Debts

From An Industrial Economy To A Paper Economy – The Stunning Decline Of Manufacturing In America

Industrial - Public DomainWhy does it seem like almost everything is made in China these days?  Yesterday I was looking at some pencils that we had laying around the house and I noticed that they had been manufactured in China.  I remarked to my wife that it was such a shame that they don’t make pencils in the United States anymore.  At another point during the day, I turned over my television remote and I noticed that it also had “Made In China” engraved on it.  It is still Labor Day as I write this article, and so I think that it is quite appropriate to write about our transition from an industrial economy to a paper economy today.  Since the year 2000, the United States has lost five million manufacturing jobs even though our population has grown substantially since that time.  Manufacturing in America is in a state of stunning decline, our economic infrastructure is being absolutely gutted, and our formerly great manufacturing cities are in an advanced state of decay.  We consume far more wealth than we produce, and the only way that we are able to do this is by taking on massive amounts of debt.  But is our debt-based paper economy sustainable in the long run?

Back in 1960, 24 percent of all American workers worked in manufacturing.  Today, that number has shriveled all the way down to just 8 percent.  CNN is calling it “the Great Shift”…

In 1960, about one in four American workers had a job in manufacturing. Today fewer than one in 10 are employed in the sector, according to government data.

Call it the Great Shift. Workers transitioned from the fields to the factories. Now they are moving from factories to service counters and health care centers. The fastest growing jobs in America now are nurses, personal care aides, cooks, waiters, retail salespersons and operations managers.

No wonder the middle class is shrinking so rapidly.  There aren’t too many cooks, waiters or retail salespersons that can support a middle class family.

Since the turn of the century, we have lost more than 50,000 manufacturing facilities.  Meanwhile, tens of thousands of gleaming new factories have been erected in places like China.

Does anyone else see something wrong with this picture?

At this point, the total number of government employees in the United States exceeds the total number of manufacturing employees by almost 10 million…

Government employees in the United States outnumber manufacturing employees by 9,932,000, according to data released today by the Bureau of Labor Statistics.

Federal, state and local government employed 22,213,000 people in August, while the manufacturing sector employed 12,281,000.

The BLS has published seasonally-adjusted month-by-month employment data for both government and manufacturing going back to 1939. For half a century—from January 1939 through July 1989—manufacturing employment always exceeded government employment in the United States, according to these numbers.

You might be thinking that government jobs are “good jobs”, but the truth is that they don’t produce wealth.  Government employees are really good at pushing paper around and telling other people what to do, but in most instances they don’t actually make anything.

In order to have a sustainable economy, you have got to have people creating and producing things of value.  A debt-based paper economy may seem to work for a while, but eventually the whole thing inevitably comes crashing down when faith in the paper is lost.

Right now, the rest of the world is willing to send us massive amounts of stuff that they produce for our paper.  So we keep producing more and more paper and we keep going into more and more debt, but at some point the gig will be up.

If we want to be a wealthy nation in the long-term, we have got to produce stuff.  That is why the latest news from Caterpillar is so depressing.  In addition to the thousands of layoffs that had been previously announced by the industrial machinery giant, it appears that a fresh wave of layoffs has arrived…

Hundreds of mostly office employees received layoff notices at one of the largest Caterpillar Inc. facilities in the Peoria area this week, just as the company announced plans to close overseas production plants and eliminate thousands more positions.

A total of 300 support and management employees at Building AC and the Tech Center in Mossville this week received job loss notifications that included severance packages, 60 days notice and mandated Illinois Worker Adjustment and Retraining Notification Act letters.

During this election season, you will hear many of our politicians talk about how good “free trade” is for the global economy.  But that is only true if the trade is balanced.  Unfortunately, we have been running a yearly trade deficit of between 400 billion dollars and 600 billion dollars for many years…

Trade Deficit 2016

When you have got about half a trillion dollars more going out than you have coming in year after year that has severe consequences.

Let me try to break it down very simply.

Imagine that I am the United States and you are China.  I take one dollar out of my wallet and I give it to you and then you send me some stuff.

After a while, I want more stuff, so I take another dollar out of my wallet and send it to you in exchange for more products.

But that stuff only lasts for so long, and so pretty soon I find myself taking another dollar out of my wallet and giving it to you for even more stuff.

Ultimately, who is going to end up with all the money?

It isn’t a big mystery as to how China ended up with so much money.  And when we can’t pay our bills we have to go and beg them to let us borrow some of the money that we sent to them in the first place.  Since we pay interest on that borrowed money, that makes China even richer.

This is why I am so obsessed with these trade issues.  They truly are at the very heart of our long-term economic problems.

But most Americans don’t understand these things, and they seem to think that our debt-based paper economy can just keep rolling along indefinitely.

In the end, history will be the judge as to who was right and who was wrong.

Global Recession? The Canadian Economy Shrinks At The Fastest Pace Since The Last Financial Crisis

Canada - Public DomainThings have not been this bad for the Canadian economy since the last global recession.  During the second quarter of 2016, Canada’s GDP contracted at a 1.6 percent annualized rate.  That was the worst number in seven years, and it was even worse than most analysts were projecting.  This comes at a time when bad news is pouring in from all corners of the global economy.  While things in the United States are still relatively stable for the moment, the same cannot be said for much of the rest of the planet.  Canada in particular has been hit very hard by the collapse in oil prices, and the massive wildfire in northern Alberta back in May certainly did not help things.  The following comes from the BBC…

The recent drop in GDP was larger than analysts had projected, but not far off the predicted 1.5% loss.

“[The figure] could have been worse, given the hit from the wildfire, and clearly confirms the disappointing downward trend in exports over the last few months,” said Sal Guatieri, senior economist at BMO Capital Markets.

In May, wildfires devastated the parts of northern Alberta where much of Canada’s oil and natural gas is produced.

For many years, high oil prices and booming exports enabled the Canadian economy to significantly outperform the U.S. economy.  But now conditions have changed dramatically, and all of the economic bubbles up in Canada are starting to burst.  This includes the housing bubble, as we have seen home sales in the hottest markets such as Vancouver drop through the floor late in the summer.  In fact, it is being reported that home sales during the first two weeks of August in British Columbia were down a whopping 51 percent on a year over year basis.

Do you remember the housing bubble in the U.S. that helped fuel the last financial crisis?  Well, a very similar bubble is now bursting up in Canada, and some investors have positioned themselves to make a tremendous amount of money when the whole thing comes violently crashing down.  The following comes from Wolf Richter…

This summer, famed short seller Marc Cohodes came out of retirement (he now raises chickens on a farm in Sonoma County, CA, and sells the eggs for a fortune in San Francisco) and jumped into ring with a number of interviews on TV and in the print media, and this too rattled some nerves – largely because it hit home.

“I think it’s a money laundering-induced market,” he said as we reported at the time. “Where the local politicians, or the BC Liberals, are kept or in cahoots with the real estate brokers, developers, lawyers, that angle. And they have sought Chinese money to keep the market propped up and it won’t last,” he said. “China has capital controls on, and Vancouver has become the money laundering mecca of either the world or North America, and something is going to change and change drastically.”

If the price of oil does not rebound in a major way, the Canadian economy is going to continue to deeply struggle.

Meanwhile, one of the biggest economies in Africa is also shrinking.  Nigeria is yet another oil-dependent economy that has fallen on really hard times, and during the latest quarter their GDP shrunk by 2.06 percent on an annualized basis…

Nigeria has slipped into recession, with the latest growth figures showing the economy contracted 2.06% between April and June.

The country has now seen two consecutive quarters of declining growth, the usual definition of recession.

Its vital oil industry has been hit by weaker global prices, according to the Nigerian Bureau of Statistics (NBS).

There are so many signs that indicate that the global economy has entered a new major downturn.  Yes, the U.S. is doing better than almost everyone else for the moment, but this will not last indefinitely.  Our planet is more interconnected than ever before, and just as we saw in 2008, big trouble on one side of the globe quickly affects the other side.

Today we also learned that the 7th largest container shipping company in the entire world has completely imploded.  Total global trade has been declining for quite some time now, and it was inevitable that this sort of thing would start happening…

After years of relentless decline in the Baltic Dry index…

… today the largest casualty finally emerged on Wednesday when South Korea’s Hanjin Shipping, the country’s largest shipping firm and the world’s seventh-biggest container carrier, filed for court receivership after losing the support of its banks, leaving its assets frozen as ports from China to Spain denied access to its vessels.

Over in Europe, an emerging banking crisis continues to simmer just under the surface.

Most Americans are completely oblivious to the fact that major global financial problems could be just around the corner, but CNBC is reporting that banks over in Europe are “preparing for an economic nuclear winter situation”…

European banks, in particular, have had a very tough six months as the shock and volatility around Brexit sent banking stocks south. Major European banks like Deutsche Bank and Credit Suisse saw their shares in free-fall after the referendum’s results were announced. In the U.K., RBS was the worst-hit, with its shares plunging by more than 30 percent since June 24.

The current uncertainty over when the U.K. will start the process of quitting the EU has banks on tenterhooks. But a source told CNBC that banks are “preparing for an economic nuclear winter situation.”

Speaking on the condition of anonymity due to the sensitive nature of the topic, a source from a major investment bank told CNBC that financial services firms have put together a strategy in place that takes into account the worst-case scenario that could happen by the end of this year.

So precisely what would an “economic nuclear winter” look like?

I don’t know, but it certainly does not sound good.

We should be thankful that things have been as calm and stable as they have been so far in 2016, but nobody should be fooled into thinking that our problems have been fixed.

The truth is that the global debt bubble is at an all-time high, the banks are being more reckless and are more vulnerable than ever before, and troubling economic numbers continue to pour in from all over the planet.

The stage is certainly set for the next major global economic crisis, and it isn’t going to take much to push the world over the edge.

America The Debt Pig: We Are A ‘Buy Now, Pay Later’ Society – And ‘Pay Later’ Is Rapidly Approaching

America The Pig - Public DomainIf you really wanted to live like a millionaire, you could start doing it right now.  All you have to do is to apply for as many credit cards as possible and then begin running up credit card balances like there is no tomorrow.  At this point, I know what most of you are probably thinking.  You are probably thinking that such a lifestyle would not last for long and that a day of reckoning would eventually come, and you would be exactly right.  In fact, anyone that has ever had a tremendous amount of credit card debt knows how painful that day of reckoning can be.  To mindlessly run up credit card debt is exceedingly reckless, but unfortunately that is precisely what we have been doing as a nation as a whole.  We are a “buy now, pay later” society, and our national day of reckoning is approaching very, very quickly.

Often we like to focus on our exploding national debt, but household debt is out of control too.  In fact, the total amount of household debt in the United States is now up to a whopping 12.3 trillion dolllars…

In the second quarter, total household debt increased by $35 billion to $12.3 trillion, according to the New York Fed’s latest quarterly report on household debt. That increase was driven by two categories: auto loans and credit cards.

We throw around words like “trillion” so often these days that they often start to lose their meaning.  But the truth is that 12.3 trillion dollars is an astounding amount of money.  It breaks down to about $38,557 for every man, woman and child in the entire country.  So if you have a family of four, your share comes to a grand total of $154,231, and that doesn’t even include corporate debt, local government debt, state government debt or the gigantic debt of the federal government.  That number is only for household debt, and there aren’t too many Americans that could cough up their share right at this moment.

Do you remember when I wrote about how credit card companies are specifically targeting less educated and less sophisticated consumers?  Well, that is where much of the credit card debt growth has come lately.  Just check out these numbers…

Now, credit cards are returning among individuals with low credit or subprime credit scores below 660. Among people with credit scores between 620 and 660, the share that had a credit card rose to 58.8% in 2015 from a low of 54.3% in 2013. Among those with scores below 620, the number of people with a credit card increased to 50% from a low of 45.6% two years ago. Both figures for 2015 are the highest since 2008.

In America today, we are enjoying a standard of living that we do not deserve.

We consume far more wealth than we produce.  The only way we are able to do that is by going into debt.

Debt takes future consumption and brings it into the present.  In other words, we are damaging the future in order to make the present a little bit better.  On an individual level, we may enjoy the big screen television we buy with a credit card today, but we are taking away our ability to spend money later.  And on a national level, what our unprecedented debt binge is doing to future generations of Americans is beyond criminal.

Earlier this month I explained these things to a live studio audience down at Morningside, and you can view a video of that right here…

In this article I haven’t even talked about corporate debt yet.  Instead of learning their lessons from the last financial crisis, big corporations have gone on the biggest debt spree of all time.  If you can believe it, corporate debt has approximately doubled since the last financial crisis.  In other words, since the last recession we have essentially matched the total amount of corporate debt that we accumulated from the beginning of the country up to 2009.

Unfortunately, a lot of that debt is now going bad.

In previous articles I have documented that corporate debt delinquencies are now the highest that they have been since the last financial crisis, and corporate debt defaults are also the highest that they have been since the last financial crisis.

At this point, even the mainstream media is acknowledging that we have a corporate debt “crisis”.  The following comes from an article that was just put out by the Denver Post…

The number of companies that have defaulted so far this year has already passed the total for all of last year, which itself had the most since the financial crisis. Even among companies considered high-quality, or investment grade, credit-rating agencies say a record number are so stretched financially that they’re one bad quarter or so from being downgraded to “junk” status.

Companies whose debt is already deemed “junk” are in the worst shape in years. To pay back all they owe, they would have to set aside every dollar of their operating earnings over the next eight and a half years, more than twice as long as it would have taken during the 2008 crisis, according to Bank of America Merrill Lynch.

Are you starting to get the picture?

And I haven’t even started talking about our national debt yet.  When Barack Obama entered the White House, we were 10.6 trillion dollars in debt.  Today, we are 19.4 trillion dollars in debt.  That means that we have added 8.8 trillion dollars to the national debt under Obama, which breaks down to an average of 1.1 trillion dollars of additional debt a year.

We have been taking more than 100 million dollars of future consumption and bringing it into the present every single hour of every single day during the Obama administration.  That is why I am constantly referring to our “debt-fueled standard of living”.  We do not deserve to live the way that we do, but since we are able to steal from our children and our grandchildren we are able to enjoy a standard of living that most people in the world can only dream about.

Of course we are literally destroying the future of America in the process, but very few people seem to care about that these days.

Without all of this debt, we would be in a very deep economic depression right now.

But even with all of this “stimulus”, we are still mired in the worst economic “recovery” since 1949.  In fact, Barack Obama is actually on track to be the very first president in all of American history to not have one single year when U.S. GDP grew by 3 percent or better, and he has had two terms in which to try to get that accomplished.  The percentage of working age Americans that actually have a job is way down from where it was just prior to the last recession, and in this video I explain why the employment numbers put out by the government are not nearly as good as the administration would have us believe…

If the American people would have been willing to sacrifice and make some very hard choices a long time ago, maybe we could have gotten a handle on all of this debt.

But instead we continue to rack up debt as if there is no tomorrow, and in the process we are literally destroying tomorrow.

Every dollar of debt that we accumulate now makes life worse for our children and our grandchildren.

Unfortunately, we are a bunch of debt pigs, and we just can’t help ourselves.  We have come to believe that it is “normal” to go into so much debt, and as a society we continue to race toward economic oblivion.

Detroit Has Gone From Being The Greatest Manufacturing City In The World To A Global Joke

The Ruins Of Detroit - Photo by CsmcmIn 1960, the city of Detroit was the greatest manufacturing city that the world had ever seen.  Nearly two million people lived there, and it had the highest per capita income in the United States.  That may be hard to believe, because today it actually has one of the lowest per capita incomes of all of our major cities.  Over the decades more than a million people have left the city, and thousands of abandoned homes have been torn down.  But there are still tens of thousands of abandoned dwellings that remain standing, and some have sold for as little as one dollar in recent years.  Once Detroit was the envy of the entire planet, but now it has become a global joke and in other countries they love to do news stories about “the ruins of Detroit” to show how rapidly America is rotting and decaying.  Sadly, Detroit is far from alone, because there are other formerly great manufacturing cities that have declined just as fast as Detroit has.

Earlier today, I came across a video that contains footage that someone recently captured as they drove through the city of Detroit at night.  To say that the footage is disturbing would be a tremendous understatement…

It has become known as a mecca of violent crime and poverty, and now a viral video is giving an unpleasant view of Detroit after dark.

The clip, called Driving through Detroit at night, was filmed by a woman who was a passenger in a car going around the Motor City and was posted to Twitter at the weekend.

It shows terrifying scenes of gangs gathered on the sidewalk, prostitutes lifting up their skirts and dancing, and even a man being run over by a car on purpose.

I would have liked to share the video with you all, but it is just way too graphic.  There really are prostitutes lifting up their skirts in the video, and a man really is hit by a vehicle.  If you want to watch it for yourself, it is very easy to find on YouTube.  But please be warned that children should not be watching this.

If you live in a peaceful rural or suburban setting, the kind of behavior displayed in this video may seem very foreign to you.  In America today, it is way too easy to allow our televisions to define reality for us.  But the warped view of reality that we get through our televisions is nothing like the real world.  The real world is cold, cruel and very unforgiving.

If you are in the wrong place at the wrong time, the real world will eat you alive.

In the city of Detroit today, close to half the population is functionally illiterate, and one survey found that 60 percent of all children in the city are living in poverty.  It has been reported that 40 percent of the street lights do not work, and as you can see from the video it is a very frightening place to be after dark.

And don’t count on the police to help you.  The size of the police force in Detroit has been reduced by about 40 percent over the years, and it has been estimated that it takes the Detroit police an average of 58 minutes to respond to a call.

If it was just one major city where all of these things were happening, that would be bad enough.

Sadly, the truth is that what is happening in Detroit is happening all over the nation.  In fact, St. Louis and Memphis now have higher gun crime rates than Detroit does…

The listing places St Louis above the notoriously dangerous Detroit which has topped the list in previous years thanks to the city’s high gun crime rate.

Detroit is now listed as third after Memphis, Tennessee which had 84.2 violent crimes per 10,000 residents.

Birmingham, Alabama comes in fourth place with 82.8 violent crimes per 10,000 residents while Rockford, Illinois was fifth with a rate of 76.3.

Earlier this month, we saw how a major city such as Milwaukee can erupt in flames in just a matter of hours.  And in Chicago, some of the major gangs have agreed to use automatic weapons and sniper fire in their battle against the police.

A spirit of chaos and violence has descended on America, and things are going to get much worse during the months and years to come.

Meanwhile, crime continues to rise in our smaller cities and in our suburbs as well.  For a moment, I want you to consider a short excerpt from a recent Bloomberg article entitled “Walmart’s Out-of-Control Crime Problem Is Driving Police Crazy“…

The call log on the store stretches 126 pages, documenting more than 5,000 trips over the past five years. Last year police were called to the store and three other Tulsa Walmarts just under 2,000 times. By comparison, they were called to the city’s four Target stores about 300 times. Most of the calls to the northeast Supercenter were for shoplifting, but there’s no shortage of more serious crimes, including five armed robberies so far this year, a murder suspect who killed himself with a gunshot to the head in the parking lot last year, and, in 2014, a group of men who got into a parking lot shootout that killed one and seriously injured two others.

Police reports from dozens of stores suggest the number of petty crimes committed on Walmart properties nationwide this year will be in the hundreds of thousands.

Did you catch that?

This Bloomberg report says that there will be “hundreds of thousands” of crimes just committed at Wal-Mart stores alone this year.

If people are behaving like this while times are still relatively stable and relatively good, what would things look like during a real crisis?

Many people openly wonder what happened to Detroit, but it really isn’t much of a mystery at all.

Over the decades, our politicians have stood idly by as tens of thousands of businesses and millions of good paying jobs have left the country.  Our economic infrastructure has been absolutely gutted, and as a result formerly great manufacturing cities have become rotting, decaying hellholes.

And it certainly doesn’t help that voters in many of these cities have willingly chosen to put radical leftists into power time after time.

Unfortunately, it appears that the nation as a whole is about to hand the keys to the White House to a radical leftist that has a violent temper that is absolutely legendary.  If she gets into power, that might just be the final nail in our coffin.

What has already happened to Detroit is slowly happening to the entire country, but we never seem to learn from our past mistakes.

So now we will suffer the consequences for our very foolish decisions, and it will not be pretty.

Overwhelmed By Debt, Nearly 1 In 5 Young Adults Live With Their Parents Or Grandparents

Young Man - Public DomainIn America today, more than 60 million people live in multi-generational households.  That number is so large that it may seem difficult to believe, but the truth is that vast numbers of young adults have had to move back in with their parents and grandparents in recent years due to the deteriorating economy.  Millions of our young people cannot find decent jobs once they leave school, and millions of them are absolutely overwhelmed by debt.  Of course some of them are just lazy, but whatever the reason it is undeniable that multi-generational households are on the rise.  According to the Pew Research Center, 12 percent of the U.S. population was living in multi-generational households back in 1980.  Today, that number is up to 19 percent.  That means nearly one out of every five U.S. adults now live with their parents or their grandparents.

One of the big culprits, of course, is student loan debt.

According to CNN, approximately 70 percent of all college graduates will have student loan debt to pay off once they leave school, and the average loan balance for those graduates is about $28,950.

But there are many that run up $50,000 or $100,000 in debt at high end schools.  We encourage our young people to apply to the “best schools” that they possibly can, and we tell them that they shouldn’t worry about how much it will cost.  We assure them that they will be able to easily pay back any debts once they leave college because of the “good jobs” that they will get upon graduation.

Unfortunately, millions upon millions of our young people have discovered that the good jobs that they were promised simply do not exist.

We are also seeing other forms of debt rise to frightening levels in this nation.  The following comes from the New York Times…

Over all, Americans’ use of credit cards has recently been creeping up again: Household debt in the United States increased by $35 billion, to $12.29 trillion, during the second quarter of 2016, a 0.3 percent rise from the previous quarter that was driven by credit cards and auto loans, according to a report released on Tuesday by the Federal Reserve Bank of New York.

We often criticize the federal government for being 19.4 trillion dollars in debt, and rightly so, but let us not forget that U.S. households are 12.2 trillion dollars in debt.

We are a society that feels entitled to everything, and we are not afraid to go into debt to get it.  And unfortunately we have passed on this “entitlement mentality” to the next generation.

In a recent blog post, Jenna Abrams did an amazing job of describing the crisis that we are facing with our young adults today.  Here is an excerpt…

Today I asked my followers how would they describe Millennials and this is what I got: “lazy”, “thin-skinned”, “spoiled”, “selfish”, “undisciplined”, “self-absorbed”, ”fragile”, “oblivious”, etc. and I can agree on this. This generation is really what you call it. But there was one description that is the most accurate.  “Raised by neglectful, over-compensating for inadequacy, self-serving parents.”

You’re in charge. You insisted your children and grandchildren have to get higher education instead of taking a blue-collar job or just entering the workforce after school like your generation did. Most of you pay for that (often unnecessary) higher education. You are overprotective and prevent your children from playing outside and making mistakes you had a chance to make to gain that thick skin. You don’t let your 12-year-old kid stay at home alone because they are too young. And who is wrong when your child has a conflict at school? I bet you always blame the other side, not your “special snowflake”. And how you get surprised that the whole generation gets offended by facing the truth: they are not special. It must hurt, right?

This generation of young adults is the most “educated” in our history, and yet they also appear to be one of the least competent.  Just check out these numbers from CBS News…

Half of American Millennials score below the minimum standard of literacy proficiency. Only two countries scored worse by that measure: Italy (60 percent) and Spain (59 percent). The results were even worse for numeracy, with almost two-thirds of American Millennials failing to meet the minimum standard for understanding and working with numbers. That placed U.S. Millennials dead last for numeracy among the study’s 22 developed countries.

In the old days, our institutions of higher learning had exceedingly high standards and they demanded the best from students.  Today, our system of higher education is a joke, and many of our best colleges are more focused on political correctness and “safe spaces” than they are on preparing our young people for the harsh realities of the real world…

At Brown University – like Harvard, one of the eight elite Ivy League universities – the New York Times reported students set up a “safe space” that offered calming music, cookies, Play-Doh and a video of frolicking puppies to help students cope with a discussion on how colleges should handle sexual assault.

A Harvard student described in the university newspaper attending a “safe space” complete with “massage circles” that was designed to help students have open conversations.

We have raised a generation of overly-coddled, self-absorbed boys and girls that have never learned how to become men and women.  They don’t understand how things really work, and they are completely and utterly unprepared for the exceedingly difficult times that are coming.

And since our education system is completely and totally dominated by progressives, our young people have had decades of liberal propaganda pumped into their skulls, and the results are absolutely frightening.

For example, one survey discovered that 62 percent of Millennials say that they are “liberal”, and 42 percent of them say that they are “socialists”.

A different survey discovered that more than half of all U.S. adults under the age of 30 say that they reject capitalism.

If the coming election were to be determined by the Millennials, Hillary Clinton would win by one of the biggest landslides in U.S. history.  But of course she wouldn’t have even been the nominee for the Democrats, because Bernie Sanders would have crushed Clinton.

If something is not done, this is what the future of America is going to look like.

I don’t know about you, but to me that is a rather distressing thought.

Why The Jobs Report Is Not Nearly As Strong As You Are Being Told

Jobs Unemployment Main Street - Public DomainHappy 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…

Employment-Population Ratio 2016

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.

The U.S. Has Lost 195,000 Good Paying Energy Industry Jobs

Layoffs - Public DomainNot all jobs are created equal.  There is a world of difference between a $100,000 a year energy industry job and a $10 an hour job running a cash register at Wal-Mart.  You can comfortably support a middle class family on $100,000 a year, but there is no way in the world that you can run a middle class household on a part-time job that pays just $10 an hour.  The quality of our jobs matters, and if current long-term trends continue unabated, eventually we are not going to have much of a middle class left.  At this point the middle class has already become a minority in America, and according to the Social Security Administration 51 percent of all American workers make less than $30,000 a year right now.  We have a desperate need for more higher paying jobs, and that is why what is happening in the energy industry is so deeply alarming.

Just today we got some more disturbing news.  According to Challenger, Gray & Christmas, the U.S. has lost 195,000 good paying energy jobs since the middle of 2014…

Cheap oil has fueled a massive wave of job cuts that may not be over yet.

Since oil prices began to fall in mid-2014, cheap crude has been blamed for 195,000 job cuts in the U.S., according to a report published on Thursday by outplacement firm Challenger, Gray & Christmas.

It’s an enormous toll that is especially painful because these tend to be well-paying jobs. The average pay in the oil and gas industry is 84% higher than the national average, according to Goldman Sachs.

Those are good paying jobs that are not easy to replace, and unfortunately the jobs losses appear to be accelerating.  In their new report, Challenger, Gray & Christmas went on to say that 95,000 of those job cuts have come in 2016, and 17,725 of them were in July alone.

We also got some other bad news for the U.S. economy on Thursday.

Factory orders are down again, and at this point U.S. factory orders have now been down on a year over year basis for 20 months in a row.  That is the longest streak in all of U.S. history.

Needless to say, we have never seen such a thing happen outside of a recession.

In addition, it is being reported that U.S. banks have been tightening lending standards for four quarters in a row.

Once again, this is something that has never happened outside of a recession.

On top of all that, tax receipts continue to plummet.  This is a very bad sign for the economy, because falling tax receipts are usually a sign that we are headed into a recession.  The following comes from Zero Hedge…

July “Withheld” receipts – those tax and withholding payments that come straight from wage earner pay stubs – are down 1.0% year over year. 

This data series can be choppy, and looking at the three month trailing average yields a 3.1%.  That’s a touch slower than the 2016 YTD comp of 3.3%, and tells us to not expect too much from Friday’s number.

Also worth noting: YTD non-withheld tax receipts (such as those that come from “Gig economy” workers) are down 6.5%, and July’s comp is 15% lower than a year ago.

Last, corporate tax receipts are down 11% YTD, and if the current pace of these payments holds it will be the first negative comp since 2011. Bottom line: if the tax man isn’t as busy, can the U.S. economy really be expanding?

Are you starting to see a pattern here?

And let’s review what else we have learned over the past couple of weeks…

-U.S. GDP growth came in at an extremely disappointing 1.2 percent for the second quarter of 2016, and the first quarter was revised down to 0.8 percent.

-The rate of homeownership in the United States has fallen to the lowest level ever.

-The Wall Street Journal says that this is the weakest “economic recovery” since 1949.

-Barack Obama is on track to be the only president in U.S. history to never have a single year of 3 percent GDP growth.

Meanwhile, things continue to get worse around the rest of the planet as well.  For example, the economic depression in Brazil continues to deepen and it is being reported that the Brazilian economy has now been shrinking for five quarters in a row…

Brazil’s economy, the world’s ninth largest, contracted by 0.3 percent in the first quarter, marking the fifth straight quarter it shrank. Last year, Brazil’s gross domestic product fell to its lowest level since 2009.

Inflation has also shot higher recently, rising 9 percent in 2015, from 6.3 percent in 2014, according to data from the World Bank. Energy as a percentage of exports, meanwhile, fell to 7 percent in 2015, from 9 percent in the previous year.

And of course Brazil is hosting the Olympics this summer, and that is turning out to be a major debacle.  Many of the international athletes will actually be rowing, sailing and swimming in open waters that are highly contaminated by raw sewage, and Brazilian police have been welcoming tourists to Rio with a big sign that says “Welcome To Hell“.  And let us not forget that right next door in Venezuela the economic collapse has gotten so bad that people are killing and eating zoo animals.

As the global economy continues to deteriorate, what should we do?

Legendary investor Bill Gross shared some of his thoughts on the matter in his latest Investment Outlook…

“Negative returns and principal losses in many asset categories are increasingly possible unless nominal growth rates reach acceptable levels,” Gross said in his latest Investment Outlook note published Wednesday.

“I don’t like bonds; I don’t like most stocks; I don’t like private equity. Real assets such as land, gold, and tangible plant and equipment at a discount are favored asset categories.”

I tend to agree with Gross.  Bonds are in a tremendous bubble right now, and the stock market bubble has grown to ridiculous proportions.  In the end, the only wealth that you are going to be able to fully rely on is wealth that you can physically have in your possession.

As you have seen in this article, signs of economic decline are all around us.

And yet, many people out there are still convinced that good times are right around the corner.

What is it going to take to convince them that they are wrong?

The Price Of Oil Is Crashing Again, And That Is Very, Very Bad News For The U.S. Economy

Oil Price Crashing - Public DomainThis wasn’t supposed to happen.  The price of oil was supposed to start going back up, and this would have brought much needed relief to economically-depressed areas of North America that are heavily dependent on the energy industry.  Instead, the price of oil is crashing again, and that is really bad news for a U.S. economy that is already mired in the worst “recovery” since 1949.  On Monday, U.S. oil was down almost four percent, and for a brief time it actually fell below 40 dollars a barrel.  Overall, the price of oil has fallen a staggering 21 percent since June 8th.  In less than two months, the “oil rally” that so many were pinning their hopes on has been totally wiped out, and if the price of oil continues to stay this low it is going to have very seriously implications for our economy moving forward.

One of the big reasons why the price of oil has been declining is because the OPEC nations continue to pump oil at very high levels.  The following comes from CNBC…

Production in July by the Organization of the Petroleum Exporting Countries likely rose to its highest in recent history, a Reuters survey found on Friday, as Iraq pumped more and Nigeria squeezed out additional crude exports despite militant attacks on oil installations.

Top OPEC exporter Saudi Arabia also kept output close to a record high, the survey found, as it met seasonally higher domestic demand and focused on maintaining market share instead of trimming supply to boost prices.

These countries don’t know if or when the price of oil will eventually rebound, but what they do know is that they desperately need cash in order to keep their sputtering economies going.  Many of these nations are already experiencing significant economic downturns, and substantially reducing oil revenues at this time would definitely not help things.

Here in North America, oil production costs tend to be higher, and so when the price of oil crashes we tend to see companies shut down rigs.  But when rigs get shut down, that means that good paying jobs are lost.

During the first four months of 2016, approximately 35,000 jobs were lost at Texas energy companies.  Globally, more than 290,000 energy jobs have been lost since the price of oil started falling back in 2014.

And even though there was hope that energy companies would add jobs as the price of oil started rebounding during the second quarter, it turned out that the job losses just kept on coming…

Energy companies continued to cut thousands of jobs during the second quarter, even though many chief executives are now voicing optimism that the oil market crash is ending and a rebound in drilling is afoot.

Although the heads of Halliburton Co. , Schlumberger Ltd. and other major firms forecast higher crude prices and a return to U.S. shale fields when discussing earnings this week, those companies and others disclosed another 15,000 industry layoffs.

Personally, I have quite a few members of my own extended family that live in areas that are heavily dependent on the energy industry, and three of them have lost their jobs so far this year.

And these are precisely the sort of good paying middle class jobs that we cannot afford to lose.  In order to having a thriving middle class, you need lots of middle class jobs.  Unfortunately, those kinds of jobs are going away, and the middle class in the United States is systematically dying.

If the price of oil keeps going lower, that will mean even more jobs losses for the energy industry, and that will be very bad news for the U.S. economy.

In addition, many of these energy companies are getting into very serious debt problems.  Delinquency rates on corporate debt are already the highest that they have been since the last recession as firms struggle to pay their bills.  Of course some of them have already gone belly up, and this has pushed default rates on corporate debt to the highest level since the last financial crisis.

At a price of 40 dollars a barrel, most oil companies in the United States are not profitable in the long-term.  The longer the price of oil stays down in this neighborhood, the more energy companies we will see go bankrupt.  At this point it is just a waiting game.

Also, it is important to keep in mind that Wall Street is very heavily exposed to the energy industry.  Just as subprime mortgages brought down quite a few financial institutions back in 2008, so this time around it is inevitable that the oil crash will claim a fair number of victims as well.

As the global economy has slowed down, the demand for oil has decreased.  And at this point, even the U.S. economy appears to be seriously slowing down.  U.S. GDP only grew at about a one percent rate for the first half of 2016, and the rate of homeownership in this country just hit the lowest level ever recorded.

In the mainstream financial media, there is a lot of hopeful talk about a potential turnaround for the energy industry, but most of that talk appears to be just wishful thinking.

To me, about the only thing that could push the price of oil back to where U.S. oil companies need it to be in the short-term would be a major war in the Middle East.  And of course that is definitely always a possibility considering who is running things in Washington.  But absent that, it is hard to see the price of oil getting back to 70 or 80 dollars a barrel any time soon.

So that means that we are likely to see more job losses, more debt delinquencies and debt defaults, and more financial institutions getting into trouble due to their reckless exposure to the energy industry.

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