In Debt

Deutsche Bank Collapse: The Most Important Bank In Europe Is Facing A Major ‘Liquidity Event’

September 30, 2016September 30, 2016 by Michael

The largest and most important bank in the largest and most important economy in Europe is imploding right in front of our eyes. Deutsche Bank is the 11th biggest bank on the entire planet, and due to the enormous exposure to derivatives that it has, it has been called “the world’s most dangerous bank“. Over the past year, I have repeatedly warned that Deutsche Bank is heading for disaster and is a likely candidate to be “the next Lehman Brothers”. If you would like to review, you can do so here, here and here. On September 16th, the Wall Street Journal reported that the U.S. Department of Justice wanted 14 billion dollars from Deutsche Bank to settle a case related to the mis-handling of mortgage-backed securities during the last financial crisis. As a result of that announcement, confidence in the bank has been greatly shaken, the stock price has fallen to record lows, and analysts are warning that Deutsche Bank may be facing a “liquidity event” unlike anything that we have seen since the collapse of Lehman Brothers back in 2008.

At one point on Friday, Deutsche Bank stock fell below the 10 euro mark for the first time ever before bouncing back a bit. A completely unverified rumor that was spreading on Twitter that claimed that Deutsche Bank would settle with the Department of Justice for only 5.4 billion dollars was the reason for the bounce.

But the size of the fine is not really the issue now. Shares of Deutsche Bank have fallen by more than half so far in 2016, and this latest episode seems to have been the final straw for the deeply troubled financial institution. Old sources of liquidity are being cut off, and nobody wants to be the idiot that offers Deutsche Bank a new source of liquidity at this point.

As a result, Deutsche Bank is potentially facing a “liquidity event” on a scale that we have not seen since the financial crisis of 2008. The following comes from Zero Hedge…

It is not solvency, or the lack of capital – a vague, synthetic, and usually quite arbitrary concept, determined by regulators – that kills a bank; it is – as Dick Fuld will tell anyone who bothers to listen – the loss of (access to) liquidity: cold, hard, fungible (something Jon Corzine knew all too well when he commingled and was caught) cash, that pushes a bank into its grave, usually quite rapidly: recall that it took Lehman just a few days for its stock to plunge from the high double digits to zero.

It is also liquidity, or rather concerns about it, that sent Deutsche Bank stock crashing to new all time lows earlier today: after all, the investing world already knew for nearly two weeks that its capitalization is insufficient. As we reported earlier this week, it was a report by Citigroup, among many other, that found how badly undercapitalized the German lender is, noting that DB’s “leverage ratio, at 3.4%, looks even worse relative to the 4.5% company target by 2018” and calculated that while he only models €2.9bn in litigation charges over 2H16-2017 – far less than the $14 billion settlement figure proposed by the DOJ – and includes a successful disposal of a 70% stake in Postbank at end-2017 for 0.4x book he still only reaches a CET 1 ratio of 11.6% by end-2018, meaning the bank would have a Tier 1 capital €3bn shortfall to the company target of 12.5%, and a leverage ratio of 3.9%, resulting in an €8bn shortfall to the target of 4.5%.

The more the stock price drops, the faster other financial institutions, investors and regular banking clients are going to want to pull their money out of Deutsche Bank. And every time there is news about people pulling money out of the bank, that is just going to drive the stock price even lower.

In other words, Deutsche Bank may be entering a death spiral that may be impossible to stop without a government bailout, and the German government has already stated that there will be no bailout for Deutsche Bank.

Banking customers have a total of approximately 566 billion euros deposited with the bank, and even if a small fraction of those clients start demanding their money back it is going to cause a major, major crunch.

Deutsche Bank CEO John Cryan attempted to calm nerves on Friday by releasing a memo to employees that blamed “speculators” for the decline in the stock price…

Instead of doing what many have correctly suggested he should be doing, namely focusing on ways to raise more capital for the undercapitalized Deutsche Bank in order to stem the slow (at first) liquidity leak, first thing this morning CEO John Cryan issued another morale-boosting note to employees of Deustche Bank who have been watching their stock price crash to another record low, dipping under €10 in early trading for the first time ever. In the memo the embattled CEO worryingly did what Dick Fuld and other chief executives did when they felt the situation slipping out of control, namely blaming evil “rumor-spreading” shorts, saying “our bank has become subject to speculation. Ongoing rumours are causing significant swings in our stock price. … Trust is the foundation of banking. Some forces in the markets are currently trying to damage this trust.”

Just as important, Cryan confirms the Bloomberg report that “a few of our hedge fund clients have reduced some activities with us. That is causing unjustified concerns.” As we explained last night, the concerns are very much justified if they spread to the biggest risk-factor for the German bank: its depositors, which collectively hold over €550 billion in liquidity-providing instruments.

If you would like to ready the full memo, you can do so right here.

One of the reasons why Deutsche Bank is considered to be so systemically “dangerous” is because it has 42 trillion euros worth of exposure to derivatives. That is an amount of money that is 14 times larger than the GDP of the entire nation of Germany.

Some firms that were derivatives clients of the bank have already gotten spooked and have moved their business to other institutions. It was this report from Bloomberg that really helped drive down the stock price of Deutsche Bank earlier this week…

The funds, a small subset of the more than 800 clients in the bank’s hedge fund business, have shifted part of their listed derivatives holdings to other firms this week, according to an internal bank document seen by Bloomberg News. Among them are Izzy Englander’s $34 billion Millennium Partners, Chris Rokos’s $4 billion Rokos Capital Management, and the $14 billion Capula Investment Management, said a person with knowledge of the situation who declined to be identified talking about confidential client matters.

“The issue here is now one of confidence,” said Chris Wheeler, a financial analyst with Atlantic Equities LLP in London.

So what comes next?

Monday is a banking holiday for Germany, so we may not see anything major happen until Tuesday.

An announcement of a major reduction in the Department of Justice fine may buy Deutsche Bank some time, but any reprieve would likely only be temporary.

What appears to be more likely is the scenario that Jeffrey Gundlach is suggesting…

But Jeffrey Gundlach, chief executive of DoubleLine Capital, said investors betting that Berlin would not rescue Deutsche could find themselves nursing big losses.

‘The market is going to push down Deutsche Bank until there is some recognition of support. They will get assistance, if need be,’ said Gundlach, who oversees more than $100 billion at Los Angeles-based DoubleLine.

It will be very interesting to see how desperate things become before the German government finally gives in to the pressure.

The complete and total collapse of Deutsche Bank would be an event many times more significant for the global financial system than the collapse of Lehman Brothers was. Global leaders simply cannot afford for such a thing to happen, but without serious intervention it appears that is precisely where we are heading.

Personally, I don’t know exactly what will happen next, but it will be fascinating to watch.

26 Incredible Facts About The Economy That Every American Should Know For The Trump-Clinton Debate

September 26, 2016September 25, 2016 by Michael

Are you ready for the most anticipated presidential debate in decades? It is being projected that Monday’s debate between Donald Trump and Hillary Clinton could potentially break the all-time record of 80 million viewers that watched Ronald Reagan and Jimmy Carter debate back in 1980. Many Americans probably hope to see some personal fireworks between the two nominees, but the two candidates have both expressed a desire to focus on substantive issues. There will likely be quite a few questions about the economy, and without a doubt this is an area where Trump and Clinton have some very sharp differences. The mainstream media would have us believe that the U.S. economy is in pretty good shape, and if that was true that would seem to favor Clinton. But is it actually true? The following are 26 incredible facts about the economy that every American should know for the Trump-Clinton debate…

#1 When Barack Obama entered the White House, the U.S. government was 10.6 trillion dollars in debt. Today, the U.S. government is 19.5 trillion dollars in debt, and Obama still has several months to go until the end of his second term. That means that an average of more than 1.1 trillion dollars a year will be added to the national debt during his presidency. We are stealing a tremendous amount of consumption from the future to make the economy look much, much better than it otherwise would be, and we are systematically destroying the future in the process.

#2 As Obama prepares to leave office, the rate at which we are adding to the national debt is actually increasing. During the fiscal year that is just ending, the U.S. government has added another 1.36 trillion dollars to the national debt.

#3 It isn’t just the federal government that is on a massive debt binge. Total U.S. corporate debt has nearly doubled since the end of 2007.

#4 Default rates on U.S. corporate debt are the highest that they have been since the last financial crisis.

#5 Corporate profits have fallen for five quarters in a row, and it is being projected that it will be six in a row once the final numbers for the third quarter come in.

#6 During the month of August, commercial bankruptcy filings were up 29 percent compared to the same period a year ago.

#7 The rate of new business formation in the United States dropped dramatically during the last recession and has hovered at that new lower level ever since.

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

#9 Barack Obama is on track to be the only president in all of U.S. history to never have a single year when the U.S. economy grew by at least 3 percent.

#10 In August, the Cass Freight Index dipped to the lowest level that we have seen for that month since 2010. What this means is that the total amount of stuff being shipped around the country by air, by rail and by truck is really dropping, and this is a clear sign that real economic activity is slowing down in a major way.

#11 Capital expenditure growth has turned negative, and history has shown that this is almost always followed by a new recession.

#12 The percentage of Americans with a full-time job has been sitting at about 48 percent since 2010. You have to go back to 1983 to find a time when full-time employment in this country was so low.

#13 The labor force participation rate peaked back in 1997 and has been steadily falling ever since.

#14 The “inactivity rate” for men in their prime working years is actually higher today than it was during the last recession.

#15 The United States has lost more than five million manufacturing jobs since the year 2000 even though our population has become much larger over that time frame.

#16 If you can believe it, the total number of government employees now outnumbers the total number of manufacturing employees in the United States by almost 10 million.

#17 One study found that median incomes have fallen in more than 80 percent of the major metropolitan areas in this country since the year 2000.

#18 According to the Social Security Administration, 51 percent of all American workers make less than $30,000 a year.

#19 The rate of homeownership in the U.S. has fallen every single year while Barack Obama has been in the White House.

#20 Approximately one out of every five young adults are currently living with their parents.

#21 The auto loan debt bubble recently surpassed the one trillion dollar mark for the first time ever.

#22 Auto loan delinquencies are at the highest level that we have seen since the last recession.

#23 In 1971, 61 percent of all Americans were considered to be “middle class”, but now middle class Americans have actually become a minority in this nation.

#24 One recent survey discovered that 62 percent of all Americans have less than $1,000 in savings.

#25 According to the Federal Reserve, 47 percent of all Americans could not even pay an unexpected $400 emergency room bill without borrowing the money from somewhere or selling something.

#26 The number of New Yorkers sleeping in homeless shelters just set a brand new record high, and the number of families permanently living in homeless shelters is up a whopping 60 percent over the past five years.

Despite all of the facts that you just read, the truth is that there is one particular group of people that have been doing quite well during the Obama years. I really like how Charles Hugh Smith made this point in one of his recent articles…

The top 5% of households that dominate government, Corporate America, finance, the Deep State and the media have been doing extraordinarily well during the past eight years of stock market bubble (oops, I mean boom) and “recovery,” and so they report that the economy is doing splendidly because they’ve done splendidly.

By recklessly creating money out of thin air and pumping it into the financial markets, the Federal Reserve has greatly enriched the elite, but they have also dramatically increased the gap between the very wealthy and the rest of us. Since he has been in the White House during this time, Barack Obama has gotten the credit for this temporary stock market bubble, and most of the elite love Obama anyway.

But in the process the stage has been set for the greatest economic and financial implosion in U.S. history, and the pain that is coming is going to affect every man, woman and child in this country.

During the debate, Trump and Clinton will talk a lot about tinkering with tax rates and regulations, but those measures are essentially going to be meaningless when compared to the massive economic tsunami that is coming. The next president is going to inherit the biggest economic problems that this nation has ever faced, and it is going to take a miracle of Biblical proportions to turn the U.S. economy in the right direction.

More Jobs Shipped Out Of The Country: Ford Moves All Small Car Production To Mexico

September 14, 2016September 14, 2016 by Michael

What is going to happen when America finally doesn’t have any manufacturing jobs left at all? On Wednesday, we learned that Ford Motor Company is shifting all small car production to Mexico. Of course the primary goal for this move is to save a little bit of money. This hits me personally, because my grandfather once worked for Ford. He was loyal to Ford all his life, and he always criticized other members of the family when they bought a vehicle that was not American-made. When I was young I didn’t understand why making vehicles in America is so important, but I sure do now. By shipping jobs overseas, we are destroying jobs, we are destroying small businesses and we are destroying our tax base. If we want to be a wealthy nation, we have got to make things here, and hopefully we can get the American people to start to understand this.

In 1914, Henry Ford decided to start paying his workers $5.00 a day, which was more than double the average wage for auto workers at the time.

One of the reasons why he did this was because he felt that his workers should be able to afford to buy the vehicles that they were making. This is what he wrote in 1926…

“The owner, the employees, and the buying public are all one and the same, and unless an industry can so manage itself as to keep wages high and prices low it destroys itself, for otherwise it limits the number of its customers. One’s own employees ought to be one’s own best customers.”

These days Ford is going in the complete opposite direction. Pretty soon, Ford won’t be making any more small vehicles in the United States at all…

Ford is shifting all North American small-car production from the U.S. to Mexico, CEO Mark Fields told investors today in Dearborn, even though its plans to invest in Mexico have become a lightning rod for controversy in this year’s presidential election.

“Over the next two to three years, we will have migrated all of our small-car production to Mexico and out of the United States,” Fields said.

Could Ford keep jobs in America?

Of course they could. During the second quarter of 2016, Ford reported a net income of 2,000,000,000 dollars.

But if they move production to Mexico they can boost that profit just a little bit higher.

Shame on them.

Needless to say, Donald Trump is quite upset about this move by Ford. This was his response…

“We shouldn’t allow it to happen. They’ll make their cars, they’ll employ thousands of people, not from this country and they’ll sell their car across the border,” Trump said. “When we send our jobs out of Michigan, we’re also sending our tax base.”

And he is exactly right about all of this. We can’t afford to lose more good paying jobs, we can’t afford for the middle class to shrink any more than it already has, and we certainly can’t afford our tax base to continue to deteriorate.

We may think that we can live on borrowed money indefinitely, but that is going to catch up with us in a major way at some point.

Sadly, Ford is not the only auto company doing this. Just like Ross Perot once predicted, there is a giant sucking sound as good paying auto jobs leave the United States and head to Mexico…

Ford isn’t alone. Fiat Chrysler Automobiles said earlier this year it will end production of all cars in the U.S. by the end of this year as it discontinues production of the Dodge Dart in Belvidere, Ill. and the Chrysler 200 in Sterling Heights, Michigan.

In recent years, automakers that include General Motors, Honda, Hyundai, Nissan, Mazda, Toyota and Volkswagen have all announced plans to either expand existing plants or build new ones in Mexico.

The bad news for American workers won’t end once all of our manufacturing jobs are gone.

Today there are millions of Americans that make their living by driving, but the revolution in self-driving vehicles threatens to make large numbers of those jobs obsolete.

Ford, General Motors, Tesla, Google, Apple and a whole host of other big corporations have been feverishly working on this technology, and many of the tests have gone very well so far.

Once this technology starts being rolled out on a widespread basis, the job losses could be absolutely staggering. Just consider the following numbers which come from Wolf Richter…

1.8 million heavy-truck and tractor-trailer long-haul drivers in 2014, expected to grow 4% a year (BLS), with a median pay of $40,260 in 2015. At this growth rate, there will be 1.94 million long-haul drivers by the end of this year.
1.33 million delivery truck drivers in 2014, expected to grow 4% a year (BLS), with a median pay of $27,800 in 2015. They’re picking up and/or delivering packages and small shipments within the city or region, driving a vehicle of 26,000 pounds or less, usually between a distribution center and businesses or households. At this growth rate, there will be 1.44 million drivers by the end of this year.
233,700 taxi drivers and chauffeurs in 2014, growing at 13% annually (BLS). They earned a median pay of $23,510 in 2015. One in five worked part time. This doesn’t – or doesn’t fully – reflect the “rideshare” drivers working for Uber, Lyft, and the like.
“Over 500,000” rideshare drivers are estimated to ply the trade in the US. It’s a high-growth sector: the number of Uber drivers in the US doubled in 2015 from the prior year to 327,000. Half of them worked 15 hours or less per week.

In order to have a thriving middle class, we have got to have middle class jobs.

Unfortunately, big corporations have become absolutely obsessed with finding ways to eliminate expensive American workers by sending jobs overseas or by replacing them with technology altogether.

The elite will always need people to cut their hair and wait on them at restaurants, but those aren’t the kinds of jobs that can support middle class families.

As I noted yesterday, for the first time ever the middle class in America has become a minority and poverty is on the rise all over the nation. The long-term trends that are eviscerating the middle class are accelerating, and there doesn’t appear to be any quick fix which will turn things around dramatically any time soon.

So the middle class is going to get smaller and smaller and smaller, and that has dramatic implications for the future of this country.

The One Trillion Dollar Consumer Auto Loan Bubble Is Beginning To Burst

September 6, 2016September 6, 2016 by Michael

Do you remember the subprime mortgage meltdown from the last financial crisis? Well, this time around we are facing a subprime auto loan meltdown. In recent years, auto lenders have become more and more aggressive, and they have been increasingly willing to lend money to people that should not be borrowing money to buy a new vehicle under any circumstances. Just like with subprime mortgages, this strategy seemed to pay off at first, but now economic reality is beginning to be felt in a major way. Delinquency rates are up by double digit percentages, and major auto lenders are bracing for hundreds of millions of dollars of losses. We are a nation that is absolutely drowning in debt, and we are most definitely going to reap what we have sown.

The size of this market is larger than you may imagine. Earlier this year, the auto loan bubble surpassed the one trillion dollar mark for the first time ever…

Americans are borrowing more than ever for new and used vehicles, and 30- and 60-day delinquency rates rose in the second quarter, according to the automotive arm of one of the nation’s largest credit bureaus.

The total balance of all outstanding auto loans reached $1.027 trillion between April 1 and June 30, the second consecutive quarter that it surpassed the $1-trillion mark, reports Experian Automotive.

The average size of an auto loan is also at a record high. At $29,880, it is now just a shade under $30,000.

In order to try to help people afford the payments, auto lenders are now stretching loans out for six or even seven years. At this point it is almost like getting a mortgage.

But even with those stretched out loans, the average monthly auto loan payment is now up to a record 499 dollars.

That is the average loan size. To me, this is absolutely infuriating, because only a very small percentage of wealthy Americans are able to afford a $499 monthly payment on a single vehicle.

Many middle class American families are only bringing in three or four thousand dollars a month (before taxes). How in the world do they think that they can afford a five hundred dollar monthly auto loan payment on just one vehicle?

Just like with subprime mortgages, people are being taken advantage of severely, and the end result is going to be catastrophic for the U.S. financial system.

Already, auto loan delinquencies are rising to very frightening levels. In July, 60 day subprime loan delinquencies were up 13 percent on a month-over-month basis and were up 17 percent compared to the same month last year.

Prime delinquencies were up 12 percent on a month-over-month basis and were up 21 percent compared to the same month last year.

We have a huge crisis on our hands, and major auto lenders are setting aside massive amounts of cash in order to try to cover these losses. The following comes from USA Today…

In a quarterly filing with the Securities and Exchange Commission, Ford reported in the first half of this year it allowed $449 million for credit losses, a 34% increase from the first half of 2015.

General Motors reported in a similar filing that it set aside $864 million for credit losses in that same period of 2016, up 14% from a year earlier.

Meanwhile, other big corporations are also alarmed about the economic health of average U.S. consumers. Just check out what Dollar General CEO Todd Vasos had to say about this just the other day…

I know that when we look at globally the overall U.S. population, it seems like things are getting better. But when you really start breaking it down and you look at that core consumer that we serve on the lower economic scale that’s out there, that demographic, things have not gotten any better for her, and arguably, they’re worse. And they’re worse, because rents are accelerating, healthcare is accelerating on her at a very, very rapid clip.

The stock market may seem to be saying that everything is fine (for the moment), but the hard economic numbers are telling a completely different story. What we are experiencing right now looks so similar to 2008, and this includes big institutions just dropping dead seemingly out of the blue. On Tuesday, we learned that ITT Technical Institute is immediately shutting down and permanently closing all locations. This is from a Los Angeles Times report…

The company that operates the for-profit chain, one of the country’s largest, announced that it was permanently closing all its campuses nationwide. It blamed the shutdown on the recent move by the U.S. Education Department to ban ITT from enrolling new students who use federal financial aid.

“Two quarters ago there were rumors about the school having problems, but they told us that anyone who was already a student would be allowed to finish,” said Wiggins, who works as the assistant manager for a family-run auto parts business and went to ITT to open new opportunities.

“Am I angry?” he said. “I’m like angry times 10 million.”

As a result of this shutdown, 35,000 students are suddenly left out in the cold and approximately 8,000 employees have lost their jobs.

This is what happens during a major economic downturn. Large institutions that may have been struggling under the surface for quite a while suddenly give up and drop a bomb on those that were depending on them. In the months ahead, there will be a lot more examples of this.

Already, some of the biggest corporate names in America have been laying off thousands of workers in 2016. Mass layoffs are usually an early warning sign that big trouble is ahead, so keep a close eye on those companies.

The pace of the economic decline has been a bit slower than many (including myself) originally anticipated, but without a doubt it has continued.

And it is undeniable that the stage is set for a crisis that will absolutely dwarf 2008. Our national debt has nearly doubled since the beginning of the last crisis, corporate debt has doubled, student loan debt has crossed the trillion dollar mark, auto loan debt has crossed the trillion dollar mark, and total household debt has crossed the 12 trillion dollar mark.

We are living in the greatest debt bubble in world history, and there are signs that this giant bubble is now starting to burst. And when it does, the pain is going to be greater than most people would dare to imagine.

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

September 5, 2016September 5, 2016 by Michael

Why 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…

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.

Donald Trump’s Convention Speech Highlighted The Truth About America’s Decline

July 21, 2016July 21, 2016 by Michael

America is in decline. There are some that still attempt to deny this, but the reason why Donald Trump’s campaign slogan has so strongly resonated with the American people is because deep inside most of us realize that America is not as great as it used to be. Our economy is a mess, we are 19 trillion dollars in debt, our infrastructure is crumbling, crime is on the rise, moral decay is all around us, other countries don’t respect us as much anymore, and our nation is the most divided that it has been in decades. Anyone that believes that America is better than it has ever been in 2016 is either completely delusional or simply has not been paying attention.

As I write this article, the prepared text of Trump’s speech has already been released to the press. So the following remarks may differ slightly from how he actually delivered them, but the differences are not likely to be too great. At one point during his speech, Trump highlighted the rising crime and violence in our cities, and the numbers that he had to share were more than just a little bit alarming…

Decades of progress made in bringing down crime are now being reversed by this Administration’s rollback of criminal enforcement. Homicides last year increased by 17% in America’s fifty largest cities. That’s the largest increase in 25 years. In our nation’s capital, killings have risen by 50 percent. They are up nearly 60% in nearby Baltimore.

In the President’s hometown of Chicago, more than 2,000 have been the victims of shootings this year alone. And more than 3,600 have been killed in the Chicago area since he took office.

The number of police officers killed in the line of duty has risen by almost 50% compared to this point last year. Nearly 180,000 illegal immigrants with criminal records, ordered deported from our country, are tonight roaming free to threaten peaceful citizens.

And it is really hard to argue with Trump about this. We have all seen what just happened in Orlando, in Dallas and in Baton Rouge. As I have said so many times before, a spirit of violence and civil unrest is rising in America.

Donald Trump thinks that he can fix this. Unfortunately, I don’t think that any politician will be able to do that at this point.

Our long-term economic decline is another puzzle that our national leaders have been unable to solve. Gallup’s U.S. economic confidence index just hit the lowest level so far this year, and poverty levels continue to rise all over the country. The following is another excerpt from the text of Trump’s speech…

Nearly 4-in-10 African-American children are living in poverty, while 58% of African-American youth are not employed. Two million more Latinos are in poverty today than when the President took his oath of office less than eight years ago. Another 14 million people have left the workforce entirely.

Household incomes are down more than $4,000 since the year 2000. Our manufacturing trade deficit has reached an all-time high – nearly $800 billion in a single year.

The budget is no better. President Obama has doubled our national debt to more than $19 trillion, and growing.

Yet, what do we have to show for it? Our roads and bridges are falling apart, our airports are in Third World condition, and forty-three million Americans are on food stamps.

Even during Obama’s so-called “economic recovery”, the middle class has continued to shrink. Right now, 62 percent of all Americans have less than $1,000 in savings, and millions upon millions of ordinary families find themselves desperately clawing and scratching as they try to survive from month to month.

One very frustrated mother recently shared her feelings about her family’s ongoing financial struggles on scarymommy.com…

I’m tired of my stomach flipping inside when my son mentions he’d like to take a computer class after school. Or when my other son wants to enroll in swim lessons, take an art class, or buy a new bicycle. I’m tired of wondering where on earth we’ll come up with the cash for our children to pursue their interests.

I’m tired of never, ever going on vacations that don’t involve someone flying us out to see them or crashing at someone’s house for free.

I’m tired of wondering how on earth we’ll be able to send our kids to college.

I’m tired of renting, and the almost certain feeling I have that we’ll never be able to afford to buy a house.

I’m tired of having to pretend I’m not worried about it all.

I’m tired of my kids overhearing our worries, of knowing that money is a constant struggle for us.

Before I wrap up this article, I want to share one more stunning example of America’s decline.

Under Barack Obama, corruption and incompetence has spread throughout every part of our government. Sadly, that even includes the Secret Service.

Secret Service agents are supposed to be “the best of the best”, and they are charged with protecting our most important national leaders.

But instead of doing their jobs with seriousness and professionalism, they have been acting like wild animals. Documents that have just been made public reveal that the Secret Service has become an absolute disgrace in recent years…

They highlight incidents in which agents had sexual encounters with underage girls, married agents took part in ‘wheels up, rings off’ parties, and a manager who sexually harassed female subordinates dubbed the National Threat Assessment Center (NTAC) the ‘Nice **** and *** Club.’

The documents contain a report about “a male agent who had his gun stolen by a male prostitute he solicited using his government computer in Puerto Rico“, and they also detail the behavior of one agency manager in particular that deserves to be immediately fired…

The report says the manager kept alcohol in his office and forced employees to drink ‘so he could trust them.’

‘He sexually harassed every female subordinate,’ the report says.

The manager would ‘publicly’ male employees: ‘Where are my little whores/*******? Have you slept with them yet?’

If this is what is happening in the Secret Service, can you imagine what is going on in other federal agencies behind closed doors?

America is a complete and total mess, and Donald Trump is completely correct when he talks about the need to make America great again.

But is that even possible, and if so, what would that look like?

Please feel free to tell us what you think by posting a comment below…

19.4 Trillion Dollars In Debt – We Have Added 1.1 Trillion Dollars A Year To The National Debt Under Obama

July 20, 2016July 20, 2016 by Michael

In 2006, U.S. Senator Barack Obama’s voice thundered across the Senate floor as he boldly declared that “increasing America’s debt weakens us domestically and internationally. Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren.” That was one of the truest things that he ever said, but just a couple of years later he won the 2008 election and he turned his back on those principles. As I write this article, the U.S. national debt is sitting at a grand total of $19,402,361,890,929.46. But when Barack Obama first entered the White House, our federal government was only 10.6 trillion dollars in debt. That means that we have added an average of 1.1 trillion dollars a year to the national debt under Obama, and we still have about six more months to go.

Even though Barack Obama is on track to be the first president in all of U.S. history to not have a single year when the U.S. economy grew by 3 percent or better, many have still been mystified by the fact that the economy has been relatively stable in recent years.

But the explanation is rather simple, actually. Anyone can live like a millionaire if the credit card companies will lend them enough money. You could even do it yourself. Just go out and apply for as many credit cards as possible and then spend money like there is no tomorrow. In no time at all, you will be living the high life.

Of course many of you would immediately object that a day of reckoning would come eventually, and you would be right. Just like for those that abuse credit cards, a financial day of reckoning is coming for America too.

In the United States today, our standard of living is being massively inflated by taking trillions of dollars of future consumption and moving it into the present. The politicians love to do this because it makes them look good and they can take credit for an “economic recovery”, but what we are doing to our children and our grandchildren is beyond criminal.

On average, we are stealing more than 100 million dollars from future generations of Americans every single hour of every single day. We are complete and utter pigs, and yet most Americans don’t see anything wrong with what we are doing.

At this point, our national debt is more than 30 times larger than it was just 40 years ago, and many (including myself) have argued that it is now mathematically impossible for the U.S. government to ever pay off all of this debt.

The only thing that we can do now is to keep the party going for as long as possible until the day of reckoning inevitably comes.

Under Obama, our national debt will come close to doubling. What that means is that during Obama’s eight years we will accumulate almost as much debt as we did under all of the other presidents in U.S. history combined.

Right now, the U.S. government is responsible for about a third of all the government debt in the entire world. Fortunately the financial world continues to lend us gigantic mountains of money at ridiculously low interest rates, but if that were to ever change we would be in an enormous amount of trouble very rapidly.

For instance, if the average rate of interest on U.S. government debt simply returns to the long-term average, we would very quickly find ourselves spending more than a trillion dollars a year just in interest on the national debt.

And as the Baby Boomers age, our “unfunded liabilities” threaten to absolutely swamp us. By the year 2025, it is being projected that “mandatory” federal spending on “unfunded liabilities” such as Social Security, Medicaid and Medicare plus interest on the national debt will exceed total federal revenue. What that means is that we will spend every penny we bring in before a single dollar is spent on the military, homeland security, paying federal workers, building roads and bridges, etc.

In recent years the Federal Reserve has also had a “buy now, pay later” mentality.

While Obama has been in the White House, the size of the Fed balance sheet has grown by about two and a half trillion dollars. The goal has been to artificially pump up the economy, but when the Federal Reserve creates money out of thin air it is actually a tax on all of us. The purchasing power of every dollar that we will spend in the future has been diminished thanks to the Fed, but most Americans don’t understand this.

What most Americans want is for someone to “fix things” in the short-term, and not much consideration is ever given to the long-term damage that is being done.

I know that the phrase “trillion dollars” is thrown around a lot these days, and to a lot of people it doesn’t have a whole lot of meaning anymore. But the truth is that it is an absolutely enormous amount of money. In fact, if you went out right this moment and started spending one dollar every single second, it would take you more than 31,000 years to spend one trillion dollars.

A final example of our “buy now, pay later” mentality can be seen in our ridiculously bloated trade deficit. We consume far more than we produce as a nation, and we buy far more from the rest of the world than they buy from us. As a result, tens of thousands of businesses and millions of good paying jobs have gone overseas, and many of our formerly great manufacturing cities are now vast industrial wastelands. Our economic infrastructure has been gutted at a pace that is staggering, and yet most Americans still don’t understand what has been done to them.

If you visit your typical “big box” retail store today, where is most of the stuff made? Instinctively, most of you would answer “China”, and that is not too far from the truth.

We buy far, far more stuff from China then they buy from us. This makes them steadily wealthier, and it makes us steadily poorer. Unfortunately, our trade deficit with China has gotten much, much worse while Barack Obama has been in the White House.

At the end of Barack Obama’s first year in office, our yearly trade deficit with China was 226 billion dollars. Last year, it was more than 367 billion dollars.

Are you starting to see a trend?

Our long-term economic and financial problems have greatly accelerated under Barack Obama, but our leaders feverishly work to make things look okay in the short-term and so most Americans don’t notice what is happening.

Unfortunately, this Ponzi scheme cannot go on forever and a day of reckoning is coming. And when it arrives, the pain that it is going to cause for ordinary Americans is going to be far greater than most of us would dare to imagine.

It Is Mathematically Impossible To Pay Off All Of Our Debt

May 21, 2015 by Michael

Did you know that if you took every single penny away from everyone in the United States that it still would not be enough to pay off the national debt? Today, the debt of the federal government exceeds $145,000 per household, and it is getting worse with each passing year. Many believe that if we paid it off a little bit at a time that we could eventually pay it all off, but as you will see below that isn’t going to work either. It has been projected that “mandatory” federal spending on programs such as Social Security, Medicaid and Medicare plus interest on the national debt will exceed total federal revenue by the year 2025. That is before a single dollar is spent on the U.S. military, homeland security, paying federal workers or building any roads and bridges. So no, we aren’t going to be “paying down” our debt any time in the foreseeable future. And of course it isn’t just our 18 trillion dollar national debt that we need to be concerned about. Overall, Americans are a total of 58 trillion dollars in debt. 35 years ago, that number was sitting at just 4.3 trillion dollars. There is no way in the world that all of that debt can ever be repaid. The only thing that we can hope for now is for this debt bubble to last for as long as possible before it finally explodes.

It shocks many people to learn that our debt is far larger than the total amount of money in existence. So let’s take a few moments and go through some of the numbers.

When most people think of “money”, they think of coins, paper money and checking accounts. All of those are contained in one of the most basic measures of money known as M1. The following definition of M1 comes from Investopedia…

A measure of the money supply that includes all physical money, such as coins and currency, as well as demand deposits, checking accounts and Negotiable Order of Withdrawal (NOW) accounts. M1 measures the most liquid components of the money supply, as it contains cash and assets that can quickly be converted to currency.

As you can see from the chart below, M1 has really grown in recent years thanks to rampant quantitative easing by the Federal Reserve. At the moment it is sitting just shy of 3 trillion dollars…

So if you gathered up all coins, all paper currency and all money in everyone’s checking accounts, would that even make much of a dent in our debt?

Nope.

We’ll have to find more “money” to grab.

M2 is a broader definition of money than M1 is, because it includes more things. The following definition of M2 comes from Investopedia…

A measure of money supply that includes cash and checking deposits (M1) as well as near money. “Near money” in M2 includes savings deposits, money market mutual funds and other time deposits, which are less liquid and not as suitable as exchange mediums but can be quickly converted into cash or checking deposits.

As you can see from the chart below, M2 is sitting just short of 12 trillion dollars right now…

That is a lot more “money”, but it still wouldn’t pay off our national debt, much less our total debt of 58 trillion dollars.

So is there anything else that we could grab?

Well, the broadest definition of “money” that is commonly used is M3. The following definition of M3 comes from Investopedia…

A measure of money supply that includes M2 as well as large time deposits, institutional money market funds, short-term repurchase agreements and other larger liquid assets. The M3 measurement includes assets that are less liquid than other components of the money supply, and are more closely related to the finances of larger financial institutions and corporations than to those of businesses and individuals. These types of assets are referred to as “near, near money.”

The Federal Reserve no longer provides charts for M3, but according to John Williams of shadowstats.com, M3 is currently sitting somewhere in the neighborhood of 17 trillion dollars.

So even with the broadest possible definition of “money”, we simply cannot come up with enough to pay off the debt of the federal government, much less the rest of our debts.

That is not good news at all.

Alternatively, could we just start spending less than we bring in and start paying down the national debt a little bit at a time?

Perhaps that may have been true at one time, but now we are really up against a wall. Our rapidly aging population is going to put an enormous amount of stress on our national finances in the years ahead.

According to U.S. Representative Frank Wolf, interest on the national debt plus “mandatory” spending on programs such as Social Security, Medicare and Medicaid will surpass the total amount of federal revenue by the year 2025. That is before a single penny is spent on homeland security, national defense, paying federal workers, etc.

But even now things are a giant mess. We are told that “deficits are under control”, but that is a massive hoax that is based on accounting gimmicks. During fiscal year 2014, the U.S. national debt increased by more than a trillion dollars. That is not “under control” – that is a raging national crisis.

Many believe that that we could improve the situation by raising taxes. And yes, a little bit more could probably be squeezed out of us, but the impact on government finances would be negligible. Since the end of World War II, the amount of tax revenue taken in by the federal government has fluctuated in a range between 15 and 20 percent of GDP no matter what tax rates have been. I believe that it is possible to get up into the low twenties, but that would also be very damaging to our economy and the American public would probably throw a huge temper tantrum.

The real problem, of course, is our out of control spending.

During the past two decades, spending by the federal government has grown 63 percent more rapidly than inflation, and “mandatory” spending on programs such as Social Security, Medicare and Medicaid has actually doubled after you adjust for inflation.

We simply cannot afford to keep spending money like this.

And then there is the matter of interest on the national debt. For the moment, the rest of the world is lending us gigantic mountains of money at ridiculously low interest rates. However, if the average rate of interest on U.S. government debt was just to return to the long-term average, we would be spending more than a trillion dollars a year just in interest on the national debt.

So the best possible environment for “paying down our debt” that we are ever going to see is happening right now. The only place that interest rates on U.S. government debt have to go is up, and our population is going to just keep getting older and more dependent on government programs.

Meanwhile, our overall debt continues to spiral out of control as well. According to CNBC, the total amount of debt that Americans owe has reached a staggering 58.7 trillion dollars…

As the nation entered the 1980s, there was comparatively little debt—just about $4.3 trillion. That was only about 1.5 times the size of gross GDP. Then a funny thing happened.

The gap began to widen during the decade, and then became basically parabolic through the ’90s and into the early part of the 21st century.

Though debt took a brief decline in 2009 as the country limped its way out of the financial crisis, it has climbed again and is now, at $58.7 trillion, 3.3 times the size of GDP and about 13 times what it was in 1980, according to data from the Federal Reserve’s St. Louis branch. (The total debt measure is not to be confused with the $18.2 trillion national debt, which is 102 percent of GDP and is a subset of the total figure.)

As I discussed above, there isn’t enough money in our entire system to even pay off a significant chunk of that debt.

So what happens when the total amount of debt in a society vastly exceeds the total amount of money?

Is there any way out other than collapse?

You can share what you think by posting a comment below…

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