After Tuesday night, nobody should have any more doubt that the U.S. economy has been in the process of collapsing. Donald Trump’s speech to a joint session of Congress is being hailed as his best speech ever. Even CNN’s Van Jones praised Trump, which shocked many observers. Jones said that when Trump honored the widow of slain Navy Seal Ryan Owens that it “was one of the most extraordinary moments you have ever seen in American politics”, and Jones believes that Trump “became President of the United States in that moment”. But Trump’s speech is not just being praised for that one moment. He detailed many of the most important problems that our nation is facing, and he explained his prescription for addressing those problems.
Hopefully Trump’s words helped people to understand that our problems did not get fixed just because he got elected. It is going to take extraordinary action to fix those problems, because our problems run very deep. In particular, Trump made an exceedingly strong case that the U.S. economy has been badly deteriorating for a very long period of time. The following are 11 quotes from Trump’s speech to Congress that show that the U.S. economy is in a state of collapse…
#1 “Ninety-four million Americans are out of the labor force”
#2 “Over 43 million people are now living in poverty”
#3 “Over 43 million Americans are on food stamps”
#4 “More than one in five people in their prime working years are not working”
#5 “We have the worst financial recovery in 65 years”
#6 “In the last eight years, the past administration has put on more new debt than nearly all of the other Presidents combined”
#7 “We’ve lost more than one-fourth of our manufacturing jobs since NAFTA was approved”
#8 “We’ve lost 60,000 factories since China joined the World Trade Organization in 2001″
#9 “Our trade deficit in goods with the world last year was nearly 800 billion dollars”
#10 “Obamacare premiums nationwide have increased by double and triple digits. As an example, Arizona went up 116 percent last year alone.”
#11 “We’ve spent trillions and trillions of dollars overseas, while our infrastructure at home has so badly crumbled”
All of these quotes come from the transcript of the speech that was posted on the official White House website.
So many of the economic themes that Trump touched on are things that I have been writing about recently. For example, I recently published an article entitled “11 Deeply Alarming Facts About America’s Crumbling Infrastructure” in which I discussed the horrific state of our roads, bridges, ports, dams, water systems and airports. I greatly applaud Trump for wanting to do something about this growing national crisis, but I just don’t know where the money is going to come from.
Just over a week ago I also wrote a major article about Obamacare. We have zero hope of turning our economy in a positive direction until we do something to fix our dramatically failing healthcare system, but at the moment Republicans in Congress seem extremely hesitant to take action. Instead, many Republican leaders are now talking about trying to “fix Obamacare“, and that simply is not going to work.
You can’t “fix” a steaming pile of garbage.
All of the other facts that Trump listed about the economy were right on point too. I have been screaming for seven years about our nightmarish trade deficit and the fact that tens of thousands of businesses and millions of good paying jobs were leaving the country. It is refreshing to finally have a president that understands how badly America has been hurt by imbalanced trade agreements, and my hope is that he will start to take constructive action in this regard.
So much damage to the economy has already been done, and there are all kinds of indications that we are about to officially slide into yet another recession. Yesterday we learned that the number of “distressed retailers” in this country is the highest that it has been since the last recession, and in recent weeks major retailers across the nation have announced the closing of hundreds of stores. Lending standards are tightening, bankruptcies are rising, and employment growth at companies listed on the S&P 500 has gone negative for the first time since the last recession.
It is being projected that GDP growth for the first quarter of 2017 will be barely above zero, but it wouldn’t surprise me at all if we actually had a negative reading.
If we indeed are heading into a new recession, Trump and his supporters need it to happen as soon as possible so that they can blame it on Obama. If a recession begins a year from now, everyone will blame it on Trump even if it is not his fault. But if a recession begins now, Trump and his supporters can pin responsibility for it on Obama and then take credit if and when a recovery occurs.
Trump’s speech on Tuesday night was very optimistic, and he seemed quite confident that every issue that we are facing as a nation can be fixed…
Everything that is broken in our country can be fixed. Every problem can be solved. And every hurting family can find healing and hope.
I hope that Trump is right, but I also know that the federal government is already 20 trillion dollars in debt, U.S. consumers are already more than 12 trillion dollars in debt, and corporate debt has approximately doubled since the last financial crisis.
You can’t squeeze blood out of an apple, and you can’t get out of a debt bubble by going into a lot more debt.
I understand that there are so many people out there right now that are deeply optimistic about the future, but the truth is that we have no hope of a positive future unless we fundamentally change our ways as a nation. I wish that someone could show me evidence that this is happening, because I would be very glad to see it. As it stands, we continue to steamroll toward the kind of apocalyptic future for this country that I have been warning about for a very long time.
It will take a lot more than words to fix America, and I think that Donald Trump understands this.
Hopefully many of his followers will start to get the message as well.
Is the U.S. economy about to get slammed by a major recession? According to Gallup, U.S. economic confidence has soared to the highest level ever recorded, but meanwhile a whole host of key economic indicators are absolutely screaming that a new recession is beginning. And if the U.S. economy does officially enter recession territory in 2017, it certainly won’t be a shock, because the truth is that we are well overdue for one. Donald Trump has inherited quite an economic mess from Barack Obama, and it was probably inevitable that we were headed for a significant economic downturn no matter who won the election.
One of the key indicators to watch is average weekly hours. When the economy shifts into recession mode, employers tend to start cutting back hours, and that is happening right now. In fact, as Graham Summers has pointed out, we just witnessed the largest percentage decline in average weekly hours since the recession of 2008…
In addition to the decline in hours, Summers has suggested that there are a number of other reasons to believe that a new recession is here…
The fact is that the GDP growth of 4%-5% is not just around the corner. The US most likely slid into recession in the last three months. GDP growth collapsed in 4Q16, with a large portion of the “growth” coming from accounting gimmicks.
Consider the following:
- Tax receipts indicate the US is in recession.
- Gross private domestic investment indicates were are in a recession.
- Retailers are showing that the US consumer is tapped out (see AMZN’s recent miss).
- UPS, another economic bellweather, dramatically lowered 2017 forecasts.
To me, even more alarming is the tightening of lending standards. In our debt-based economy, the flow of credit is absolutely critical to economic growth, and when credit starts to get tight that almost always leads to a recession.
So the fact that lending standards have now tightened for medium and large sized firms for six quarters in a row is very bad news. The following comes from Business Insider…
“Although modest over the past couple of quarters, it is still worth noting that this is now the sixth quarter in succession that standards have tightened for large and medium sized firms,” Deutsche Bank economist Jim Reid wrote in a research note to clients.
“This usually only happens in recessions.”
Reid is 100 percent correct on this point. This is precisely the kind of thing that we would expect to see if a new recession was beginning, and if this trend continues it is hard to imagine that the U.S. economy will be able to continue to grow.
And it is interesting to note that job growth at S&P 500 companies has gone negative for the first time since the last recession, and so large firms are definitely starting to feel the pressure.
Simultaneously, lending standards are also tightening up for consumers…
“The most notable tightening in standards though was in consumer loans,” the Fed said. “During the quarter, banks reported an 8.3% net tightening in credit standards for credit cards and 11.6% net tightening for auto loans.”
US consumer spending accounts for more than two-thirds of economic activity and is thus a key driver of growth in the world’s largest economy.
Those numbers for credit cards and auto loans are major red flags.
It is very simple. Tighter credit means less economic activity which means slower economic growth. The U.S. economy grew at a dismal 1.9 percent annual rate during the 4th quarter of 2016, and it would be absolutely no surprise if we end up with a negative number for the first quarter of 2017.
One of the big reasons why lending standards are tightening is because bankruptcies are rising.
As I reported the other day, consumer bankruptcies just rose on a year-over-year basis in back to back months for the first time in almost seven years. Commercial bankruptcies had already been rising on a year-over-year basis throughout 2016, and so the fact that consumer bankruptcies have now joined the party is a very bad sign.
And we have also just learned that real median household income declined in 2016…
Its official! The spectacular Obama/Fed “recovery” produced no increase in real medin household income in 2016 (the last year of Obama’s reign of [economic] error). In fact, real median annual household income in December 2016 ($57,827) was 0.9 percent lower than in December 2015 ($58,356).
Yes, I understand that there is a tremendous amount of optimism out there right now because of Donald Trump.
But the truth is that it is literally going to take some sort of an economic miracle to avoid a recession.
And if a recession is going to happen anyway, the Trump administration should want it to occur as quickly as possible.
You see, if a recession starts a year from now, it will be much more difficult for Trump to blame it on Obama. But if a recession starts right now, he will definitely be able to argue that it happened because of the mess that he inherited from the last administration.
In addition, the sooner the next recession ends the sooner the next recovery can begin. If a recession is still going on during the 2020 campaign, that would be really bad for Trump, but if a recovery is well underway by then that would be really good for his chances.
If you doubt this, just go back and look at the 1984 campaign. After a very difficult recession, the U.S. economy bounced back strongly and Ronald Reagan was able to ride that momentum to an easy victory.
So this may sound very strange to many of you, but the truth is that if a new recession is coming Trump supporters should want it to happen as rapidly as possible.
Unfortunately, once a new recession begins it may not play out like recessions normally do. The U.S. government is 20 trillion dollars in debt, we are in the midst of one of the biggest stock market bubbles in history, and our planet is becoming more unstable with each passing day. So even though Trump is in the White House and Obama is gone, let there be no doubt that a catastrophic economic crisis could literally erupt at any moment. I continue to encourage my readers to do all that they can to get prepared, because those that are prepared in advance will have the best chance of successfully getting through what is coming.
Unfortunately, a lot of people out there seem to believe that all of our problems have somehow evaporated just because Donald Trump is now living in the White House.
That is simply not true, and we all need to be praying for guidance and wisdom for Trump and his team as they prepare to deal with the great challenges that are ahead for our nation.
The stock market has been on quite a roll in recent weeks, but signs of trouble continue to plague the real economy. Earlier this week, I talked about the “retail apocalypse” that is sweeping America. Major retail chains such as Sears and Macy’s are closing stores and laying off workers, but I didn’t think that Wal-Mart would be feeling the pain as well. Unfortunately, that is precisely what is happening. USA Today is reporting that approximately 1,000 jobs will be cut at Wal-Mart’s corporate headquarters in Bentonville, Arkansas by the end of this month…
Walmart’s plan to lay off of hundreds of employees is the latest ripple in a wave of job cuts and store closures that are roiling the retail industry.
The world’s largest retailer is cutting roughly 1,000 jobs at its corporate headquarters in Bentonville, Ark., later this month, according to a person familiar with the matter who was not authorized to speak about it.
The company is saying that these cuts are necessary because Wal-Mart is always “looking for ways to operate more efficiently and effectively“. But something doesn’t smell right here. You don’t get rid of 1,000 employees at your corporate headquarters if everything is just fine.
I have driven past Wal-Mart’s headquarters in Bentonville a number of times, and it is in a beautiful part of the country. Bentonville and the surrounding areas had been booming, but it looks like times may be changing.
Meanwhile, there are signs of trouble out on the west coast as well. The Los Angeles Times is reporting that there is going to be a new round of engineering job cuts at Boeing…
Boeing Co. has internally announced a new round of employee buyouts for engineers companywide, including in Southern California, and warned that layoff notices will follow later this month to engineers in Washington state, where the company has a large presence.
Management did not cite a target for the number of projected job cuts.
The news comes after company Vice Chairman Ray Conner and the new chief executive of Boeing Commercial Airplanes, or BCA, Kevin McAllister, warned in December of the need to aim for further cuts in 2017.
And according to Boeing spokesperson Doug Alder, similar job cut announcements are coming for other classes of workers as well.
So why is Boeing getting rid of so many employees?
Well, the truth is that Boeing’s business is way down. The following comes from Wolf Richter…
Business has been tough. In 2016, deliveries fell by 14 jets from a year ago, to 748. Net orders dropped 13% from an already rotten level in 2015, to just 668, down 53% from 2014. And the lowest level since 2010!
When the economy is doing well, air traffic tends to rise, and when the economy is doing poorly it tends to go down.
Needless to say, the fact that Boeing is doing so poorly does not bode well for the future.
In addition to Wal-Mart, another major retailer that is letting people go is Petco…
Petco is cutting 180 positions with about 50 at its San Diego headquarters, the pet supply retailer confirmed Wednesday.
The company made the cuts across its workforce and include both existing and open positions.
Petco has about 650 workers at its headquarters in Rancho Bernardo. It employs 27,000 in the U.S.
My wife and I have three cats, and even though Petco tends to be a bit overpriced we have always appreciated the work that they do.
Unfortunately, when the economy gets tough spending on pets tends to be one of the first things to get cut back, and this current trouble at Petco could be a sign that rough sledding is ahead for the entire economy.
Of course your personal perspective on these things is likely to be very heavily influenced by your immediate surroundings. Those that live in wealthy enclaves of major cities such as San Francisco, New York City or Washington D.C. may be wondering how anyone could possibly be talking about economic trouble right now.
But if you live in economically depressed areas of Appalachia or the upper Midwest, it may seem like the last economic recession never even ended.
There have been pockets of economic prosperity in recent years, and this has resulted in some people becoming exceedingly wealthy. Meanwhile, things have just continued to become even tougher for millions of other families as the cost of living always seems to grow faster than their paychecks do.
If you are in the top one percent of all income earners, maybe to you it seems like things have never been better. But most of the country is living paycheck to paycheck and is just struggling to survive from month to month. The following comes from CNN…
The rich are money-making machines. Today, the top mega wealthy — the top 1% — earn an average of $1.3 million a year. It’s more than three times as much as the 1980s, when the rich “only” made $428,000, on average, according to economists Thomas Piketty, Emmanuel Saez and Gabriel Zucman.
Meanwhile, the bottom 50% of the American population earned an average of $16,000 in pre-tax income in 1980. That hasn’t changed in over three decades.
The workers being laid off at the companies discussed above are real people with real hopes and real dreams. Perhaps many of them will be able to land other employment fairly soon, but the truth is that the job market is really tough in many areas of the country right now.
Finding a good job that will allow you to pay the bills and support your family is not easy. You may find that out the hard way if you end up losing your current job during the economic troubles that will come in 2017.
Earlier today, I came across an excellent article by Gail Tverberg that detailed a whole bunch of reasons why a significant economic downturn appears to be imminent in 2017. If you would like to read it, you can find it here. She points to many of the same things that I have been pointing to for a very long time.
Even though economic conditions were fairly stable throughout 2016, our long-term problems just continued to get even worse. So the truth is that we are more primed for a major crisis today than we have been at any point since the last recession.
My hope is that things will not be nearly as bad in 2017 as Gail Tverberg and others are projecting that they could be, but the warning signs are definitely there, and it isn’t going to take much to push the U.S. economy off the rails.
Optimism 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.
It would be a grave mistake to understate the amount of damage that has been done to the U.S. economy over the past eight years. In this article, I am going to share some economic numbers with you that are extremely sobering. Anyone that takes a cold, hard, honest look at the numbers should be able to see that our economy is in terrible shape. Unfortunately, the way that we see things is often clouded by our political views. Up until the election, Democrats were far more likely then Republicans to believe that the economy was improving, but now that is in the process of completely reversing. According to Gallup, only 16 percent of Republicans believed that the economy was getting better before the election, but that number has suddenly jumped to 49 percent after Trump’s election victory. And the percentage of Democrats that believe that the economy is getting better fell from 61 percent to 46 percent after the election. Here are some additional details from Gallup…
After Trump won last week’s election, Republicans and Republican-leaning independents now have a much more optimistic view of the U.S. economy’s outlook than they did before the election. Just 16% of Republicans said the economy was getting better in the week before the election, while 81% said it was getting worse. Since the election, 49% say it is getting better and 44% worse.
Conversely, Democrats and Democratic-leaning independents’ confidence in the economy plummeted after the election. Before the election, 61% of Democrats said the economy was getting better and 35% worse. Now, Democrats are evenly divided, with 46% saying it is getting better and 47% saying it is getting worse.
The truth, of course, is that the result of the election did not somehow magically alter the outlook for the U.S. economy.
We still have a giant mess on our hands, and the following are 11 very depressing economic realities that Donald Trump will inherit from Barack Obama…
#1 Nearly 7 out of every 10 Americans have less than $1,000 in savings. That means that about two-thirds of the country is essentially living paycheck to paycheck at this moment.
#2 Reuters is reporting that U.S. mall investors are poised to lose “billions” of dollars as the “retail apocalypse” in this nation deepens.
#3 Credit card delinquencies have hit the highest level that we have seen since 2012.
#4 Approximately 35 percent of all Americans have a debt that is at least 180 days past due.
#5 The rate of homeownership has fallen for eight years in a row and is now hovering near a 50 year low.
#6 The total number of government employees now outnumbers the total number of manufacturing employees in this country by almost 10 million.
#7 The number of homeless people in New York City (where Donald Trump is from) has hit a brand new record high.
#8 About 20 percent of all young adults are currently living with their parents.
#9 Total household debt in the United States has now reached a grand total of 12.3 trillion dollars.
#10 The total amount of corporate debt in the U.S. has nearly doubled since the end of 2007.
#11 When Barack Obama entered the White House, the U.S. government was 10.6 trillion dollars in debt. Today, the U.S. national debt is currently sitting at a staggering total of $19,842,173,949,869.58.
Despite nearly doubling the national debt during his eight years in the White House, Barack Obama is going to be the only president in United States history to never have a single year when U.S. GDP grew by at least three percent.
So will Donald Trump waltz in and suddenly turn everything around?
Just like when George W. Bush was elected, there is a lot of optimism about the future right now among Republicans.
And in 2017, Republicans are going to have control of the Senate and the House in addition to being in control of the White House.
But does that mean that they will actually get anything done?
For a moment, let’s review what didn’t happen the last time the Republicans were in this position. The following is an extended excerpt from an article by author Devvy Kidd…
The Republicans had control of both houses of Congress part of the time during Bush, Jr.’s two terms. Did they lock down our borders? NO.
Did they pass legislation to stop ALL funding for illegals which would self-deport millions of liars, cheats and thieves? NO. (READ, please: How to Self-Deport Millions of Illegals)
Did they stop trillions in unconstitutional spending? NO.
Did they get rid of any of Clinton’s unconstitutional Executive Orders? One or two but otherwise let Comrade Bill Clinton crap in our faces.
Did they get rid of one unconstitutional cabinet like HHS, Department of Education and EPA? NO.
Did they stop the unconstitutional foreign aid? NO.
Did they stop unconstitutional spending for Planned Parenthood? NO. Congress just continues to use borrowed money to spend more debt.
Did they stop unconstitutional spending for the gigantic hoax called global warming or climate change? NO. Trump: The Left Just Lost The War On Climate Change
Did Bush, Jr., get us out of all the destructive trade treaties killing American jobs? NO.
Did they crack down on visas bringing in tens of thousands of foreign workers when American workers who want to work are left in the unemployment line? NO.
Did they stop more and more federal regulations strangling America’s businesses? NO.
Did they impeach one single activist judge destroying our freedom and liberty? NO.
A Republican controlled Congress with a Republican in the White House and they did virtually NOTHING to restore America to a constitutional republic and constitutional spending.
So will things be any different under a Trump administration?
We shall see.
There will be tremendous pressure to maintain the status quo in many instances, because the process of fixing things would undoubtedly make conditions worse in the short-term.
A great example of this is the national debt. As I discussed yesterday, the only reason why we are able to enjoy such a massively inflated standard of living in this country is because we have been able to borrow trillions upon trillions of dollars from the rest of the world at ultra-low interest rates.
If the federal government started spending only the money that it brought in through taxes, our ridiculous debt-fueled standard of living would begin collapsing immediately.
We consume far more wealth than we produce, and the only way that we are able to do this is by borrowing insane amounts of money.
Either Donald Trump will continue to borrow money recklessly, or we will go into a major league economic downturn.
It really is that simple.
But when our politicians borrow money, they are literally destroying the future of this country. So the choice is pain in the short-term or greater pain in the long-term.
There is a way out, and that would involve shutting down the Federal Reserve and going to a completely debt-free form of money, but that is a topic for another article.
And unfortunately that is not something that is even on Donald Trump’s radar at this point.
No matter who won the election, the next president was going to be faced with some very harsh economic realities.
There are many out there that have faith that Donald Trump can pull off an unprecedented economic miracle, but there are others that are deeply skeptical.
Let us hope for the best, but let us also keep preparing for the worst.
The 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.
Happy days are here again? On Friday, the mainstream media was buzzing with the news that the U.S. economy had added 255,000 jobs during the month of July. But as you will see below, the U.S. economy did not add 255,000 jobs during the month of July. In fact, without an extremely generous “seasonal adjustment”, the number of jobs added during the month of July would not have even kept up with population growth. But the pretend number sounds so much better than the real number, and so the pretend number is what is being promoted for public consumption.
Why doesn’t the government ever just tell us the plain facts? Unfortunately, we live at a time when “spin” is everything, and just about everyone in the mainstream media seemed quite pleased with the “good jobs report” on Friday. However, as Zero Hedge has pointed out, the truth is that the “unadjusted” numbers tell a very different story…
As Mitsubishi UFJ strategist John Herrmann wrote in a note shortly after the report, the “jobs headline overstates” strength of payrolls. He adds that the unadjusted data show a “middling report” that’s “nowhere as strong as the headline” and adds that private payrolls unadjusted +85k in July vs seasonally adjusted +217k.
In Herrmann’s view, the government applied a “very benign seasonal adjustment factor upon private payrolls to transform a soft private payroll gain into a strong gain.”
He did not provide a reason why the government would do that.
Every month, the U.S. economy must create at least 150,000 new jobs just to keep up with population growth. According to the unadjusted numbers, we did not hit that threshold, and so the employment situation in this country actually got worse last month.
In America today, there are 7.8 million Americans that are considered to be officially unemployed, and another 94.3 million working age Americans that are considered to be “not in the labor force”.
When you add those two numbers together, you get a grand total of 102 million working age Americans that do not have a job right now.
Rather than focusing on the headline “unemployment” figure, we get a much fairer look at the employment crisis in the United States when we examine the employment-population ratio. The following chart comes directly from the Bureau of Labor Statistics, and it shows that the percentage of Americans that are employed has never even come close to getting back to where it was just prior to the last recession…
Over the past couple of years we have seen a slight bump in this number, and that is good, but normally after a recession ends the employment-population ratio goes back to at least as high as it was before. Unfortunately, this has not happened after the last two recessions. The following comes from Wolf Richter…
The ratio always drops during recessions, but before 2001, it always climbed to higher highs during the recoveries. The 2001 recession and subsequent recovery changed this. For the first time, the ratio never fully recovered, never got even close to fully recovering. That was a new phenomenon: employment growth could no longer keep up with population growth.
When the Great Recession hit, the ratio plunged from its lower starting point at the fastest pace on record (going back to 1948). The Fed’s efforts were all focused exclusively on bailing out bondholders, re-inflating the stock market, re-inflating the housing market, and generally creating what had become the official Fed policy at the time, the Wealth Effect (here’s Bernanke himself explaining it). This has re-inflated asset prices – many of them way beyond their prior bubble peaks.
But the Fed’s astounding focus on capital accelerated the already changing dynamics of the economy, at the expense of labor.
Even the Wall Street Journal admits that we are in the weakest “economic recovery” since 1949, and now there are lots of signs that we have entered a brand new economic downturn. Here are just a few examples from Chad Shoop…
- Ford, GM and Chrysler — three of the U.S.’ largest auto companies — reported sales for July that missed estimates: down 3%, 1.9% and up 0.3%, respectively.
- Delta Airlines, one of the largest airlines in the world, said revenue fell 7% in July as part of its monthly performance update.
- Macy’s, the biggest department store company, reported a decline in sales for July, leading to more aggressive markdowns and an industry-wide sell-off.
And lots of ominous signs continue to pop up on Wall Street as well. For one thing, the Libor rate has surged to the highest level since the last financial crisis. If you are not familiar with Libor, here is a pretty good explanation of it from Business Insider…
The Libor, or London Interbank Offered Rate, measures the interest rate at which banks lend to each other at different durations, and its sharp jump was a harbinger of the financial crisis.
And according to that same article, the Libor rate is now the highest that we have seen since early 2009…
In the past month, the Libor rate has spiked to rates not seen since the first quarter of 2009, the heart of the banking meltdown.
Not to mention, the spread between the Libor and the Overnight Index Swap rate, which tracks the lending rate from the Federal Reserve, has widened, another potentially worrying sign.
But of course I have been quoting facts and figures like this for months, and yet U.S. financial markets continue to hold it together.
There are literally dozens of parallels between the global financial crisis of 2008 and what is happening in 2016, but Wall Street continues to defy the laws of economics.
Of course it won’t last forever, but it certainly has been a sight to behold.
And I am certainly not alone in my analysis. As I noted the other day, DoubleLine Capital CEO Jeffrey Gundlach is entirely convinced that stocks “should be down massively”…
“The artist Christopher Wool has a word painting, ‘Sell the house, sell the car, sell the kids.’ That’s exactly how I feel – sell everything. Nothing here looks good,” Gundlach said in a telephone interview. “The stock markets should be down massively but investors seem to have been hypnotized that nothing can go wrong.”
For the moment, investors continue to pay extremely irrational prices for stocks, and the mainstream media is just giddy about the state of the economy.
So let us enjoy this very strange period of stability for however much longer it lasts, but let us also protect ourselves from the horrible crash that will inevitably follow.