The Beginning Of The End Ad
Gold Buying Guide: Golden Eagle Coins

Recent Posts

The Preppers Blueprint Economic Collapse Blog Get Prepared Now Ad

Enter your email to subscribe to The Economic Collapse Blog:

Delivered by FeedBurner

Will America’s Prosperity Be Completely Wiped Out By Our Growing Debt?

The federal government is now 20.4 trillion dollars in debt, and most Americans don’t seem to care that the economic prosperity that we are enjoying today could be completely destroyed by our exploding national debt.  Over the past decade, the national debt has been growing at a rate of more than 100 million dollars an hour, and this is a debt that all of us owe.  When you break it down, each American citizen’s share of the debt is more than $60,000, and so if you have a family of five your share is more than $300,000.  And when you throw in more than 6 trillion dollars of corporate debt and nearly 13 trillion dollars of consumer debt, it is not inaccurate to say that we are facing a crisis of unprecedented magnitude.

Debt cannot grow much faster than GDP indefinitely.  At some point the bubble bursts, and when it does the pain that the middle class is going to experience is going to be off the charts.  Back in 2015, the middle class in the U.S. became a minority of the population for the first time ever.  Never before in our history has the middle class accounted for less than 50 percent of the population, and all over the country formerly middle class families are under a great deal of stress as they attempt to make ends meet.  The following comes from an absolutely outstanding piece that was just put out by Charles Hugh Smith

If you talk to young people struggling to make ends meet and raise children, or read articles about retirees who can’t afford to retire, you can’t help but detect the fading scent of prosperity.

It has steadily been lost to stagnation, under-reported inflation and soaring inequality, a substitution of illusion for reality bolstered by the systemic corruption of authentic measures of prosperity and well-being.

In other words, the American-Dream idea that life should get easier and more prosperous as the natural course of progress is still embedded in our collective memory, even though the collective reality has changed.

The reality that most of us are facing today is a reality where many are working two or three jobs just to make it from month to month.

The reality that most of us are facing today is a reality where debts never seem to get repaid and credit card balances just continue to grow.

The reality that most of us are facing today is a reality where we work day after day just to pay the bills, and yet we never seem to get anywhere financially.

The truth is that most people out there are deeply struggling.  The Washington Post says that the “middle class” encompasses anyone that makes between $35,000 and $122,500 a year, but very few of us are near the top end of that scale

It’s also situation specific. “The more people in a family, the more money they typically need to live a comfortable middle-class lifestyle,” writes the Post. Likewise, the more expensive your area, the more you need to make to qualify. Overall, “America’s middle-class ranges from $35,000 to $122,500 in annual income, according to The Post’s calculation” approved by the Pew Research Center.

“The bottom line is: $100,000 is on the middle-class spectrum, but barely: 75 percent of U.S. households make less than that,” writes the Post.

In a previous article, I noted that the bottom 90 percent of income earners in the U.S. brought home more than 60 percent of the nation’s income back in the early 1970s, but last year that number fell to just 49.7 percent.

The middle class is shrinking year after year, and the really bad news is that it appears that this decline may soon accelerate.  In fact, one major European investment bank is warning that the U.S. economy will “slow down substantially” in 2018.

But we can’t afford any slow down at all.  As it is, there is no possible way that we are going to be able to deal with our exploding debts at the rate the economy is growing right now.  According to Boston University professor Larry Kotlikoff, we are facing a “fiscal gap” of 210 trillion dollars over the next 75 years…

We have all these unofficial debts that are massive compared to the official debt. We’re focused just on the official debt, so we’re trying to balance the wrong books…

If you add up all the promises that have been made for spending obligations, including defense expenditures, and you subtract all the taxes that we expect to collect, the difference is $210 trillion. That’s the fiscal gap. That’s our true indebtedness.

Where in the world is all of that money going to come from?

Are you willing to pay much higher taxes?

Are you willing to see government programs slashed to a degree that we have never seen before in U.S. history?

If your answer to both of those questions is no, then what would you do to solve the fiscal nightmare that we are facing?

According to Brian Maher, author Robert Benchley once sat down to write an article about this fiscal mess, and what he came up with sums up the situation perfectly…

Benchley sat at his typewriter one day to tackle a vexing subject.

He opened his piece with “The”… when the full weight of his burden collapsed upon his shoulders.

He abandoned his typewriter in frustration.

He returned shortly thereafter and resumed the task anew…

With only “The” to work with… Benchley immediately knocked out the article, presented here in its entirety:

“The hell with it.”

Unfortunately, we can’t afford to say that.

Our exploding debt is a crisis that we must tackle, and the first step is to understand that our current financial system was literally designed to create as much debt as possible.  Once we abolish the Federal Reserve, our endless debt spiral will end, but until we do our debt problems are only going to continue to grow until the system completely implodes in upon itself.

Michael Snyder is a Republican candidate for Congress in Idaho’s First Congressional District, and you can learn how you can get involved in the campaign on his official website. His new book entitled “Living A Life That Really Matters” is available in paperback and for the Kindle on Amazon.com.

How The Elite Dominate The World – Part 2: 99.9% Of The Global Population Lives In A Country With A Central Bank

Even though the nations of the world are very deeply divided on almost everything else, somehow virtually all of them have been convinced that central banking is the way to go.  Today, less than 0.1% of the population of the world lives in a country that does not have a central bank.  Do you think that there is any possible way that this is a coincidence?  And it is also not a coincidence that we are now facing the greatest debt bubble in the history of the world.  In Part I of this series, I discussed the fact that total global debt has reached 217 trillion dollars.  Once you understand that central banks are designed to create endless debt, and once you understand that 99.9% of the global population lives in a country that has a central bank, then it finally makes sense why we have accumulated so much debt.  The elite of the world use debt as a tool of enslavement, and central banking has allowed them to literally enslave the entire planet.

Some of you may not be familiar with how a “central bank” differs from a normal bank.  The following definition of a “central bank” comes from Wikipedia

A central bank, reserve bank, or monetary authority is an institution that manages a state’s currency, money supply, and interest rates. Central banks also usually oversee the commercial banking system of their respective countries. In contrast to a commercial bank, a central bank possesses a monopoly on increasing the monetary base in the state, and usually also prints the national currency,[1] which usually serves as the state’s legal tender.

Over the past 100 years or so, we have seen central banks steadily be established all over the planet.  At this point, there are just 8 very small nations that still do not have a central bank…

-Andorra
-Monaco
-Nauru
-Kiribati
-Tuvalu
-Palau
-Marshall Islands
-Federated States of Micronesia

When you add the populations of those 8 nations together, it comes to much less than 0.1% of the global population.

But even though central banking is nearly universal, only a very small fraction of the global population can tell you how money is created.

Do you know where money comes from?

Here in the United States, most people just assume that the federal government creates money.  But that is not true at all.

Many are absolutely shocked when they discover that U.S. currency is actually borrowed into existence.  The federal government gives U.S. Treasury bonds (debt) to the Federal Reserve in exchange for money that the Federal Reserve creates out of thin air.  The Federal Reserve then auctions off those bonds to the highest bidder.

Since the federal government must pay interest on those bonds, the amount of debt that is created in these transactions is actually greater than the amount of money that is created.  But we are told that if we can just circulate the money throughout our economy fast enough and tax it at a high enough rate, then we can eventually pay off the debt.  Of course that never actually happens, and so the federal government always has to go back and borrow even more money.  This is called a debt spiral, and at this point we will never be able to escape it until we do away with this horrible system.

But why does our government (or any government for that matter) have to borrow money that is created by a central bank in the first place?

Why can’t governments just create money themselves?

Oops.  That is the big secret that nobody is supposed to talk about.

Theoretically, the U.S. government doesn’t actually have to borrow a single penny. Instead of borrowing money the Federal Reserve creates out of thin air, the federal government could just create money directly and spend it into circulation.

Yes, this could actually happen.  Back in 1963, President John F. Kennedy signed Executive Order 11110 which authorized the U.S. Treasury to issue debt-free “United States Notes” which were not created by the Federal Reserve.  These debt-free notes began to be issued, and you can still find them for sale on eBay today.  Unfortunately, President Kennedy was assassinated shortly after this executive order was issued, and the notes were not in production for long.

If we had ultimately fully adopted “United States Notes” and had phased out Federal Reserve notes, we would not be 20 trillion dollars in debt today.

The elite of the world love to get national governments deep into debt, because it enables them to enslave entire populations while making an obscene amount of money in the process.

Back in 1913, an insidious plan was rushed through Congress just before Christmas that was based on a blueprint that had been developed by very powerful Wall Street interests.  Author G. Edward Griffin did an extraordinary job of documenting how all of this happened in his book entitled “The Creature from Jekyll Island: A Second Look at the Federal Reserve”.  A central bank was established, and it was purposely designed to create a government debt spiral, and that is precisely what happened.

Since 1913, the size of the national debt has gotten more than 6,000 times larger, and the value of our dollar has declined by more than 98 percent.  Many conservatives are still under the illusion that we could get out of debt someday if we just grow the economy fast enough, but I have shown in another article that we have gotten to the point where this is mathematically impossible.

And most people are also operating under the false assumption that the Federal Reserve is part of the federal government.  But that is not accurate either.  The following comes from one of my previous articles

There is often a lot of confusion about the Federal Reserve, because a lot of people think that it is simply an agency of the federal government. But of course that is not true at all. In fact, as Ron Paul likes to say, the Federal Reserve is about as “federal” as Federal Express is.

The Fed is an independent central bank that has even argued in court that it is not an agency of the federal government. Yes, the president appoints the leadership of the Fed, but the Fed and other central banks around the world have always fiercely guarded their “independence”. On the official Fed website, it is admitted that the 12 regional Federal Reserve banks are organized “much like private corporations”, and they very much operate like private entities. They even issue shares of stock to the private banks that own them.

In case you were wondering, the federal government has zero shares.

According to the U.S. Constitution, a private central banking cartel should not be issuing our currency.  In Article I, Section 8 of our Constitution, Congress is solely given the authority to “coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures”.

So why in the world has this authority been given to a central bank?

The truth is that we do not need a central bank.

From 1872 to 1913, there was no central bank and no income tax, and it turned out to be the greatest period of economic growth in all of U.S. history.

But since the Fed was established, there have been 18 different recessions or depressions: 1918, 1920, 1923, 1926, 1929, 1937, 1945, 1949, 1953, 1958, 1960, 1969, 1973, 1980, 1981, 1990, 2001, 2008.

Abolishing the Federal Reserve is one of the core issues of my platform, and I have been writing about these things for the last seven years.

As I discussed yesterday, the elite use debt to enslave all of the rest of us, and central banking allows them to literally dominate the entire planet.

Until we abolish this debt-based system and go to a currency that is debt-free, we are never going to permanently solve our very deep long-term economic and financial problems.

But because they are so immensely wealthy, the elite are able to wield extraordinary influence in our society.  They control the mainstream media, our politicians and even global institutions such as the United Nations.  Anyone that would dare to question the validity of the current system is marginalized, and for a long time very few politicians around the world were even willing to speak out against central banking.

However, that is starting to change.  A new generation of leaders is rising up, and they are absolutely determined to break the stranglehold that the elite have on our society.  It won’t be easy, but if we are able to wake enough people up, I believe that we will eventually be able to free ourselves from this insidious system.

Michael Snyder is a Republican candidate for Congress in Idaho’s First Congressional District, and you can learn how you can get involved in the campaign on his official website. His new book entitled “Living A Life That Really Matters” is available in paperback and for the Kindle on Amazon.com.

Venezuela Has Officially Abandoned The Petrodollar – Does This Make War With Venezuela More Likely?

Venezuela is the 11th largest oil producing country in the entire world, and it has just announced that it is going to stop using the petrodollar.  Most Americans don’t even know what the petrodollar is, but for those of you that do understand what I am talking about, this should send a chill up your spine.  The petrodollar is one of the key pillars of the global financial system, and it allows us to live a far higher standard of living than we actually deserve.  The dominance of the petrodollar has been very jealously guarded by our government in the past, and that is why many are now concerned that this move by Venezuela could potentially lead us to war.

I don’t know why this isn’t headline news all over the country, but it should be.  One of the few major media outlets that is reporting on this is the Wall Street Journal

The government of this oil-rich but struggling country, looking for ways to circumvent U.S. sanctions, is telling oil traders that it will no longer receive or send payments in dollars, people familiar with the new policy have told The Wall Street Journal.

Before we go any further, we should discuss what we mean by the “petrodollar” for those that are not familiar with the concept.  The following comes from an excellent article by Christopher Doran

In a nutshell, any country that wants to purchase oil from an oil producing country has to do so in U.S. dollars. This is a long standing agreement within all oil exporting nations, aka OPEC, the Organization of Petroleum Exporting Countries. The UK for example, cannot simply buy oil from Saudi Arabia by exchanging British pounds. Instead, the UK must exchange its pounds for U.S. dollars. The major exception at present is, of course, Iran.

This means that every country in the world that imports oil—which is the vast majority of the world’s nations—has to have immense quantities of dollars in reserve.

As will be explained below, the fact that virtually everyone around the world has to use our currency to buy oil is a massive advantage for us.  Venezuela knows this, and so in response to new sanctions being imposed upon them, they are hitting us where it hurts

Oil traders who export Venezuelan crude or import oil products into the country have begun converting their invoices to euros.

The state oil company Petróleos de Venezuela SA, known as PdVSA, has told its private joint venture partners to open accounts in euros and to convert existing cash holdings into Europe’s main currency, said one project partner.

The new payment policy hasn’t been publicly announced, but Vice President Tareck El Aissami, who has been blacklisted by the U.S., said Friday, “To fight against the economic blockade there will be a basket of currencies to liberate us from the dollar.”

If more nations start to follow suit, it would be absolutely disastrous for the United States.

In other articles, I have detailed why the petrodollar is so incredibly important to our economy and our financial system.  The following is an extended excerpt from one of those previous articles

So why is the petrodollar so important?

Well, it creates a tremendous amount of demand for the U.S. dollar all over the globe.  Since everyone has needed it to trade with one another, that has created an endless global appetite for the currency.  That has kept the value of the dollar artificially high, and it has enabled us to import trillions of dollars of super cheap products from other countries.  If other nations stopped using the dollar to trade with one another, the value of the dollar would plummet dramatically and we would have to pay much, much more for the trinkets that we buy at the dollar store and Wal-Mart.

In addition, since the U.S. dollar is essentially the de facto global currency, this has also increased demand for our debt.  Major exporting nations such as China and Saudi Arabia end up with giant piles of our dollars.  Instead of just letting them sit there and do nothing, those nations often reinvest their dollars into securities that can rapidly be changed back into dollars if needed.  One of the most popular ways to do this has been to invest those dollars in U.S. Treasuries.  This has driven down interest rates on U.S. debt over the years and has enabled the U.S. government to borrow trillions upon trillions of dollars for next to nothing.

But if the rest of the world starts moving away from the U.S. dollar, all of this could change.

History has shown that when the status of the petrodollar is threatened, the U.S. is swift to take action.

And it is very interesting to note that President Trump will be meeting with Latin American leaders next week, and the main topic for discussion will be “the Venezuela crisis”

U.S. President Donald Trump has invited three Latin American leaders to dine with him next week in New York as he seeks to address the Venezuela crisis and build bridges with the region after an acrimonious start with neighbor Mexico.

The political and economic turmoil in Venezuela, source of 10 percent of the oil consumed by the United States, will almost certainly top the agenda when he receives the center-right presidents of Peru, Colombia and Brazil at Trump Tower on Monday evening, diplomats said.

Could this latest move by Venezuela be enough to potentially spark a military conflict?

The guys over at Zero Hedge seem to think so…

Having threatened China today with exclusion from SWIFT, we suspect Washington is rapidly running out of any great ally to sustain the petrodollar-driven hegemony (and implicitly its war machine). Cue the calls for a Venezuelan invasion in 3…2..1…!

It would be absolutely no surprise at all if John McCain and Lindsey Graham start appearing on the major news networks calling for war with Venezuela, but hopefully President Trump will not listen to such nonsense.

No matter how important the petrodollar is, there is absolutely no reason to go to war to protect it.

And if war talk does begin, the American people need to make their voices heard very, very loudly.  We have been in useless wars before, and we certainly do not need another one.

Michael Snyder is a Republican candidate for Congress in Idaho’s First Congressional District, and you can learn how you can get involved in the campaign on his official website. His new book entitled “Living A Life That Really Matters” is available in paperback and for the Kindle on Amazon.com.

Total Government And Personal Debt In The U.S. Has Hit 41 Trillion Dollars ($329,961.34 Per Household)

We are living in the greatest debt bubble in the history of the world.  In 1980, total government and personal debt in the United States was just over the 3 trillion dollar mark, but today it has surpassed 41 trillion dollars.  That means that it has increased by almost 14 times since Ronald Reagan was first elected president.  I am searching for words to describe how completely and utterly insane this is, but I am coming up empty.  We are slowly but surely committing national suicide, and yet most Americans don’t even understand what is happening.

According to 720 Global, total government debt plus total personal debt in the United States was just over 3 trillion dollars in 1980.  That broke down to $38,552 per household, and that figure represented 79 percent of median household income at the time.

Today, total government debt plus total personal debt in the United States has blown past the 41 trillion dollar mark.  When you break that down, it comes to $329,961.34 per household, and that figure represents 584 percent of median household income.

If anyone can make a good argument that we are not in very serious debt trouble, I would love to hear it.

And remember, the figures above don’t even include corporate debt.  They only include government debt on the federal, state and local levels, and all forms of personal debt.

So do you have $329,961.34 ready to pay your share of the debt that we have accumulated?

Nobody that I know could write that kind of a check.  The truth is that as a nation we are flat broke.  The only way that the game can keep going is for all of us to borrow increasingly larger sums of money, but of course that is not sustainable by any definition.

Eventually we are going to slam into a wall and the game will be over.

One of my pet peeves is the national debt.  Our politicians spend money in some of the most ridiculous ways imaginable, and yet no matter how much we complain about it nothing ever seems to change.

For example, the U.S. military actually spends 42 million dollars a year on Viagra.

Yes, you read that correctly.

42 million of your tax dollars are being spent on Viagra every year.

And overall spending on “erectile dysfunction medicines” each year comes to a grand total of 84 million dollars

According to data from the Defense Health Agency, DoD actually spent $41.6 million on Viagra — and $84.24 million total on erectile dysfunction prescriptions — last year.

And since 2011, the tab for drugs like Viagra, Cialis and Levitra totals $294 million — the equivalent of nearly four U.S. Air Force F-35 Joint Strike Fighters.

Is this really where our spending on “national defense” should be going?  We are nearly 20 trillion dollars in debt, and yet we continue to spend money like there is no tomorrow.  For much more on the exploding size of our national debt and the very serious implications that this has for our future, please see my previous article entitled “Would You Like To Steal 128 Million Dollars?”

I didn’t think that our debt bubble could ever possibly get this big, but I didn’t think that our stock market bubble could ever possibly get quite get this large either.  For a few moments, I would like for you to consider a list of facts about this stock market bubble that was recently published by Zero Hedge

  • The S&P 500 Cyclically Adjusted Price to Earnings (CAPE) valuation has only been greater on one occasion, the late 1990s. It is currently on par with levels preceding the Great Depression.
  • CAPE valuation, when adjusted for the prevailing economic growth trend, is more overvalued than during the late 1920’s and the late 1990’s. (LINK)
  • S&P 500 Price to Sales Ratio is at an all-time high
  • Total domestic corporate profits (w/o IVA/CCAdj) have grown at an annualized rate of .097% over the last five years. Prior to this period and since 2000, five year annualized profit growth was 7.95%. (note- period included two recessions) (LINK)
  • Over the last ten years, S&P 500 corporations have returned more money to shareholders via share buybacks and dividends than they have earned.
  • The top 200 S&P 500 companies have pension shortfalls totaling $382 billion and corporations like GE spent more on share buybacks ($45b) than the size of their entire pension shortfall ($31b) which ranks as the largest in the S&P 500. (LINK)
  • Using data back to 1987, the yield to maturity on high-yield (non-investment grade) debt is in the 3rd percentile. Per Prudential as cited in the Wall Street Journal, yields on high-yield debt, adjusted for defaults, are now lower than those of investment grade bonds. Currently, the yield on the Barclays High Yield Index is below the expected default rate.
  • Implied equity and U.S. Treasury volatility has been trading at the lowest levels in over 30 years, highlighting historic investor complacency. (LINK)

Our financial markets are far more primed for a crash than they were in 2008.

The only times in our entire history that are even comparable are the late 1920s just before the infamous crash of 1929 and the late 1990s just before the dotcom bubble burst.

A whole lot of people out there seem to be entirely convinced that things will somehow be different this time.  They seem to believe that the laws of economics no longer apply and that we will never pay a significant price for decades of exceedingly foolish decisions.

Overall, the world is now 217 trillion dollars in debt.  Earlier this year, Bill Gross raised eyebrows when he said that “our highly levered financial system is like a truckload of nitro glycerin on a bumpy road”, and I very much agree with him.

There is no way that this is going to end well.  Yes, central bank manipulation may be enough to keep the party going for a little while longer, but eventually the whole thing is going to come crashing down in a disaster of unprecedented magnitude.

Michael Snyder is a Republican candidate for Congress in Idaho’s First Congressional District, and you can learn how you can get involved in the campaign on his official website. His new book entitled “Living A Life That Really Matters” is available in paperback and for the Kindle on Amazon.com.

The World Is Now $217,000,000,000,000 In Debt And The Global Elite Like It That Way

The borrower is the servant of the lender, and through the mechanism of government debt virtually the entire planet has become the servants of the global money changers.  Politicians love to borrow money, but over time government debt slowly but surely impoverishes a nation.  As the elite get governments around the globe in increasing amounts of debt, those governments must raise taxes in order to keep servicing those debts.  In the end, it is all about taking money from us and transferring it into government pockets, and then taking money from government pockets and transferring it into the hands of the elite.  It is a game that has been going on for generations, and it is time for humanity to say that enough is enough.

According to the Institute of International Finance, global debt has now reached a new all-time record high of 217 trillion dollars

Global debt levels have surged to a record $217 trillion in the first quarter of the year. This is 327 percent of the world’s annual economic output (GDP), reports the Institute of International Finance (IIF).

The surging debt was driven by emerging economies, which have increased borrowing by $3 trillion to $56 trillion. This amounts to 218 percent of their combined economic output, five percentage points greater year on year.

Never before in human history has our world been so saturated with debt.

And what all of this debt does is that it funnels wealth to the very top of the global wealth pyramid.  In other words, it makes global wealth inequality far worse because this system is designed to make the rich even richer and the poor even poorer.

Every year the gap between the wealthy and the poor grows, and it has gotten to the point that eight men have as much wealth as the poorest 3.6 billion people on this planet combined

Eight men own the same wealth as the 3.6 billion people who make up the poorest half of humanity, according to a new report published by Oxfam today to mark the annual meeting of political and business leaders in Davos.

This didn’t happen by accident.  Sadly, most people don’t even understand that this is literally what our system was designed to do.

Today, more than 99 percent of the population of the planet lives in a country that has a central bank.  And debt-based central banking is designed to get national governments trapped in endless debt spirals from which they can never possibly escape.

For example, just consider the Federal Reserve.  During the four decades before the Federal Reserve was created, our country enjoyed the best period of economic growth in U.S. history.  But since the Fed was established in 1913, the value of the U.S. dollar has fallen by approximately 98 percent and the size of our national debt has gotten more than 5000 times larger.

It isn’t an accident that we are 20 trillion dollars in debt.  The truth is that the debt-based Federal Reserve is doing exactly what it was originally designed to do.  And no matter what politicians will tell you, we will never have a permanent solution to our debt problem until we get rid of the Federal Reserve.

In 2017, interest on the national debt will be nearly half a trillion dollars.

That means that close to 500 billion of our tax dollars will go out the door before our government spends a single penny on the military, on roads, on health care or on anything else.

And we continue to pile up debt at a rate of more than 100 million dollars an hour.  According to the Congressional Budget Office, the federal government will add more than a trillion dollars to the national debt once again in 2018…

Unless current laws are changed, federal individual income tax collections will increase by 9.5 percent in fiscal 2018, which begins on Oct. 1, according to data released today by the Congressional Budget Office.

At the same time, however, the federal debt will increase by more than $1 trillion.

We shouldn’t be doing this, but we just can’t seem to stop.

Let me try to put this into perspective.  If you could somehow borrow a million dollars today and obligate your children to pay it off for you, would you do it?

Maybe if you really hate your children you would, but most loving parents would never do such a thing.

But that is precisely what we are doing on a national level.

Thomas Jefferson was strongly against government debt because he believed that it was a way for one generation to steal from another generation.  And he actually wished that he could have added another amendment to the U.S. Constitution which would have banned government borrowing…

“I wish it were possible to obtain a single amendment to our Constitution. I would be willing to depend on that alone for the reduction of the administration of our government to the genuine principles of its Constitution; I mean an additional article, taking from the federal government the power of borrowing.”

And the really big secret that none of us are supposed to know is that governments don’t actually have to borrow money.

But if we start saying that too loudly the people that are making trillions of dollars from the current system are going to get very, very upset with us.

Today, we are living in the terminal phase of the biggest debt bubble in the history of the planet.  Every debt bubble eventually ends tragically, and this one will too.

Bill Gross recently noted that “our highly levered financial system is like a truckload of nitro glycerin on a bumpy road”.  One wrong move and the whole thing could blow sky high.

When everything comes crashing down and a great crisis happens, we are going to have a choice.

We could try to rebuild the fundamentally flawed old system, or we could scrap it and start over with something much better.

My hope is that we will finally learn our lesson and discard the debt-based central banking model for good.

The reason why I am writing about this so much ahead of time is so that people will actually understand why the coming crisis is happening as it unfolds.

If we can get everyone to understand how we are being systematically robbed and cheated, perhaps people will finally get mad enough to do something about it.

The Federal Reserve Must Go

If you want to permanently fix America’s economy, there really is no other choice.  Even before Ron Paul’s rallying cry of “End The Fed” shook America during the peak of the Tea Party movement, I was a huge advocate of shutting down the Federal Reserve.  Because no matter how hard we try to patch it up otherwise, the truth is that our debt-based financial system has been fundamentally flawed from the very beginning, and the Federal Reserve is the very heart of that system.  The following is a free preview of an upcoming book that I am working on about how to turn this country is a more positive direction…

*****

As the publisher of The Economic Collapse Blog, there have been times when I have been criticized for focusing too much on our economic problems and not enough on the solutions.  But I believe that in order to be willing to accept the solutions that are necessary, people need to have a full understanding of the true severity of our problems.  It isn’t by accident that we ended up 20 trillion dollars in debt.  In 1913, a bill was rushed through Congress right before Christmas that was based on a plan that had been secretly developed by very powerful Wall Street bankers.  G. Edward Griffin did an amazing job of documenting the development of this plan in his groundbreaking book “The Creature from Jekyll Island: A Second Look at the Federal Reserve”.  At that time, most Americans had no idea what a central bank does or what one would mean for the U.S. economy.  Sadly, even though more than a century has passed since that time, most Americans still do not understand the Federal Reserve.

The Federal Reserve was designed to create debt, and of course the Wall Street bankers were very excited about such a system because it would make them even wealthier.  Since the Fed was created in 1913, 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.  So the Federal Reserve is doing what it was originally designed to do.  In fact, it has probably worked better than the original designers ever dreamed possible.

There is often a lot of confusion about the Federal Reserve, because a lot of people think that it is simply an agency of the federal government.  But of course that is not true at all.  In fact, as Ron Paul likes to say, the Federal Reserve is about as “federal” as Federal Express is.

The Fed is an independent central bank that has even argued in court that it is not an agency of the federal government.  Yes, the president appoints the leadership of the Fed, but the Fed and other central banks around the world have always fiercely guarded their “independence”.  On the official Fed website, it is admitted that the 12 regional Federal Reserve banks are organized “much like private corporations”, and they very much operate like private entities.  They even issue shares of stock to the private banks that own them.

In case you were wondering, the federal government has zero shares.

The American people are constantly being told that Fed decisions must be “above politics” because they are “too important” to be politicized.  So even though everything else in our society is up for political debate, somehow we have become convinced that the Federal Reserve should be off limits.

Today, the Federal Reserve has more power over the performance of the U.S. economy than anyone else does, and that includes the president.  The Fed has become known as “the fourth branch of government”, and a single statement from the chairman of the Fed can send global financial markets soaring or tumbling.

So even though presidents tend to get most of the credit or most of the blame for how the U.S. economy is doing, the truth is that the Fed is actually the one pulling most of the strings.  In conjunction with Congress, presidents can monkey around with regulations and tax rates, but at the end of the day their influence over the economy pales in comparison to what the Fed is able to do.

For those that have never encountered this material before, this can be difficult to grasp at first, so let’s start with something very simple.

Go to your wallet or purse and pull out a dollar bill.

At the very top, you will notice that it says “Federal Reserve Note” in big, bold letters.

If you ask 99 percent of the people in the United States where money comes from, they will not be able to tell you.  Our money is actually created and issued by the Federal Reserve, but that is not what our founders intended.  According to Article I, Section 8 of the U.S. Constitution, Congress was expressly given the authority to “coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures”.

So why is the Federal Reserve doing it?

Many Americans are still operating under the assumption that the federal government has a “printing press” and that if we ever get into too much debt trouble the government could simply create and spend lots more money into circulation.

But that is not the way that our system currently operates.

Instead, it is the Federal Reserve that creates all new money.  Once that new money is created, the federal government then borrows it and spends it into circulation.

Previously, I have written about how this works…

When the U.S. government decides that it wants to spend another billion dollars that it does not have, it does not print up a billion dollars.

Rather, the U.S. government creates a bunch of U.S. Treasury bonds (debt) and takes them over to the Federal Reserve.

The Federal Reserve creates a billion dollars out of thin air and exchanges them for the U.S. Treasury bonds.

(http://theeconomiccollapseblog.com/archives/why-donald-trump-must-shut-down-the-federal-reserve-and-start-issuing-debt-free-money)

This doesn’t seem to make any sense at all.

Why does the U.S. government have to borrow money that the Federal Reserve creates?  Why can’t they just create the money themselves?

This is the big secret that nobody is supposed to know about.

Theoretically, the federal government doesn’t have to borrow a penny.  Instead of borrowing money the Federal Reserve creates, it could just create money directly and spend it into circulation.

But then we wouldn’t be 20 trillion dollars in debt.

Once the Federal Reserve has received U.S. Treasury bonds in exchange for the “Federal Reserve Notes” that the federal government has requested, the Fed auctions off those bonds to the highest bidder.  But as I have noted so many times before, this process always creates more debt than it does money…

The U.S. Treasury bonds that the Federal Reserve receives in exchange for the money it has created out of nothing are auctioned off through the Federal Reserve system.

But wait.

There is a problem.

Because the U.S. government must pay interest on the Treasury bonds, the amount of debt that has been created by this transaction is greater than the amount of money that has been created.

So where will the U.S. government get the money to pay that debt?

Well, the theory is that we can get money to circulate through the economy really, really fast and tax it at a high enough rate that the government will be able to collect enough taxes to pay the debt.

But that never actually happens, does it?

And the creators of the Federal Reserve understood this as well. They understood that the U.S. government would not have enough money to both run the government and service the national debt. They knew that the U.S. government would have to keep borrowing even more money in an attempt to keep up with the game.

(http://theeconomiccollapseblog.com/archives/why-donald-trump-must-shut-down-the-federal-reserve-and-start-issuing-debt-free-money)

Beginning in 1913, this process has created an endless debt spiral that has resulted in the U.S. being 20 trillion dollars in debt.  It is the biggest mountain of debt in the history of the world, and it didn’t have to happen.

In fact, if we had been using debt-free money all this time we could theoretically be completely out of debt.

A lot of conservatives out there are still under the illusion that if we could just grow the economy fast enough that we could possibly pay back all of this debt someday, but as I have demonstrated in a previous article, this is mathematically impossible.  (http://theeconomiccollapseblog.com/archives/it-is-mathematically-impossible-to-pay-off-all-of-our-debt)

All of this debt threatens to destroy the bright future that our children and our grandchildren were supposed to have.  It is absolutely immoral to pass such a large debt on to future generations, but we are doing it anyway.

Of course the United States is far from alone in this regard.  Today, more than 99.9% of the population of the world lives in a country that has a central bank.

There is literally nothing else that the entire planet agrees upon almost unanimously, and yet somehow virtually the whole globe has chosen to adopt debt-based central banking.

Do you think that this is just a coincidence?

A handful of extremely small nations such as the Federated States of Micronesia still do not have a central bank, but the only large country not to have one is North Korea.

I don’t understand why more people are not talking about this.  If we really want to reform how things are done economically, it should start with central banking.

The truth is that we do not need a central bank.

Let me say that again.

We do not need a central bank.

The greatest period of economic growth in all of U.S. history was when there was no income tax and no central bank. (http://theeconomiccollapseblog.com/archives/during-the-best-period-of-economic-growth-in-u-s-history-there-was-no-income-tax-and-no-federal-reserve)

Such a system would be unimaginable to many people today, but it is entirely possible.

Instead of a central bank creating debt-based currency for us, the federal government could create debt-free money directly.

And instead of socialist central planners setting our interest rates for us, we could allow the free market to set our interest rates.

We are supposed to be a free market nation with a free market economy, and so we don’t need Fed bureaucrats to run it for us.

The free market will always do a better job in the long run then bureaucrats will.  As I noted earlier, the greatest period of economic growth in U.S. history was right before the Federal Reserve was created in 1913, but since that time there have been 18 distinct recessions or depressions: 1918, 1920, 1923, 1926, 1929, 1937, 1945, 1949, 1953, 1958, 1960, 1969, 1973, 1980, 1981, 1990, 2001, 2008.

Now we stand poised on the brink of another major downturn, and people still aren’t getting it.

As long as the Federal Reserve exists, there will be “booms” and “busts” like this.

It is time for a change.

During the good times, criticism of the Fed tends to subside.  And without a doubt, the bubble following the end of the last recession lasted much longer than a lot of people initially would have thought, but all Fed-created bubbles eventually end.

We desperately need to get free from this system, and a huge step in that direction would be a rejection of debt-based currency.

If you don’t think that this can happen, you should consider what happened in 1963.  President John F. Kennedy signed Executive Order 11110 which authorized the U.S. Treasury to issue debt-free “United States Notes” which were directly created by the federal government.

Unfortunately, he was assassinated shortly after that executive order was signed.

You can still find debt-free “United States Notes” in circulation today, and they are often for sale on auction sites such as eBay because people like to collect them.

At any time, the White House could do something similar today.

All it takes is the willingness to do so.

The borrower is the servant of the lender, and the debt-based Federal Reserve system has turned all of us into debt slaves.

If we do not want future generations of Americans to be enslaved to debt, we need to shut down the Federal Reserve and start using debt-free currency.  Any essential functions that the Fed is currently performing can ultimately be taken over by the U.S. Treasury, and of course we can make the transition gradual so that we don’t completely panic global financial markets.

The global elite are using central banking and debt-based currencies to dominate the planet.  Today, the total amount of debt in the world has shot past 150 trillion dollars, and it will only continue to grow until humanity wakes up and realizes the insanity of using a debt-based financial system.

Here in the United States, we need people in government that understand these things and that are willing to do something about it.

The Federal Reserve must go, and I will never make any apologies for saying that.

U.S. Economic Confidence Surges To The Highest Level That Gallup Has Ever Recorded

donald-trump-accepts-the-nomination-public-domainGallup’s U.S. Economic Confidence Index has never been higher than it is today.  The “Trumphoria” that has gripped the nation ever since Donald Trump’s miraculous victory on election night shows no signs of letting up.  Tens of millions of Americans that were deeply troubled by Barack Obama’s policies over the last eight years are feeling optimistic about the future for the first time in a very long time.  And it is hard to blame them, because what we have already seen happen since November 8th is nothing short of extraordinary.  The stock market keeps hitting record high after record high, the U.S. dollar is now the strongest that it has been in 14 years, and CEOs are personally promising Trump that they will bring jobs back to the United States.  These are things worth getting excited about, and so it makes perfect sense that Gallup’s U.S. Economic Confidence Index has now risen to the highest level that Gallup has ever seen

Americans’ confidence in the economy continues to gradually strengthen after last month’s post-election surge. Gallup’s U.S. Economic Confidence Index averaged +10 for the week ending Dec. 18, marking another new high in its nine-year trend.

The latest figure is up slightly from the index’s previous high of +8 recorded in both of the prior two weeks. The first positive double-digit index score since the inception of Gallup Daily tracking in 2008 reflects a stark change in Americans’ confidence in the U.S. economy from the negative views they expressed in most weeks over the past nine years.

And of course this booming level of confidence is not just reflected in Gallup’s numbers.  As I discussed in a previous article, the mammoth shift in the results of CNBC’s All-America Economic Survey after the election was nothing short of historic…

The CNBC All-America Economic Survey for the fourth quarter found that the percentage of Americans who believe the economy will get better in the next year jumped an unprecedented 17 points to 42 percent, compared with before the election. It’s the highest level since President Barack Obama was first elected in 2008.

The surge was powered by Republicans and independents reversing their outlooks. Republicans swung from deeply pessimistic, with just 15 percent saying the economy would improve in the next year, to strongly optimistic, with 74 percent believing in an economic upswing. Optimism among independents doubled but it fell by more than half for Democrats. Just 16 percent think the economy will improve.

On Tuesday, the Dow Jones Industrial Average closed at yet another all-time record high.

That was the 17th record close since election day, and overall the Dow is up a whopping 8 percent during that time span.

I don’t think that we have ever seen an extended post-election stock market rally quite like this one, and the U.S. dollar is rallying too.  On Tuesday, the U.S. dollar was the strongest that it has been in 14 years

The dollar hit a fresh 14-year high on Tuesday, boosted by upbeat comments from Federal Reserve Chair Janet Yellen that kept alive market expectations for swifter U.S. interest rate hikes next year than had been expected.

The greenback climbed broadly but its gains were strongest against the yen, which slid as much as 1 percent after the Bank of Japan kept monetary policy unchanged.

But of course not everything is rainbows and unicorns.  Signs of trouble continue to erupt all over the U.S. economy, and there are many that believe that Trump will be facing some very serious economic concerns very early in his presidency.

Just look at what is happening in the auto industry.  Unsold vehicles are piling up at an alarming pace at dealers all over the nation, and GM just announced that it is going to temporarily close five factories

GM has been reacting to its fabulously ballooning inventory glut by piling incentives on its vehicles. But that hasn’t worked all that well though it cost a lot of money. Now it’s time to get serious.

It will temporarily close five assembly plants in January and lay off over 10,000 employees, spokeswoman Dayna Hart said today.

And GM is definitely not alone.  Back in October, Ford made a similar announcement

In October, Ford announced that it would temporarily shut down production at one of its F-150 assembly plants (Kansas City), along with production at a plant that assembles the Escape and the Lincoln MKC (Louisville), plus two plants in Mexico. It would also lay off about 13,000 workers, 9,000 in the US and 4,000 in Mexico.

Another signal that the economy is slowing down is the tremendous difficulty that Uber is experiencing right now.  If you can believe it, they just announced that they lost a staggering 800 million dollars in the third quarter

Uber racked up pro-forma losses of more than $800m in the third quarter of this year as a price war with rival ride-hailing service Lyft in the US and heavy spending on new initiatives weighed on its figures, according to a person familiar with its recent financial performance, reports The Financial Times.

The third-quarter figures, first reported by tech news site The Information, show that Uber still faces steep losses even after pulling back from China.

I don’t understand how Uber could possibly lose 800 million dollars in three months.  Something is definitely very wrong over there.

Personally, I hope that things go as well as possible during the Trump administration.  If we truly are entering a new golden era of peace and prosperity, that would be more than okay with me.

But we should not forget that our economic fundamentals have continued to deteriorate all throughout the Obama years, and our nation has been steadily accumulating the largest mountain of debt the world has ever seen.

Unless there is some sort of unprecedented miracle, there is no way that this giant bubble that we are in at the moment is going to end well.  So it is definitely good to be optimistic, but we also need to be realistic about where we are right now and about the great challenges that we will soon be facing.

Major Economic Warning Sign: The Euro Is Heading For Parity With The U.S. Dollar

euro-gears-public-domainThe collapse of the euro is accelerating, and it looks like we could be staring a major European financial crisis right in the face early in 2017.  On Thursday, the EUR/USD fell all the way to $1.0366 at one point before rebounding slightly.  That represents the lowest that the euro has been relative to the U.S. dollar since January 2003.  Ever since 2011, I have been relentlessly warning that the euro is heading for parity with the U.S. dollar.  When the EUR/USD was trading at about $1.40 that must have seemed like crazy talk, but I never wavered.  I just kept warning people that the euro was going to weaken greatly relative to the U.S. dollar.  Here is one example from March 2015: “How many times have I said it?  The euro is heading to all-time lows.  It is going to go to parity with the U.S. dollar, and then it is eventually going to go below parity.”  After Thursday, we are almost there, and once we do hit parity that is going to be a sign that all sorts of chaos is about to erupt in Europe.

For years, so many people that write about our coming economic problems have been proclaiming that the death of the U.S. dollar is imminent.

But I have always taken a different approach.  I have always maintained that the collapse of the euro comes first, and that the death of the U.S. dollar happens some time later.

So many people have wanted to get rid of all of their dollars in anticipation of the coming crisis, but that is a huge mistake.

First of all, without exception everyone needs an emergency fund that can cover at least six months of expenses in case there is a job loss, a health emergency or all hell breaks loose for some reason.

Secondly, cash is going to be king during the initial stages of the coming crisis.  Later on the U.S. dollar will rapidly lose value, but at first it will pay to have significant amounts of cash available to you.

Most people out there seem to think that a strong dollar is great news and that it is a sign of good things to come under Donald Trump.

But the truth is that an overly strong U.S. dollar is actually very bad news for the global economy.

For the U.S., a strong dollar hurts our exports and tends to drag down our GDP.

For the rest of the world, a strong dollar makes it more expensive to borrow money.  The economic boom in the developing world following the last financial crisis was fueled by mountains of cheap dollars that were borrowed at ultra-low interest rates.  But now the U.S. dollar is surging and interest rates are spiking, and that is starting to cause major problems.

It now takes much more local currency to pay back those dollar-denominated loans that were made in emerging markets during the boom times.  If the U.S. dollar continues to rise we are going to see a staggering number of defaults, and a credit crunch in many areas of the globe seems inevitable at this point.

Of course the big thing to keep an eye on over the coming weeks is the rapidly unfolding crisis in Italy.  The Italians have the 8th largest economy on the entire planet, and we are in the process of watching their entire banking system completely implode.

In fact, their third largest bank is in imminent danger of collapse, and according to Reuters this could trigger “a wider banking and political crisis in Italy”…

Italy’s government is ready to pump 15 billion euros into Monte dei Paschi di Siena (BMPS.MI) and other ailing banks, sources said, as the country’s third-largest lender pushes ahead with a private rescue plan that is widely expected to fail.

The world’s oldest bank has until Dec. 31 to raise 5 billion euros ($5.2 billion) in equity or face being wound down by the European Central Bank, potentially triggering a wider banking and political crisis in Italy.

If needed, the government will pump 15 billion euros into the Siena-based lender and several other smaller banks to prevent that, two sources close to the matter said on Thursday.

This is so much more serious than the ongoing economic depression in Greece.

Greece is just the 44th largest economy on the planet, and we saw how much trouble Europe had trying to bail them out.

So what is the rest of Europe going to do when financial collapse hits Italy?

Here in the United States very few people are interested in hearing about a “global financial crisis” right at this moment, because in the aftermath of the election most people are feeling really good about where things are heading.  Just consider the following three facts that I pulled out of a Bloomberg article

#1 “The National Association of Homebuilders’ index of sentiment soared to an 11-year high in December, despite the sizable rise in bond yields since the election.”

#2 “The University of Michigan’s December index of consumer confidence also continued its upward post-election trend, rising to 98. A sub-index that tracks respondents’ opinion of the government’s economic policies spiked to levels not seen since 2009.”

#3 “The National Federation of Independent Businesses’ index of optimism among small businesses posted its sharpest surge since 2009 in November to reach 98.4. An expected improvement in business conditions among small business owners surveyed after Nov. 8 was the largest contributor to the improvement in the headline print.”

Hopefully happy days will stick around for a while.

But it won’t last forever.

As I have warned so many times, the coming crisis is going to hit Europe first, and the United States will join the party not too long after.

And a key marker that we have been watching for is almost here.  The euro is going to hit parity with the U.S. dollar just like I have been warning, and once that takes place expect events to start accelerating significantly.

Trumphoria: Americans Are More Optimistic About The Economy Than They Have Been Since Obama’s Win In 2008

donald-trump-accepts-the-nomination-public-domainOptimism about the future of the U.S. economy has not been this strong since Barack Obama’s first presidential election victory in 2008. Donald Trump promised us an economic resurgence, and what is not to like so far? As I discussed earlier this week, stocks are soaring, businesses are already announcing that they are bringing jobs back to the United States, and the U.S. dollar has been lifted to levels that we haven’t seen in many years. Many are referring to this post-election surge as “Trumphoria”, and I think that is quite appropriate. Personally, I couldn’t imagine financial markets behaving this way if Hillary Clinton had won the election. Right now tens of millions of Americans are feeling deeply optimistic about the future for the first time in a very long time, and this is clearly reflected in the results of the most recent CNBC All-America Economic Survey

The CNBC All-America Economic Survey for the fourth quarter found that the percentage of Americans who believe the economy will get better in the next year jumped an unprecedented 17 points to 42 percent, compared with before the election. It’s the highest level since President Barack Obama was first elected in 2008.

The surge was powered by Republicans and independents reversing their outlooks. Republicans swung from deeply pessimistic, with just 15 percent saying the economy would improve in the next year, to strongly optimistic, with 74 percent believing in an economic upswing. Optimism among independents doubled but it fell by more than half for Democrats. Just 16 percent think the economy will improve.

It is funny how our political perspectives so greatly shape our view of the future. Because Trump won, Democrats now have an extremely dismal opinion of where the economy is heading, while Republicans suddenly believe that happy days are here again.

Of course the truth is that the president has far less power to influence the economy than the Federal Reserve does, and so most Americans greatly overestimate what a president can do to alter our economic trajectory.

But for now most Americans (excluding Democrats) are feeling really good about where things are headed. In fact, we just learned that the University of Michigan consumer confidence survey has soared to the highest level that we have seen since 2005.

And of course the financial markets continued to roll onward and upward on Friday. The Dow was up another 142 points, and it is now less than 250 points away from the magic number of 20,000.

I never thought that we would actually get to 20,000, but thanks to “Trumphoria” we may actually get there before the wheels start coming off.

This post-election run has really been unprecedented. The following comes from CNBC

All major indexes have been hitting record highs since the election. In fact, the Dow has notched 14 record closes since then and gains in 20 of the past 24 sessions.

The Dow, S&P 500, and Nasdaq also did something they haven’t done in more than five years: all three rose each day of this trading week. The last time all three rose every day during the same trading week was September 2011.

Wouldn’t it be great if every month during Trump’s presidency was like the last 30 days?

Trump promised that we would start winning so much that we would actually start getting tired of winning, and so far we are off to a tremendous start.

As I discussed yesterday, some of the biggest winners from “Trumphoria” have been the big banks

The shares of Wells Fargo, the most hated bank in America these days, soared 28% over the past 30 days, Citigroup 25%, JP Morgan 26%, Goldman Sachs, which is successfully placing its people inside the Trump administration, 37%.

But is this momentum in the financial markets sustainable?

Of course not.

There are signs of emerging economic trouble all around us. For instance, Sears just announced that it lost 748 million dollars last quarter and that it plans to liquidate even more stores.

How in the world do you lose three-quarters of a billion dollars in a single quarter? If you had employees in every store literally flushing dollar bills down the toilet all day I don’t think you could lose money that quickly.

And the moment that Trump takes office, he may immediately be faced with a major financial crisis in Europe which has been sparked by the meltdown of large Italian banks. The following comes from a Forbes article entitled “Italy’s Banking Crisis Is Nearly Upon Us“…

There is a high degree of probability (approaching 90%, I’d say) that Italy will experience a severe banking crisis in the next few quarters. Perhaps they can stave off the problem for a year, but something will have to be done about the banks.

Unfortunately, it looks like things are about to get very real for Italian banking giant Monte dei Paschi di Siena. According to Reuters, the European Central Bank has turned down their request for more time to raise needed capital…

The European Central Bank has rejected a request by Italy’s Monte dei Paschi di Siena (BMPS.MI) for more time to raise capital, a source said on Friday, a decision that piles pressure on the Rome government to bail out the lender.

Italy’s third-largest bank, and the world’s oldest, had asked for a three-week extension until January 20 to try to wrap up a privately funded, 5 billion euro ($5.3 billion) rescue plan in the face of fresh political uncertainty.

The ECB’s supervisory board turned down the request at a meeting on Friday on the grounds that a delay would be of little use and that it was time for Rome to step in, the source said.

But most Americans have no idea what is unfolding in Europe right now.

As Americans, we tend to be largely oblivious to what is going on in the rest of the world, and at this moment “Trumphoria” has gripped our nation.

It is certainly not wrong to celebrate the fact that we are getting Donald Trump instead of Hillary Clinton, but let us also not lose sight of the fact that we are likely to be facing some tremendous challenges very early in 2017.

The Election Of Donald Trump Is Already Having An Enormous Impact On The Economy

donald-trump-and-barack-obama-in-the-oval-office-public-domainThe election of Donald Trump has sent shockwaves through the U.S. economy and the U.S. financial system.  Since November 8th, the Dow has hit a brand new all-time record high, the U.S. dollar has strengthened greatly, and bank stocks are way up.  But not all of the economic news is good news.  Unlike stocks, bonds have reacted very negatively to Trump’s election victory.  The past week has been an absolute bloodbath for bond traders, and as you will see below this is going to have dramatic implications for all U.S. consumers moving forward.

Over just a two day period, more than a trillion dollars was wiped out as bond yields spiked all over the globe.  As CNN has noted, this type of “violent reaction” in the bond market has only happened three other times within the past ten years…

The rate on 10-year Treasury notes has surged to 2.3%, from 1.77% before the election. Last week’s spike in Treasury rates was so big, that it had only happened three times before in the last decade.

BlackRock’s Russ Koesterich called it a “violent reaction.”

The move stands to have broad repercussions for all Americans. Not only will the U.S. government have to pay more to borrow money, but mortgage rates and car loan costs should also rise. That’s because Treasuries are used as the benchmark for many other forms of credit.

As interest rates rise, virtually everyone in our society is going to feel the pain.

Those that need an auto loan in order to purchase a vehicle are going to find that loan payments are significantly higher than they were before.

Credit card rates will also go up, and those just getting out of school will discover that their student loan payments are even more suffocating.

But the biggest impact will be felt in the housing market.  The average rate on a 30-year fixed mortgage just hit the psychologically-important 4 percent barrier, and that could mean big trouble for the housing market in 2017

The average contract rate on the popular 30-year fixed mortgage hit 4 percent, according to Mortgage News Daily, a level most didn’t expect to see until the middle of next year. Rates have now moved nearly a half a percentage point higher since Donald Trump was elected president.

“The situation on the ground is panicked. Damage control,” said Matthew Graham, chief operating officer of Mortgage News Daily. “People were trying to lock loans quickly last week and are now facing a tough choice to lock today or hope for a bounce. Many hoped for a bounce last week heading into the long weekend and we obviously didn’t get it.”

Rising interest rates was one of the key factors that precipitated the financial crisis of 2008, and many fear that it could happen again.

And without a doubt, this rise in rates is going to affect the affordability of homes that are already on the market

“If you’re going to buy a house and your mortgage payment went up by $200 or $300, you may buy a smaller house. There’s impact on interest rate sensitive sectors, like autos and housing, and also corporate bonds themselves, where financial engineering has helped juice up the equity market,” said George Goncalves, head of rate strategy at Nomura.

In addition, rising rates will make it more difficult for those with adjustable rate mortgages to keep their homes.  Foreclosure activity was already up 27 percent during the month of October, and many are projecting that we could see another giant spike in foreclosures during the months ahead that is similar to what we saw during the last financial crisis.

Many Trump supporters don’t really care what the rest of the world thinks of our new president, but this is an area where what the rest of the world thinks really, really matters.

The truth is that the rest of the planet is not all too fond of Trump, and if that makes them a lot less eager to lend us money that is a major problem.

The only way that we can maintain our massively inflated debt-fueled standard of living is to continue to borrow gigantic mountains of money from the rest of the world at ultra-low interest rates.

If the rest of the world starts demanding higher rates of return now that Trump is president, we are going to experience economic pain on a scale that most Americans don’t believe is possible.

One of our big lenders has been China, and right now they are deeply concerned about what a Trump presidency might mean.  Trump has talked very tough about trade with China, and the Chinese are gearing up for a major trade war.  The following comes from CNBC

During his election campaign this year, Trump spoke of a 45 percent import tariff on all Chinese goods while failing to outline how it would work. Should any such policy come into effect, China will take a “tit-for-tat approach”, according to an opinion piece in the Global Times, a newspaper backed by the Communist party.

“A batch of Boeing orders will be replaced by Airbus. U.S. auto and iPhone sales in China will suffer a setback, and U.S. soybean and maize imports will be halted. China can also limit the number of Chinese students studying in the U.S.,” the Global Times article read.

Most Trump supporters assume that since Trump has been a very successful businessman that he will be able to strengthen the U.S. economy.

But it isn’t that simple.

The only reason we are able to live the way that we live today is because we have been able to borrow trillions upon trillions of dollars at irrationally low interest rates.

The moment the rest of the world decides that they are not going to loan us money at irrationally low interest rates any longer the game is over, and it won’t really matter who is in the White House at that point.

So watch interest rates very carefully.  If they keep going up, it is inevitable that a major economic slowdown will follow no matter what economic policies the new Trump administration implements.

Finca Bayano

Panama Relocation Tours




 

Credible Warning

ProphecyHour

Facebook Twitter More...