Most people have no idea that the U.S. financial system is on the brink of utter disaster. If interest rates continue to rise rapidly, the U.S. economy is going to be facing an economic crisis far greater than the one that erupted back in 2008. At this point, the economic paradigm that the Federal Reserve has constructed only works if interest rates remain super low. If they rise, everything falls apart. Much higher interest rates would mean crippling interest payments on the national debt, much higher borrowing costs for state and local governments, trillions of dollars of losses for bond investors, another devastating real estate crash and the possibility of a multi-trillion dollar derivatives meltdown. Everything depends on interest rates staying low. Unfortunately for the Fed, it only has a certain amount of control over long-term interest rates, and that control appears to be slipping. The yield on 10 year U.S. Treasuries has soared in recent weeks. So have mortgage rates. Fortunately, rates have leveled off for the moment, but if they resume their upward march we could be dealing with a nightmare scenario very, very quickly.
In particular, the yield on 10 year U.S. Treasuries is a very important number to watch. So much else in our financial system depends on that number as CNN recently explained…
Indeed, since May, just before Bernanke announced a probable end to QE3, the yield on 10-year Treasuries has jumped around almost one percentage point, to 2.6%, wiping out more than two years of interest payments. The markets clearly fear that far higher long-term rates are lurking in the absence of exceptional policies to rein them in.
That’s a crucial issue, because those rates are highly influential in determining the future performance of stocks, bonds, and real estate. Investors grant equities higher multiples when long-term rates are lower; both longer-maturity Treasuries and corporate bonds jump when rates decline; and developers pocket more cash flow from their projects when they borrow cheaply, raising the values of office and apartment buildings. When rates reverse course, so do all of those prices the Fed has been endeavoring to swell as a tonic for the economy.
Even though the yield on 10 year U.S. Treasuries has risen substantially, it is still very low. It has a lot more room to go up. In fact, as the chart posted below demonstrates, the yield on 10 year U.S. Treasuries was above 6 percent back in the year 2000…
And the yield on 10 year U.S. Treasuries should rise substantially. It simply is not rational to lend the U.S. government money at less than 3 percent when the real rate of inflation is about 8 percent, the Federal Reserve is rapidly debasing the currency by wildly printing money and the federal government has been piling up debt as if there is no tomorrow…
Anyone that lends the U.S. government money at current rates is being very foolish. You will end up getting back money that has much less purchasing power than you originally invested.
Why would anyone do that?
But if interest rates rise, the U.S. government could be looking at some very hairy interest payments very rapidly. For example, if the average rate of interest on U.S. government debt just gets back to 6 percent (and it has been far higher than that in the past), the federal government will be shelling out a trillion dollars a year just in interest on the national debt.
State and local governments all over the nation could also very rapidly be facing a nightmare scenario.
Detroit is already on the verge of formally declaring the largest municipal bankruptcy in the history of the United States, and there are many other state and local governments from coast to coast that are rapidly heading toward financial disaster even though borrowing costs are super low right now.
If interest rates start rising dramatically, it would cause a huge wave of municipal financial disasters, and municipal bond investors would lose massive amounts of money…
“Muni bond investors are in for the shock of their lives,” said financial advisor Ric Edelman. “For the past 30 years there hasn’t been interest rate risk.”
That risk can be extreme. A one-point rise in the interest rate could cut 10 percent of the value of a municipal bond with a longer duration, he said.
Many retail buyers, though, are not ready for the change and “when it starts, it will be too late for them to react,” he said, adding that he was encouraging investors to look at their portfolio allocation and make changes to protect themselves from interest rate risks now.
In fact, bond investors of all types could be facing monstrous losses if interest rates go up dramatically.
It is being projected that if U.S. Treasury yields rise by an average of 3 percentage points, it will cause bond investors to lose a trillion dollars.
And already we have started to see a race for the exits in the bond market. A total of 80 billion dollars was pulled out of bond funds during the month of June alone. If you want a visual of the flow of money out of the bond market, just check out the chart in this article.
We are witnessing things happen in the financial markets that have not happened in a very, very long time.
And junk bonds will be hit particularly hard. About a decade ago, the average yield on junk bonds was about twice what it is right now. When the junk bond crash comes, there is going to be mass carnage on Wall Street.
But of much greater importance to most Americans is what is happening to mortgage rates. As mortgage rates rise, it becomes much more difficult to sell a house and much more expensive to buy a house.
According to CNBC, there is an increasing amount of concern that the rise in mortgage rates that we are witnessing could throw the real estate market into absolute turmoil…
The housing recovery is in for a major pause due to higher mortgage rates. It is not in the numbers now, and it won’t be for a few months, but it is coming, according to one noted analyst. The market has seen rising rates before, but never so far so fast; there is no precedent for a 45 percent spike in just six weeks. The spike is causing a sense of urgency now, a rush to buy before rates go higher, but that will be short term. Home sales and home prices will both come down if rates don’t return to their lows, and the expectation is that they will not.
We have seen the number of mortgage applications fall for four weeks in a row, and at this point mortgage applications have declined by 28 percent over the past month.
That is an absolutely stunning decline, but it just shows the power of interest rates.
Let’s try to put this into real world terms.
A year ago, the 30 year rate was sitting at 3.66 percent. The monthly payment on a 30 year, $300,000 mortgage at that rate would be $1374.07.
If the 30 year rate rises to 8 percent, the monthly payment on a 30 year, $300,000 mortgage at that rate would be $2201.29.
Does 8 percent sound crazy to you?
It shouldn’t. 8 percent was considered to be normal back in the year 2000…
This is what we are talking about when we talk about the “bubbles” that the Federal Reserve has created. The housing market is now completely and totally dependent on these artificially low mortgage rates. If rates go back to “normal”, the results would be absolutely devastating.
But of course the biggest problem with rapidly rising interest rates is the potential for a derivatives crisis.
Total Assets: $1,812,837,000,000 (just over 1.8 trillion dollars)
Total Exposure To Derivatives: $69,238,349,000,000 (more than 69 trillion dollars)
Citibank
Total Assets: $1,347,841,000,000 (a bit more than 1.3 trillion dollars)
Total Exposure To Derivatives: $52,150,970,000,000 (more than 52 trillion dollars)
Bank Of America
Total Assets: $1,445,093,000,000 (a bit more than 1.4 trillion dollars)
Total Exposure To Derivatives: $44,405,372,000,000 (more than 44 trillion dollars)
Goldman Sachs
Total Assets: $114,693,000,000 (a bit more than 114 billion dollars – yes, you read that correctly)
Total Exposure To Derivatives: $41,580,395,000,000 (more than 41 trillion dollars)
That means that the total exposure that Goldman Sachs has to derivatives contracts is more than 362 times greater than their total assets.
The largest chunk of those derivatives contracts is made up of interest rate derivatives.
I have mentioned this so many times before, but it bears repeating that there are approximately 441 trillion dollars worth of interest rate derivatives sitting out there.
If rapidly rising interest rates suddenly cause trillions of dollars of those bets to start going bad, we could potentially see several of the “too big to fail” banks collapse at the same time.
So what would happen then?
Would the federal government and the Federal Reserve somehow come up with trillions of dollars (or potentially even tens of trillions of dollars) to bail them out?
The Federal Reserve has created a giant mess, and when this current low interest rate bubble ends our financial system is going to slam very violently into a very solid brick wall.
As Graham Summers recently pointed out, entrusting Federal Reserve Chairman Ben Bernanke with control of our financial system is like putting a madman behind the wheel of a speeding vehicle…
Imagine if you were in the car with a driver who was going 85 MPH down a road with a speed limit of 35 MPH (this isn’t a bad metaphor as there is absolutely no evidence that QE creates jobs or GDP growth so there is no reason for the Fed to be doing it in the first place).
The guy is obviously out of control. The dangers of driving this fast are myriad (crashing, running someone over, etc.) while the benefits (you might get where you want to go a little faster assuming you don’t crash) are minimal.
Now imagine that the driver turned to you and said, “I’m thinking about slowing down.” Seems like a great idea doesn’t it? But then a mere two minutes later he says “ we need to continue at 85 MPH for the foreseeable future.”
At this point any sane person would scream, “STOP.” The driver is clearly a madman and shouldn’t be let anywhere near the driver’s seat. Moreover, he’s totally lost all credibility and isn’t to be trusted.
That’s our Fed Chairman.
Sadly, most Americans do not understand any of this.
Most Americans have no idea about the immense economic pain that is going to hit us when interest rates go back to normal levels.
All of this could have been avoided, but instead the American people let the central planners over at the Federal Reserve run wild.
When the bubble finally bursts, the official unemployment rate is going to rocket well up into the double digits, millions of families will lose their homes and America will find itself in the middle of the worst economic crisis in modern U.S. history.
Please share this article with as many people as you can. We need to help people understand what is coming so that they will not be blindsided by it.
A fundamental shift is taking place in the U.S. economy. In fact, this transition is rapidly picking up momentum and is in danger of becoming an avalanche. The percentage of full-time jobs in our economy is steadily declining and the percentage of part-time jobs is steadily increasing. This is not a recent phenomenon, but now there are several factors which are accelerating this trend. One of them is Obamacare. The truth is that Obamacare actually gives business owners incentive to cut hours and turn full-time workers into part-time workers, and according to the Wall Street Journal and other prominent publications this is already happening all over the United States. Perhaps this is part of the reasons why the U.S. economy actually lost 240,000 full-time jobs last month.
In a recent article entitled “Restaurant Shift: Sorry, Just Part-Time“, the Wall Street Journal explained the choices that employers are faced with thanks to Obamacare…
The Affordable Care Act requires employers with 50 or more full-time equivalent workers to offer affordable insurance to employees working 30 or more hours a week or face fines. Some companies have said the requirement could increase their costs significantly, although others have played down the potential hit.
The cost for small firms to comply with the health law will depend largely on the number of additional full-time employees that sign up for employer-sponsored coverage. Average annual premiums for employer-sponsored health insurance in 2012 were $5,615 for single coverage and $15,745 for family coverage, according to the Kaiser Family Foundation. That is up from $3,083 and $8,003, respectively, in 2002.
Thankfully the implementation of this aspect of Obamacare was recently delayed, but a lot of employers are saying that it won’t make a difference. They know that it is coming at some point, and so they are already making the changes that they feel they will need to make in order to comply with the law…
Restaurant owners who have already begun shifting to part-time workers say they will continue that pattern.
“Does the delay change anything for us? Absolutely not,” Mr. Adams of Subway said, explaining that whether his health-care costs go up next year or in 2015, he will have to comply with the law. “We won’t start hiring full-time people.”
This is very sad, because we have already been witnessing a steady erosion of “breadwinner jobs” in this country.
It is very, very difficult to support a family if you just have a part-time job or a temp job. But those are the jobs that our economy is producing these days.
In fact, if you can believe it, the second largest employer in the United States is now a temp agency. Kelly Services is actually the second largest employer in the country after Wal-Mart.
Isn’t that crazy?
And full-time employment continues to lag far, far behind part-time employment. The number of part-time workers in the United States recently hit a brand new all-time record high, but the number of full-time workers remains nearly 6 million below the old record that was set back in 2007.
At this point, employees are increasingly considered to be expendable “liabilities” that can be dumped the moment that their usefulness is over.
For example, employees at one restaurant down in Florida were recently fired by text message…
It’s bad enough losing your job, but more than a dozen angry employees say they were fired from a central Florida restaurant via text message.
Employees at Barducci’s Italian Bistro said they lost their jobs without notice after the restaurant suddenly closed and are still waiting for their paychecks.
This shift that we are witnessing is fundamentally changing the relationship between employers and employees in the United States. The balance of power has moved very much toward the employers.
Most employers realize that there is intense competition for most jobs these days. If you get tired of your job, your employer can easily go out and find a whole bunch of other people who would be thrilled to fill it.
So why has the balance of power shifted so dramatically?
Well, for one thing we have allowed millions upon millions of good paying jobs to be shipped out of the country. Now American workers literally have to compete for jobs with workers on the other side of the planet that live in nations where it is legal to pay slave labor wages.
This should have never happened, but voters in both major political parties kept voting for politicians that were doing this to us.
Now we all pay the price.
Another factor is the rapid advancement of technology.
These days, businesses are trying use machines, computers and robots to automate just about everything that they can. The following example comes from a recent Business Insider article…
On a windy morning in California’s Salinas Valley, a tractor pulled a wheeled, metal contraption over rows of budding iceberg lettuce plants. Engineers from Silicon Valley tinkered with the software on a laptop to ensure the machine was eliminating the right leafy buds.
The engineers were testing the Lettuce Bot, a machine that can “thin” a field of lettuce in the time it takes about 20 workers to do the job by hand.
The thinner is part of a new generation of machines that target the last frontier of agricultural mechanization — fruits and vegetables destined for the fresh market, not processing, which have thus far resisted mechanization because they’re sensitive to bruising.
So what happens when the big corporations that dominate our economy are able to automate everything?
What will the rest of us do?
How will the middle class survive if they don’t need us to work for them?
Over the past couple of centuries, we have witnessed several fundamental shifts in our economy.
Once upon a time, a very high percentage of Americans worked for themselves. There were millions of farmers, ranchers, small store owners, etc.
But then the industrial revolution kicked in to high gear and big corporations started to gain more power. Millions of Americans went to work for these big corporations, but it was okay because they paid us good wages to work in their factories and the middle class thrived.
Unfortunately, the big corporations have realized that things have changed and that they don’t really need us anymore. They can replace us with technology or with super cheap labor overseas.
So that leaves the rest of us in quite a quandry. Very few of us own our own businesses. In fact, the percentage of self-employed workers in the United States is at an all-time record low. And the number of us that are needed by the monolithic corporations that dominate our system is dropping by the day.
All of this is very bad news for the middle class. The only thing that most of us have to offer is our labor, and the value of our labor is continually declining.
Unless something dramatic happens, the future of the middle class looks very bleak.
Have you ever seen a disaster movie that is so bad that it is actually good? Well, that is exactly what Syfy’s new television movie entitled “Sharknado” is. In the movie, wild weather patterns actually cause man-eating sharks to come flying out of the sky. It sounds absolutely ridiculous, and it is. You can view the trailer for the movie right here. Unfortunately, we are witnessing something just as ridiculous in the real world right now. In the United States, the mainstream media is breathlessly proclaiming that the U.S. economy is in great shape because job growth is “accelerating” (even though we actually lost 240,000 full-time jobs last month) and because the U.S. stock market set new all-time highs this week. The mainstream media seems to be absolutely oblivious to all of the financial storm clouds that are gathering on the horizon. The conditions for a “perfect storm” are rapidly developing, and by the time this is all over we may be wishing that flying sharks were all that we had to deal with. The following are 10 reasons why the global economy is about to experience its own version of “Sharknado”…
“Mr. Gaspar’s resignation on July 1 has opened a Pandora’s box,” says Nicholas Spiro, managing director of Spiro Sovereign Strategy. “Portuguese politicians from the President down are treating the exit of Mr. Gaspar, the architect of the fiscal and structural reforms demanded by the troika, as a green light for a public debate about the bail-out programme. Yet the manner in which this debate is taking place, with the President undermining the prime minister and the opposition leader seeking to renegotiate the terms of the programme, is spooking markets.”
The general population is becoming increasingly restless as the nation plunges down the exact same path that Greece has gone. Nobody seems to have any solutions as the economic problems continue to escalate. According to Reuters, the president of Portugal has added fuel to the fire by calling for early elections next year…
Portugal’s president threw the bailed-out euro zone country into disarray on Thursday after rejecting a plan to heal a government rift, igniting what critics called a “time bomb” by calling for early elections next year.
Due to all of this instability in Portugal, the yield on Portuguese bonds shot up to 7.51% this week. That is a very bad sign.
#2 The economic depression in Greece continues to deepen, and it is being reported that Greece will not even come close to hitting the austerity targets that it was supposed to hit this year…
A leaked report from the European Commission confirms that Greece will miss its austerity targets yet again by a wide margin. It alleges that Greece lacks the “willingness and capacity” to collect taxes. In fact, Athens is missing targets because the economy is still in freefall and that is because of austerity overkill. The Greek think-tank IOBE expects GDP to fall 5pc this year. It has told journalists privately that the final figure may be -7pc.
Another 7 percent contraction for the Greek economy?
It has already been contracting steadily for years.
At this point, it would be hard to overstate how bad economic conditions inside Greece are. The following is from a recent article by Simon Black…
My friend Illias took a drag of his cigarette as he contemplated my question.
“Our government tells us that this will be a better year. No one really believes them. But all we can do is be optimistic. Too many people are committing suicide.”
His statement probably best sums up the situation in Greece right now. It’s as if the hopelessness has gone stale, and the only thing they have to replace it with is desperate, misguided, faux-optimism. And anger.
There are roughly 11 million people in this country. 3.4 million of them are employed, of which roughly one third work for the government.
1.34 million people are ‘officially’ unemployed. To put this in context, it would be as if there were 36 million officially unemployed in the US.
More startling, if you add the number of ‘inactive’ workers (i.e. those who gave up looking), the total number of unemployed is roughly 57% of the entire Greek work force.
#3 The economic crisis in the third largest country in the eurozone, Italy, has taken another turn for the worse. The unemployment rate in Italy is up to 12.2 percent, which is the highest in 35 years. An average of 134 retail outlets are shutting down in Italy every single day, and the debt of the country has been downgraded again to just above junk status…
Italy’s slow crisis is again flaring up. Its debt trajectory has punched through the danger line over the past two years. The country’s €2.1 trillion (£1.8 trillion) debt – 129pc of GDP – may already be beyond the point of no return for a country without its own currency.
Standard & Poor’s did not say this outright when it downgraded the country to near-junk BBB on Tuesday. But if you read between the lines, it is close to saying the game is up for Italy.
#4 There are rumors that some of the biggest banks in the world are in very serious trouble. For example, Jim Willie (a financial writer who usually puts out really solid information) is insisting that Deutsche Bank is on the verge of collapse…
The best information coming to my desk indicates that three major Western banks are under constant threat of failure overnight, every night, forcing extraordinary measures to avoid failure. They are Deutsche Bank in Germany, Barclays in London, and Citibank in New York. Judging from the ongoing defense from prosecution and cooperation (flipped) with Interpol and distraction of resources, the most likely bank to die next is Deutsche Bank. They are caught with accounting fraud and outright financial fraud over collateral shell games, pertaining to USTreasury Bonds, other sovereign bonds in Southern Europe, and OTC derivatives linked to FOREX currency contracts. D-Bank is a dead man walking.
Time will tell if he is right. But without a doubt the global financial system is extremely vulnerable right now.
Most Americans assume that the problems that caused the financial crash of 2008 were fixed, but that is most definitely NOT the case. In fact, our financial system is far more shaky today than it was just before the last financial crisis. When one major bank goes down, we could start to see others fall like dominoes.
#5 Just before the financial crisis of 2008, the price of oil spiked dramatically. Well, it is starting to happen again. The price of oil hit $106 a barrel on Friday. If the price of oil continues to rise at this pace, it is going to mean big trouble for economies all over the planet.
And as I wrote about recently, every time the average price of a gallon of gasoline in the United States has risen above $3.80 during the past three years, a stock market decline has always followed.
The average price of a gallon of gasoline in the United States reached $3.55 on Friday. This is a number to keep a close eye on.
The average U.S. rate on the 30-year fixed mortgage rose this week to 4.51%, a two-year high. Rates have been rising on expectations that the Federal Reserve will slow its bond purchases this year.
Mortgage buyer Freddie Mac said Thursday that the average on the 30-year loan jumped from 4.29% the previous week. Just two months ago, it was 3.35% — barely above the record low of 3.31%.
This threatens to throw the U.S. real estate market into a slowdown worse than anything we have seen since the last recession.
#7 This upcoming corporate earnings season is shaping up to be an extremely disappointing one. In fact, the percentage of companies issuing negative earnings guidance for this quarter is at a level that we have never seen before.
So is this a sign that economic activity is starting to slow down significantly?
#8 U.S. stocks are massively overextended right now. In fact, according to Graham Summers, this is the most overextended stocks have been in the past 20 years…
Today, the S&P 500 is sitting a full 30% above its 200-weekly moving average. We have NEVER been this overextended above this line at any point in the last 20 years.
#9 Rapidly rising interest rates are causing the bond market to begin to come apart at the seams. There is concern that the 30 year bull market for bonds is now over and investors are starting to pull their money out of the market at a staggering rate. In fact, 80 billion dollars was pulled out of bond funds during June alone.
#10 Rapidly rising interest rates could cause an implosion of the derivatives market at any moment. As I am so fond of reminding everyone, there are approximately 441 trillion dollars worth of interest rate derivatives out there.
If interest rates continue to soar, we could potentially see a financial disaster that is absolutely unprecedented, and the too big to fail banks would be the most vulnerable.
As USA Today recently reported, there are just five major banks that absolutely dominate derivatives trading in the United States…
Five of the biggest U.S. banks — JPMorgan, Goldman Sachs Group Inc., Bank of America Corp., Citigroup Inc. and Morgan Stanley — account for more than 90% of derivatives contracts. Regulators estimate that nearly half of derivatives are traded outside the United States.
Could you imagine the financial devastation that we would see if several of those banks started to collapse at the same time?
When you hear the mainstream media begin to talk about a “derivatives crisis” involving major banks, that will be a sign that disaster is upon us.
Most Americans don’t realize that Wall Street has been transformed into the largest casino in the history of the world. Most Americans don’t realize that the major banks are literally walking a financial tightrope each and every day.
All it is going to take is one false step and we will be looking at a financial crisis even worse than what happened back in 2008.
So enjoy this little bubble of false prosperity while you can.
As the number of good jobs continues to decline, the number of Americans that cannot take care of themselves without government assistance continues to explode. On Friday, we learned that the U.S. economy added “195,000 jobs” last month. But when you look deeper at the numbers, another story emerges. Last month, the U.S. economy actually lost240,000 full-time jobs. Overall, the U.S. economy has only added 130,000 full-time jobs in 2013, but it takes about 90,000 full-time jobs a month just to keep up with population growth. So we are losing quite a bit of ground as far as full-time jobs are concerned. Meanwhile, the U.S. economy has added more than 500,000 part-time jobs so far this year. Unfortunately, there are very, very few part-time and temp jobs that can be considered “breadwinner jobs”. Part-time jobs are great for teenagers, university students and elderly people that only want to work a limited number of hours, but what most Americans need are good paying full-time jobs with benefits that will allow them to take care of their families. Unfortunately, those jobs are continually becoming a smaller part of our economy.
As David Stockman has noted, the U.S. economy has only regained 200,000 of the 5.6 million breadwinner jobs that were lost during the last recession…
By September 2012, the S&P 500 was up by 115 percent from its recession lows and had recovered all of its losses from the peak of the second Greenspan bubble. By contrast, only 200,000 of the 5.6 million lost breadwinner jobs had been recovered by that same point in time. To be sure, the Fed’s Wall Street shills breathlessly reported the improved jobs “print” every month, picking and choosing starting and ending points and using continuously revised and seasonally maladjusted data to support that illusion. Yet the fundamentals with respect to breadwinner jobs could not be obfuscated.
This is a big problem. As I wrote about the other day, the quality of jobs in America is falling very fast. Only 47 percent of all adults in the United States have a full-time job at this point, and 53 percent of all American workers make less than $30,000 a year.
Meanwhile, the number of part-time jobs has hit an all-time record high, and the number of temp jobs is absolutely exploding.
Incredibly, the number of temp jobs has increased by more than 50 percent since the end of the recession. Approximately 10 percent of the jobs lost during the last recession were temp jobs, but close to 20 percent of the jobs gained since then have been temp jobs.
We are witnessing a fundamental shift in our economy. Full-time jobs are on the decline. Part-time and temp jobs are on the rise.
In fact, the second largest employer in the United States is now a temp agency. Kelly Services has become the second largest employer in the country after Wal-Mart.
But it is really hard to pay the bills stocking shelves at Wal-Mart or working temp jobs for Kelly Services.
Unfortunately, these days millions of American workers find themselves having to take whatever they can find. We live during a period of chronic unemployment. In fact, according to John Williams of shadowstats.com, unemployment in the United States is now higher than it was at any point during the last recession after you factor in discouraged workers and workers that have taken part-time jobs for economic reasons.
So why don’t more Americans go out and start businesses and create their own jobs?
Unfortunately, thanks to the federal government, state governments and local governments, the environment for small businesses in America today is incredibly toxic. In fact, the percentage of self-employed workers in this country is at an all-time record low.
As a result of everything that I have discussed above, more Americans than ever find that they cannot take care of themselves without government assistance.
I have often written about the fact that the number of Americans on food stamps has skyrocketed in recent years. In the year 2000, there were only 17 million Americans on food stamps. Today, there are more than 47 million Americans on food stamps.
But the number of Americans that are dependent on our “modern day bread lines” is actually far higher than that.
According to a recent CNS News article, a total of 101 million Americans are enrolled in food assistance programs. The following are some of the staggering numbers for some of these programs…
The National School Lunch program provides 32 million students with low-cost or no-cost meals daily; 10.6 million participate in the School Breakfast Program; and 8.9 million receive benefits from the Woman, Infants and Children (WIC) program each month, the latter designed for low-income pregnant, breastfeeding, and postpartum women, as well as children younger than 5 years old.
In addition, 3.3 million children at day care centers receive snacks through the Child and Adult Care Food Program.
There’s also a Special Milk Program for schools and a Summer Food Service Program, through which 2.3 million children received aid in July 2011 during summer vacation.
At farmer’s markets, 864,000 seniors receive benefits to purchase food and 1.9 million women and children use coupons from the program.
Yes, there is some overlap in some of these programs. So the actual number of Americans receiving food assistance is going to be less than 101 million.
But clearly something has gone horribly wrong. Our economy is not producing enough good jobs, and more Americans than ever cannot take care of themselves as a result.
This is not normal. What we are witnessing is the slow-motion collapse of the middle class. The number of Americans that are dependent on the government for their daily bread is so large that it is difficult to comprehend. The following are a few statistics from my recent article entitled “21 Facts About Rising Government Dependence In America That Will Blow Your Mind“…
-According to one calculation, the number of Americans on food stamps now exceeds the combined populations of “Alaska, Arkansas, Connecticut, Delaware, District of Columbia, Hawaii, Idaho, Iowa, Kansas, Maine, Mississippi, Montana, Nebraska, Nevada, New Hampshire, New Mexico, North Dakota, Oklahoma, Oregon, Rhode Island, South Dakota, Utah, Vermont, West Virginia, and Wyoming.”
Well, we need a lot more full-time “breadwinner jobs” that will enable men and women to be able to take care of their families.
Unfortunately, we continue to ship millions of good jobs overseas, and our politicians continue to pursue policies which are making the business environment in this country very toxic.
There is not going to be any easy way to fix all of this. We should have seen a nice bounce in the employment numbers during this so-called “recovery”, but that did not happen. And now the next wave of the economic collapse is rapidly approaching, and the employment crisis in this country is going to become a lot more painful.
The mainstream media is heralding today’s “fantastic” employment numbers as evidence that the U.S. economy is steadily recovering. But is that really true? The number of jobs created in June was just a little bit more than what is required to keep up with population growth, and the official unemployment rate remained at 7.6 percent. And if you look deeper in the numbers, they don’t look very good at all. The percentage of low paying part-time jobs in the economy continues to rise, the number of full-time jobs actually decreased and the U-6 unemployment number jumped from 13.8% in May to 14.3% in June. That is a stunning increase. And if the labor participation rate in this country was at the level it was at prior to the last recession, the official unemployment rate would be sitting at 11.1%. But according to the mainstream media, all of this is wonderful news. It is like we are in some sort of economic bizarro world where bad is good and down is up.
When the jobs numbers were released on Friday, Business Insider breathlessly declared that it “was jobs day in America, and America crushed expectations.”
Posted below is a chart that shows the percentage of working age Americans with a job since the beginning of the year 2000. This chart does include the jobs numbers that were released on Friday…
Can you see a “recovery” in there somewhere?
Am I missing something?
Let me look again. This time I will squint really hard.
Nope – I still can’t see a recovery.
For three and a half years we have been stuck in a range between 58 percent and 59 percent. We are way, way below where we were before the recession.
So can we please not even begin to use the word “recovery” until we at least get above the 59 percent level?
And most of the jobs that are being created are of very poor quality. As I mentioned above, the figures show that the number of full-time jobs actually decreased last month. And as Zero Hedge pointed out, manufacturing employment has actually declined for four months in a row…
Even as the manufacturing jobs continue to collapse, posting their fourth consecutive monthly drop in June to 11.964 million jobs, minimum wage waiters and bartenders have never been happier. In June Restaurant and Bar employees just hit a new all time high of 10,339,800 workers, increasing by a whopping 51,700 in one month.
Things are pretty good in America right now if you want to flip burgers or wait tables. But if you want a good job that you can support a family with, things are getting even worse.
Meanwhile, bond yields soaring into the stratosphere.
The yield on 10 year U.S. Treasuries absolutely exploded today. It opened at 2.50% and closed at 2.71%. When I saw what had happened I could hardly believe it.
If bond yields continue to climb like this, it is going to cause some massive problems in the financial markets. The following is from an article by John Rubino…
A few things to look for: recalculations of the deficit in light of spiking interest costs, comparisons of US and Japanese yields and speculation about what this means for Japanese rates — followed by dire analyses of Japan’s future borrowing costs — and last but not least, a growing concern for the hundreds of trillions of dollars of interest rate derivatives that now have one counterparty deeply in the red.
Most Americans don’t think too much about bond yields, but if they keep spiking it is going to dramatically affect every man, woman and child in the entire country.
Yesterday, I described some of the consequences that rapidly rising bond yields would have…
And if interest rates on U.S. Treasury bonds start to rise to rational levels, the U.S. government is going to have to pay more to borrow money, state and local governments are going to have to pay more to borrow money, junk bonds will crash, the market for home mortgages will shrivel up and economic activity in this country will slow down substantially.
Never before have we had anything like the gigantic derivatives bubble that is hanging over global financial markets like a sword of Damocles.
As interest rates continue to go up, the derivatives bubble could burst at any time. When it does, we are going to see financial carnage unlike anything we have ever seen before.
2008 was just the warm up act. What is coming next is going to be the main event.
But in the economic bizarro world that we are living in, the mainstream media insists that skyrocketing interest rates are nothing to worry about.
And in that story they even admit that record amounts of money were being pulled out of bond funds in June…
Capital is already flowing out of low-yielding bonds. PIMCO Total Return fund, the world’s largest bond fund, suffered record outflows of $9.6 billion in June, in a second straight month of withdrawals.
Mutual and exchange-traded bond funds lost a record $79.8 billion in June, according to TrimTabs Investment Research.
The rush for the exits in the bond market is threatening to become an avalanche.
I hope that this is not the beginning of a financial panic. I hope that we have more time before the next major wave of the economic collapse strikes.
But I certainly cannot guarantee that things will remain stable. Once fear starts to sweep through financial markets, things can change very, very quickly.
If the economy is improving, then why aren’t things getting better for most average Americans? They tell us that the unemployment rate is going down, but the percentage of Americans that are actually working is exactly the same it was three years ago. They tell us that American families are in better financial shape now, but real disposable income is falling rapidly. They tell us that inflation is low, but every time we go shopping at the grocery store the prices just seem to keep going up. They tell us that the economic crisis is over, and yet poverty and government dependence continue to explode to unprecedented heights. There seems to be a disconnect between what the government and the media are telling us and what is actually true. With each passing day the debt of the federal government grows larger, the financial world become even more unstable and more American families fall out of the middle class. The same long-term economic trends that have been eating away at our economy like cancer for decades continue to ruthlessly attack the foundations of our economic system. We are rapidly speeding toward an economic cataclysm, and yet the government and most of the media make it sound like happy days are here again. The American people deserve better than this. The American people deserve the truth. The following are 36 hard questions about the U.S. economy that the mainstream media should be asking…
#1 If the percentage of working age Americans that have a job is exactly the same as it was three years ago, then why is the government telling us that the “unemployment rate” has gone down significantly during that time?
#2 Why are some U.S. companies allowed to exploit disabled workers by paying them as little as 22 cents an hour?
#3 Why are some private prisons allowed to pay their prisoners just a dollar a day to do jobs that other Americans could be doing?
#4 Why is real disposable income in the United States falling at the fastest rate that we have seen since 2008?
#5 Why do 53 percent of all American workers make less than $30,000 a year?
#7 Why are 76 percent of all Americans living paycheck to paycheck?
#8 Why are so many large corporations issuing negative earnings guidance for this quarter? Does this indicate that the economy is about to experience a significant downturn?
#9 Why is job growth at small businesses at about half the level it was at when the year started?
#12 Why did we just witness the largest weekly increase in mortgage rates in 26 years?
#13 Why has the number of mortgage applications fallen by 29 percent over the last eight weeks?
#14 Why has the number of mortgage applications fallen to the lowest level in 19 months?
#15 If the U.S. economy is recovering, why is the mortgage delinquency rate in the United States still nearly 10 percent?
#16 Why did the student loan delinquency rate in the United States just hit a brand new all-time high?
#17 Why is the sale of hundreds of millions of dollars of municipal bonds being postponed?
#18 What are the central banks of the world going to do when the 441 trillion dollar interest rate derivatives bubble starts to burst?
#19 Why is Barack Obama secretly negotiating a new international free trade agreement that will impose very strict Internet copyright rules on all of us, ban all “Buy American” laws, give Wall Street banks much more freedom to trade risky derivatives and force even more domestic manufacturing offshore?
#20 Why don’t our politicians seem to care that the United States has run a trade deficit of more than 8 trillion dollars with the rest of the world since 1975?
#21 Why doesn’t the mainstream media talk about how rapidly the U.S. economy is declining relative to the rest of the planet? According to the World Bank, U.S. GDP accounted for 31.8 percent of all global economic activity in 2001. That number dropped to 21.6 percent in 2011.
#22 Why is the percentage of self-employed Americans at a record low?
#23 What are we going to do if dust bowl conditions continue to return to the western half of the United States? If the drought continues to get even worse, what will that do to our agriculture?
#25 Why did the NIH spend $253,800 “to study ways to educate Boston’s male prostitutes on safe-sex practices”?
#26 Why do some of the largest charities in America spend less than 5 percent of the money that they bring in on actual charitable work?
#27 Now that EU finance ministers have approved a plan that will allow Cyprus-style wealth confiscation as part of all future bank bailouts in Europe, is it only a matter of time before we see something similar in the United States?
#29 Why are more than a million public school students in the United States homeless?
#30 Why are so many cities all over the United States passing laws that make it illegal to feed the homeless?
#31 Why is government dependence in the U.S. at an all-time high if the economy is getting better? Back in 1960, the ratio of social welfare benefits to salaries and wages was approximately 10 percent. In the year 2000, the ratio of social welfare benefits to salaries and wages was approximately 21 percent. Today, the ratio of social welfare benefits to salaries and wages is approximately 35 percent.
#33 The number of Americans on food stamps has grown from 32 million to 47 million while Barack Obama has been occupying the White House. So why is Obama paying recruiters to go out and get even more Americans to join the program?
#34 Today, there are 56 million Americans collecting Social Security benefits. In 2035, there will be 91 million Americans collecting Social Security benefits. Where in the world will we get the money for that?
#35 Why has the value of the U.S. dollar fallen by over 95 percent since the Federal Reserve was created back in 1913?
#36 Why has the size of the U.S. national debt gotten more than 5000 times larger since the Federal Reserve was created back in 1913?
U.S. financial markets are exhibiting the classic behavior patterns of an addict. Just a hint that the Fed may start slowing down the flow of the “juice” was all that it took to cause the financial markets to throw an epic temper tantrum on Wednesday. In fact, one CNN article stated that the markets “freaked out” when Federal Reserve Chairman Ben Bernanke suggested that the Fed would eventually start tapering the bond buying program if the economy improves. And please note that Bernanke did not announce that the money printing would actually slow down any time soon. He just said that it may be “appropriate to moderate the pace of purchases later this year” if the economy is looking good. For now, the Fed is going to continue wildly printing money and injecting it into the financial markets. So nothing has actually changed yet. But just the suggestion that this round of quantitative easing would eventually end if the economy improves was enough to severely rattle Wall Street on Wednesday. U.S. financial markets have become completely and totally addicted to easy money, and nobody is quite sure what is going to happen when the Fed takes the “smack” away. When that day comes, will the largest bond bubble in the history of the world burst? Will interest rates rise dramatically? Will it throw the U.S. economy into another deep recession?
Judging by what happened on Wednesday, the end of Fed bond buying is not going to go well. Just check out the carnage that we witnessed…
-The Dow dropped by 206 points on Wednesday.
-The yield on 10 year U.S. Treasuries shot up substantially, and it is now the highest that it has been since March 2012.
-On Wednesday we witnessed the largest percentage rise in the yield on 5 year U.S. Treasury bonds ever. It is now the highest that it has been in nearly two years.
-It was announced that mortgage rates are the highest that they have been in more than a year.
-We also learned that the MBS mortgage refinance applications index has fallen by 38 percent over the past six weeks.
If the markets react like this when the Fed doesn’t even do anything, what are they going to do when the Fed actually starts cutting back the monetary injections?
Posted below is an excerpt from the statement that the Fed released on Wednesday. Please note that the Fed is saying that the current quantitative easing program is going to continue at the same pace for right now…
To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.
The Committee will closely monitor incoming information on economic and financial developments in coming months. The Committee will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. The Committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes. In determining the size, pace, and composition of its asset purchases, the Committee will continue to take appropriate account of the likely efficacy and costs of such purchases as well as the extent of progress toward its economic objectives.
To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored. In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.
So why doesn’t the Federal Reserve just stop these emergency measures right now?
After all, we are supposed to be in the midst of an “economic recovery”, right?
What is Bernanke afraid of?
That is a question that Rick Santelli of CNBC asked on Wednesday. If you have not seen his epic rant yet, you should definitely check it out…
On days like this, it is easy to see who has the most influence over the U.S. economy. The financial world literally hangs on every word that comes out of the mouth of Federal Reserve Chairman Ben Bernanke. The same cannot be said about Barack Obama or anyone else.
The central planners over at the Federal Reserve are at the very heart of what is wrong with our economy and our financial system. If you doubt this, please see this article: “11 Reasons Why The Federal Reserve Should Be Abolished“. Bernanke knows that the actions that the Fed has taken in recent years have grossly distorted our financial system, and he is concerned about what is going to happen when the Fed starts removing those emergency measures.
Unfortunately, we can’t send the U.S. financial system off to rehab at a clinic somewhere. The entire world is going to watch as our financial markets go through withdrawal.
The Fed has purposely inflated a massive financial bubble, and now it is trying to figure out what to do about it. Can the Fed fix this mess without it totally blowing up?
Unfortunately, most severe addictions never end well. In a recent article, Charles Hugh Smith described the predicament that the Fed is currently facing quite eloquently…
One of the enduring analogies of the Federal Reserve’s quantitative easing (QE) program is that the stock market is now addicted to this constant injection of free money. The aptness of this analogy has never been more apparent than now, as the market plummets on the mere rumor that the Fed will cut back its monthly injection of financial smack. (The analogy typically refers to crack cocaine, due to the state of delusional euphoria QE induces in the stock market. But the zombified state of the heroin addict is arguably the more accurate analogy of the U.S. stock market.)
You know the key self-delusion of all addiction: “I can stop any time I want.” This eerily echoes the language of Fed Chairman Ben Bernanke, who routinely declares he can stop QE any time he chooses.
But Ben, the pusher of QE money, knows his addict–the stock market–will die if the smack is cut back too abruptly. Like all pushers, Ben has his own delusion: that he can actually control the addiction he has nurtured.
You’re dreaming, Ben–your pushing QE has backed you into a corner. The addict (the stock market) is now so dependent and fragile that the slightest decrease in QE smack will send it to the emergency room, and quite possibly the morgue.
We are rapidly approaching a turning point. We have a massively inflated stock market bubble, a massively inflated bond bubble, and a financial system that is absolutely addicted to easy money.
The Fed is desperately hoping that it can find a way to engineer some sort of a soft landing.
The Fed is desperately hoping to avoid a repeat of the financial crisis of 2008.
Federal Reserve Chairman Ben Bernanke insists that he knows how to handle things this time.
A lot of things that have not happened since the last recession are starting to happen again. As you read the list below, you will notice that the year “2009” comes up again and again. There is a reason for that. Many of the same patterns that we witnessed during the last major economic downturn are starting to repeat themselves. In fact, many of the things that are happening right now have not happened in quite a few years. For example, manufacturing activity in the U.S. has contracted for the first time in four years. The inventory to sales ratio is the highest that it has been in four years. Average hourly compensation just experienced the largest decline that we have seen in four years. We also just witnessed the largest decline in the number of mortgage applications that we have seen in four years. After everything that Barack Obama, the U.S. Congress and the Federal Reserve have tried to do, there has been no real economic recovery and now the U.S. economy is suddenly behaving as if it is 2009 all over again. A whole host of recent surveys indicate that the American people are starting to feel a bit better about the economy, but the underlying economic numbers tell an entirely different story. The following are 12 clear signals that the U.S. economy is about to really slow down…
#1 The average interest rate on a 30 year mortgage has risen above 4 percent for the first time in more than a year.
#2 The decline in the number of mortgage applications last week was the largest drop that we have seen since June 2009.
#3 Mark Hanson is reporting that “mass layoffs” have occurred at three large mortgage institutions…
This morning I was made aware that three large private mortgage bankers I follow closely for trends in mortgage finance ALL had mass layoffs last Friday and yesterday to the tune of 25% to 50% of their operations staff (intake, processing, underwriting, document drawing, funding, post-closing).
This obviously means that my reports of refi apps being down 65% to 90% in the past 3 weeks are far more accurate than the lagging MBA index, which is likely on its’ way to print multi-year lows in the next month.
#4 It was just announced that average hourly compensation in the United States experienced its largest drop since 2009 during the first quarter of 2013.
#5 As I wrote about the other day, the Institute for Supply Management manufacturing index declined to 49.0 in May. Any reading below 50 indicates contraction. That was the first contraction in manufacturing activity in the U.S. that we have seen since 2009.
#6 The inventory to sales ratio has hit a level not seen since 2009. That means that there is a lot of inventory sitting out there that people are not buying.
#7 According to the Commerce Department, the demand for computers dropped by a stunning 9 percent during the month of April.
#9 Job growth at small businesses is now at about half the level it was at the beginning of the year.
#10 The stock market is starting to understand that all of these numbers indicate that the U.S. economy is really starting to slow down. The Dow was down 216.95 points on Wednesday, and it dropped below 15,000 for the first time since May 6th.
#11 The S&P 500 has now fallen more than 4 percent since May 22nd. Is this the beginning of a market “correction”, or is this something much bigger than that?
#12 Japanese stocks are now down about 17 percent from the peak of May 22nd. Japan has the third largest economy on the planet and it is one of the most important trading partners for the United States. A major financial crisis in Japan would have very serious implications for the U.S. economy.
If we were going to have an “economic recovery”, it should have happened in 2010, 2011 and 2012. Unfortunately, as a recent Los Angeles Times article detailed, an economic recovery never materialized…
Real GDP growth — the value of goods and services produced after adjusting for inflation — is 15.4% below the 3% growth trend of past recoveries, wrote Edward Leamer, director of the UCLA Anderson Forecast. More robust growth will be necessary to bring this recovery in line with previous ones.
“It’s not a recovery,” he wrote. “It’s not even normal growth. It’s bad.”
Now we are rapidly approaching another major economic downturn.
What the U.S. economy is experiencing right now is not just a cyclical downturn. Rather, we are in the midst of a long-term economic decline that is the result of decades of very foolish decisions by our leaders.
It is imperative that we get the American people educated about what is happening. If people do not understand what is happening, they are not going to get prepared for the hard years that are coming.
If you have a family member or a friend that does not understand the long-term economic collapse that is unfolding all around us, please show them my article entitled “40 Statistics About The Fall Of The U.S. Economy That Are Almost Too Crazy To Believe“. It goes a good job of pointing out many of the reasons why we are heading for complete and total economic disaster.
And the point is not to fill people with fear. Rather, there is a lot of hope in understanding what is happening and in getting prepared. As we have seen over in Europe, those that get blindsided by economic problems often become totally consumed with despair. Suicide rates have soared in economically-troubled nations such as Greece, Spain and Italy.
And the same thing is going to happen in the United States too. In fact, the suicide rate in the United States has already been rising according to the New York Times…
From 1999 to 2010, the suicide rate among Americans ages 35 to 64 rose by nearly 30 percent, to 17.6 deaths per 100,000 people, up from 13.7.
In fact, today more Americans are killed by suicide than by car accidents.
Isn’t that crazy?
Unfortunately, this is only just the beginning. When the system fails, millions of Americans are going to be convinced that their lives are over. A lot of them are going to do some very stupid things. We want to try to prevent as much of that as possible.
Thanks to decades of incredibly foolish decisions by our leaders, an economic collapse is inevitable. This is especially true considering the fact that our leaders in Washington D.C. and elsewhere will not even consider many of the potential solutions which could help start turning our economic problems around.
So since there are no solutions on the horizon, we need to explain to people what is happening and help them to get as prepared as possible.
The years ahead are going to be very hard, but we have a choice as to how we will respond to the challenges in front of us.
We can face those challenges with fear, or we can face them with courage.
This is no time to be complacent. Massive economic problems are erupting all over the globe, but most people seem to believe that everything is going to be just fine. In fact, a whole bunch of recent polls and surveys show that the American people are starting to feel much better about how the U.S. economy is performing. Unfortunately, the false prosperity that we are currently enjoying is not going to last much longer. Just look at what is happening in Europe. The eurozone is now in the midst of the longest recession that it has ever experienced. Just look at what is happening over in Asia. Economic growth in India is the lowest that it has been in a decade and the Japanese financial system is beginning to spin wildly out of control. One of the only places on the entire planet where serious economic problems have not already erupted is in the United States, and that is only because we have “kicked the can down the road” by recklessly printing money and by borrowing money at an unprecedented rate. Unfortunately, the “sugar high” produced by those foolish measures is starting to wear off. We are going to experience a massive amount of economic pain along with the rest of the world – it is just a matter of time.
But for the moment, there are a lot of skeptics out there.
For the moment, there are a lot of people that are declaring that the problems of the past have been fixed and that we are heading for incredibly bright economic times ahead.
Unfortunately, those people appear to be purposely ignoring the economic horror that is breaking out all over the globe.
The following are 18 signs that massive economic problems are erupting all over the planet…
#1 The eurozone is now in the midst of its longest recession ever. Economic activity in the eurozone has declined for six quarters in a row.
“I’ve sent CVs everywhere, I come to the unemployment agency every day, for 3 or 4 hours to look for work as a truck driver and there’s never anything,” said 42-year old Djamel Sami, who has been unemployed for a year, leaving a job agency in Paris.
#7 Unemployment in the eurozone as a whole has just hit a brand new all-time record high of 12.2 percent.
#8 Youth unemployment continues to soar to unprecedented heights in Europe. The following is from an article that was recently posted on the website of the Guardian that detailed how bad things are getting in some of the worst countries…
In Greece, 62.5% of young people are out of work, in Spain it’s 56.4%, then Portugal with 42.5%, and then Italy with 40.5%.
#9 Youth unemployment is being partially blamed for the worst rioting that Sweden has seen in many years. The following is how the Daily Mail described the riots…
Sweden is reeling after a third night of rioting in largely run-down immigrant areas of the capital Stockholm.
In the last 48 hours violence has spread to at least ten suburbs with mobs of youths torching hundreds of cars and clashing with police.
It is Sweden’s worst disorder in years and has shocked the country and provoked a debate on how Sweden is coping with youth unemployment and an influx of immigrants.
#10 An astounding 10 percent of all banking deposits were pulled out of banks in Cyprus during the month of April alone.
#11 Economic growth in India is the slowest that it has been in an entire decade.
#12 Suddenly Australia is experiencing some tremendous economic challenges. The following quotes are from a recent Zero Hedge article…
-“We’re seeing a much sharper contraction in the Australian economy than we’d anticipated four or five months ago”. Coffey MD, John Douglas. The engineering group has seen its shares, which traded above $4 in 2007, hit 10c last week.
-“By 10am, the Fitness First gym in the city is packed full of brokers who’ve had a gutful of sitting at their desk doing nothing – salary cuts are starting and next it will be jobs” Perth broker
-“Oh mate, the funding market is dead. You are now seeing a few deeply discounted rights issues for those that are reaching desperate levels ….. liquidity has completely disappeared” Perth broker
#13 The financial system in Japan is beginning to spin wildly out of control. The Japanese stock market has now declined about 15 percent from the peak, and many believe that the yen will continue to get weaker and that interest rates in Japan will start to rise significantly.
#14 Global cash flow is declining at a rate not seen since the last recession. This indicates that we could be headed for a global credit crunch.
#15 Real wages continue to decline in the United States. Even though we are being told that the U.S. is experiencing an “economy recovery”, real weekly earnings have declined from $297.79 in 2010 to $295.49 in 2011 to $294.83 in 2012. (The preceding calculation is based on 1982-1984 dollars)
#16 Wall Street is buzzing about the fact that “the Hindenburg Omen” appeared at the end of last week. So exactly what is “the Hindenburg Omen”? The following are the criteria that are used to determine whether it has appeared or not…
1. The daily number of NYSE new 52 Week Highs and the daily number of new 52 Week Lows must both be greater than 2.2 percent of total NYSE issues traded that day.
2. The smaller of these numbers is greater than or equal to 69 (68.772 is 2.2% of 3126). This is not a rule but more like a checksum. This condition is a function of the 2.2% of the total issues.
3. That the NYSE 10 Week moving average is rising.
4. That the McClellan Oscillator ( a market breadth indicator used to evaluate the rate of money entering or leaving the market and interpretively indicate overbought or oversold conditions of the market)is negative on that same day.
5. That new 52 Week Highs cannot be more than twice the new 52 Week Lows (however it is fine for new 52 Week Lows to be more than double new 52 Week Highs).
When the Hindenburg Omen makes an appearance, it supposedly means that the U.S. stock market is likely to experience a serious decline within the next 40 days.
#17 As I wrote about the other day, the SentimenTrader Smart/Dumb Money Index is now the lowest that it has been in more than two years. That means that lots of “smart money” has been getting out of the market and lots of “dumb money” has been pouring in.
#18 Margin debt on the New York Stock Exchange has set a new all-time high. The following is from a recent Market Oracle article…
Margin debt—that’s the amount of money borrowed to purchase stocks—on the New York Stock Exchange (NYSE) reached its all-time high in April. Margin debt on the NYSE registered at $384.3 billion as the key stock indices hit new record-highs. (Source: New York Stock Exchange web site, last accessed May 29, 2013.) The highest margin debt ever reached prior to this was in July of 2007, when it stood just above $381.0 billion. At that time, just like today, the key stock indices were near their peaks and “buy now before it’s too late” was the prominent theme of the day
Whenever margin debt spikes like this, a stock market crash almost always follows. If you doubt this, just check out the chart in this article.
Wall Street has had a good couple of years, but it has been a “false prosperity” that has been pumped up by reckless money printing by the Federal Reserve. Just like all of the other stock market bubbles that we have seen in recent years, this one is going to burst too. And as Marc Faber recently pointed out, this bubble has been particularly beneficial to the wealthy…
The Fed has been flooding the system with money. The problem is the money doesn’t flow into the system evenly. It doesn’t increase economic activity and asset prices in concert. Instead, it creates dangerous excesses in countries and asset classes. Money-printing fueled the colossal stock-market bubble of 1999-2000, when the Nasdaq more than doubled, becoming disconnected from economic reality. It fueled the housing bubble, which burst in 2008, and the commodities bubble. Now money is flowing into the high-end asset market – things like stocks, bonds, art, wine, jewelry, and luxury real estate.
Money-printing boosts the economy of the people closest to the money flow. But it doesn’t help the worker in Detroit, or the vast majority of the middle class. It leads to a widening wealth gap. The majority loses, and the minority wins.
The fact that the U.S. stock market has set new all-time record high after new all-time record high in recent months means very little. At this point, the stock market has become completely divorced from economic reality. When this current bubble bursts, the adjustment is going to be very painful. Wall Street will likely whine and complain and ask for more bailouts, but they may find that authorities are not nearly as sympathetic this time.
Much of the rest of the world is already experiencing the next major wave of the economic collapse. Reckless money printing by the Fed and reckless borrowing and spending by the federal government may have delayed the inevitable in the United States for a little while, but those measures have also made our long-term problems even worse.
There was one piece of advice that Ben Bernanke included in his commencement speech to students at Princeton recently that I thought was particularly ironic…
“Don’t be afraid to let the drama play out.”
Will he take his own advice when the next great financial crisis strikes the United States?
That seems very unlikely.
Unfortunately, things are not going to be so easy to fix this next time.
What happened back in 2008 was just a preview.
What is coming next is going to absolutely shock the world.
Most people have no idea that the U.S. financial system is on the brink of utter disaster. If interest rates continue to rise rapidly, the U.S. economy is going to be facing an economic crisis far greater than the one that erupted back in 2008. At this point, the economic paradigm that the Federal Reserve has constructed only works if interest rates remain super low. If they rise, everything falls apart. Much higher interest rates would mean crippling interest payments on the national debt, much higher borrowing costs for state and local governments, trillions of dollars of losses for bond investors, another devastating real estate crash and the possibility of a multi-trillion dollar derivatives meltdown. Everything depends on interest rates staying low. Unfortunately for the Fed, it only has a certain amount of control over long-term interest rates, and that control appears to be slipping. The yield on 10 year U.S. Treasuries has soared in recent weeks. So have mortgage rates. Fortunately, rates have leveled off for the moment, but if they resume their upward march we could be dealing with a nightmare scenario very, very quickly.
36 Hard Questions About The U.S. Economy That The Mainstream Media Should Be Asking
#1 If the percentage of working age Americans that have a job is exactly the same as it was three years ago, then why is the government telling us that the “unemployment rate” has gone down significantly during that time?
#2 Why are some U.S. companies allowed to exploit disabled workers by paying them as little as 22 cents an hour?
#3 Why are some private prisons allowed to pay their prisoners just a dollar a day to do jobs that other Americans could be doing?
#4 Why is real disposable income in the United States falling at the fastest rate that we have seen since 2008?
#5 Why do 53 percent of all American workers make less than $30,000 a year?
#6 Why are wages as a percentage of GDP at an all-time low?
#7 Why are 76 percent of all Americans living paycheck to paycheck?
#8 Why are so many large corporations issuing negative earnings guidance for this quarter? Does this indicate that the economy is about to experience a significant downturn?
#9 Why is job growth at small businesses at about half the level it was at when the year started?
#10 Why are central banks selling off record amounts of U.S. debt right now?
#11 Why did U.S. mortgage bonds just suffer their biggest quarterly decline in nearly 20 years?
#12 Why did we just witness the largest weekly increase in mortgage rates in 26 years?
#13 Why has the number of mortgage applications fallen by 29 percent over the last eight weeks?
#14 Why has the number of mortgage applications fallen to the lowest level in 19 months?
#15 If the U.S. economy is recovering, why is the mortgage delinquency rate in the United States still nearly 10 percent?
#16 Why did the student loan delinquency rate in the United States just hit a brand new all-time high?
#17 Why is the sale of hundreds of millions of dollars of municipal bonds being postponed?
#18 What are the central banks of the world going to do when the 441 trillion dollar interest rate derivatives bubble starts to burst?
#19 Why is Barack Obama secretly negotiating a new international free trade agreement that will impose very strict Internet copyright rules on all of us, ban all “Buy American” laws, give Wall Street banks much more freedom to trade risky derivatives and force even more domestic manufacturing offshore?
#20 Why don’t our politicians seem to care that the United States has run a trade deficit of more than 8 trillion dollars with the rest of the world since 1975?
#21 Why doesn’t the mainstream media talk about how rapidly the U.S. economy is declining relative to the rest of the planet? According to the World Bank, U.S. GDP accounted for 31.8 percent of all global economic activity in 2001. That number dropped to 21.6 percent in 2011.
#22 Why is the percentage of self-employed Americans at a record low?
#23 What are we going to do if dust bowl conditions continue to return to the western half of the United States? If the drought continues to get even worse, what will that do to our agriculture?
#24 Why is the IRS spending thousands of taxpayer dollars on kazoos, stove top hats, bathtub toy boats and plush animals?
#25 Why did the NIH spend $253,800 “to study ways to educate Boston’s male prostitutes on safe-sex practices”?
#26 Why do some of the largest charities in America spend less than 5 percent of the money that they bring in on actual charitable work?
#27 Now that EU finance ministers have approved a plan that will allow Cyprus-style wealth confiscation as part of all future bank bailouts in Europe, is it only a matter of time before we see something similar in the United States?
#28 Why does approximately one out of every three children in the United States live in a home without a father?
#29 Why are more than a million public school students in the United States homeless?
#30 Why are so many cities all over the United States passing laws that make it illegal to feed the homeless?
#31 Why is government dependence in the U.S. at an all-time high if the economy is getting better? Back in 1960, the ratio of social welfare benefits to salaries and wages was approximately 10 percent. In the year 2000, the ratio of social welfare benefits to salaries and wages was approximately 21 percent. Today, the ratio of social welfare benefits to salaries and wages is approximately 35 percent.
#32 Why does the number of Americans on food stamps exceed the entire population of the nation of Spain?
#33 The number of Americans on food stamps has grown from 32 million to 47 million while Barack Obama has been occupying the White House. So why is Obama paying recruiters to go out and get even more Americans to join the program?
#34 Today, there are 56 million Americans collecting Social Security benefits. In 2035, there will be 91 million Americans collecting Social Security benefits. Where in the world will we get the money for that?
#35 Why has the value of the U.S. dollar fallen by over 95 percent since the Federal Reserve was created back in 1913?
#36 Why has the size of the U.S. national debt gotten more than 5000 times larger since the Federal Reserve was created back in 1913?