows a major bond crash.  So if bond prices keep declining rapidly that is going to be a very ominous sign for stock traders.

And history has also shown us that no bull market can survive a major recession.  If the economy suffers a major downturn early in the Trump administration, it is inevitable that stock prices will follow.

The waning days of the Obama administration have set us up perfectly for higher interest rates, a major recession and a giant stock market crash.

Of course any problems that occur after January 20th, 2017 will be blamed on Trump, but the truth is that Obama will be far more responsible for what happens than Trump will be.

Right now so many people have been lulled into a sense of complacency because Donald Trump won the election.

That is an enormous mistake.

A shaking has already begun in the financial world, and this shaking could easily become an avalanche.

Now is not a time to party.  Rather, it is time to batten down the hatches and to prepare for very rough seas ahead.

All of the things that so many experts warned were coming may have been delayed slightly, but without a doubt they are still on the way.

So get prepared while you still can, because time is running out.

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