The U.S. Economy

The Seven Year Cycle Of Economic Crashes That Everyone Is Talking About

September 2, 2014 by Michael

Large numbers of people believe that an economic crash is coming next year based on a seven year cycle of economic crashes that goes all the way back to the Great Depression. What I am about to share with you is very controversial. Some of you will love it, and some of you will think that it is utter rubbish. I will just present this information and let you decide for yourself what you want to think about it. In my previous article entitled “If Economic Cycle Theorists Are Correct, 2015 To 2020 Will Be Pure Hell For The United States“, I discussed many of the economic cycle theories that all seem to agree that we are on the verge of a major economic downturn in this country. But there is an economic cycle that I did not mention in that article that a lot of people are talking about right now. And if this cycle holds up once again in 2015, it will be really bad news for the U.S. economy.

Looking back, the most recent financial crisis that we experienced was back in 2008. Lehman Brothers collapsed, the stock market crashed and we were plunged into the worst recession that we have experienced as a nation since the Great Depression. You can see what happened to the Dow Jones Industrial Average on the chart that I have posted below…

Prior to that, the last time that the stock market experienced a major decline of that nature was during the bursting of the dotcom bubble seven years earlier. 2001 was a year of recession for the U.S. economy and of big trouble for stocks.

And oh year, a little event known as “9/11” happened that year.

Seven years before that, in 1994, investors experienced the worst bond market of their lifetimes.

The following is how Reuters recalls the carnage…

The 1994 bond market massacre is remembered with horror by those who lived through it. Yields on 30-year Treasuries jumped some 200 basis points in the first nine months of the year, hammering investors and financial firms, not to mention thrusting Mexico into crisis and bankrupting Orange County.

Going back another seven years brings us to 1987.

Anyone that lived through that era remembers “Black Monday” and the horrible stock market crash very well.

The next major economic crash prior to 1987 was in the early 1980s.

In 1980, the S&L crisis was blooming and everyone was talking about the “stagflation” that we were experiencing under Jimmy Carter. The Federal Reserve raised interest rates dramatically to combat inflation, and this helped precipitate the very deep recession that we experienced early in Ronald Reagan’s first term.

You can read much more about the “early 1980s recession” right here.

Seven years prior to 1980 brings us to 1973. To many young Americans, that year does not have any significance, but older Americans remember the Arab oil embargo and the super long lines at the gas pumps really well.

In addition, a recession began in 1973 which ended up stretching all the way until 1975.

And those that have studied these things say that the pattern keeps going back all the way to the Great Depression. Many correctly point out that the stock market crash which began the Great Depression was in 1929, but actually the worst year for the stock market during the Great Depression was in 1931. And 1931 fits perfectly into the cycle.

So we have this pattern of economic crashes occurring approximately every seven years.

But there is an additional element to this cycle which makes it even more extraordinary.

As Jonathan Cahn has pointed out, this seven year cycle also lines up with the seven year “Shemitah cycle” that we find in the Bible.

For those not familiar with it, during the Shemitah year the people of Israel were commanded to let their land rest for a full year. It was also supposed to be a time of releasing of debts.

But for the most part the people of Israel did not observe the Shemitah year, and in the Bible that is mentioned as one of the reasons why they were exiled to Babylon for seventy years.

The Shemitah year always begins in the fall, and the upcoming Shemitah year is going to start about a month from now.

Will we see things happen during this Shemitah year that are similar to things that we have seen in past Shemitah years?

For example, on September 17th, 2001 we witnessed the greatest one day stock market crash in U.S. history up until that time. It happened on the 29th of Elul on the Jewish calendar, which is the day right before Rosh Hashanah.

That record stood for seven years until the massive stock market crash of September 29, 2008. That date also corresponded with the 29th of Elul on the Jewish Calendar – the day right before Rosh Hashanah.

Will the pattern hold up in 2015?

Well, the 29th of Elul falls on a Sunday in 2015, so the stock market will be closed. But it is very interesting to note that there will be a solar eclipse on that day.

And as Jonathan Cahn recently told WND, similar solar eclipses in the past have preceded major financial disasters…

In 1931, a solar eclipse took place on Sept. 12 – the end of a “Shemitah” year. Eight days later, England abandoned the gold standard, setting off market crashes and bank failures around the world. It also ushered in the greatest monthlong stock market percentage crash in Wall Street history.

In 1987, a solar eclipse took place Sept. 23 – again the end of a “Shemitah” year. Less than 30 days later came “Black Monday” the greatest percentage crash in Wall Street history.

Is Cahn predicting doom and gloom on Sept. 13, 2015? He’s careful to avoid a prediction, saying, “In the past, this ushered in the worst collapses in Wall Street history. What will it bring this time? Again, as before, the phenomenon does not have to manifest at the next convergence. But, at the same time, and again, it is wise to take note.”

So what should we make of all of this?

I am sure that some of you will dismiss this as pure coincidence and speculation.

Others will find it utterly fascinating.

But one thing is for sure – people are going to be talking about this seven year cycle all over the Internet.

When they ask you what you think, what are you going to say?

14 Reasons Why The U.S. Economy’s Bubble Of False Prosperity May Be About To Burst

August 13, 2014 by Michael

Did you know that a major event just happened in the financial markets that we have not seen since the financial crisis of 2008? If you rely on the mainstream media for your news, you probably didn’t even hear about it. Just prior to the last stock market crash, a massive amount of money was pulled out of junk bonds. Now it is happening again. In fact, as you will read about below, the market for high yield bonds just experienced “a 6-sigma event”. But this is not the only indication that the U.S. economy could be on the verge of very hard times. Retail sales are extremely disappointing, mortgage applications are at a 14 year low and growing geopolitical storms around the world have investors spooked. For a long time now, we have been enjoying a period of relative economic stability even though our underlying economic fundamentals continue to get even worse. Unfortunately, there are now a bunch of signs that this period of relative stability is about to end. The following are 14 reasons why the U.S. economy’s bubble of false prosperity may be about to burst…

#1 The U.S. junk bond market just experienced “a 6-sigma event” earlier this month. In other words, it is an event that is only supposed to have a chance of 1 in 500 million of happening. Billions of dollars are being pulled out of junk bonds right now, and that has some analysts wondering if a financial crash is right around the corner.

#2 The last time that we saw a junk bond rout of this magnitude was back during the financial crash of 2008. In fact, as the Telegraph recently explained, bonds usually crash before stocks do…

The credit market usually leads the equity market during turning points, as happened when credit markets cracked first in 2008.

Will the same thing happen this time around?

#3 Retail sales have missed expectations for three months in a row and we just had the worst reading since January.

#4 Things have gotten so bad that even Wal-Mart is really struggling. Same-store sales at Wal-Mart have declined for five quarters in a row and the outlook for the future is not particularly promising.

#5 The four week moving average for mortgage applications just hit a 14 year low. It is now even lower than it was during the worst moments of the financial crisis of 2008.

#6 The tech industry is supposed to be booming, but mass layoffs in the tech industry are actually 68 percent ahead of last year’s pace.

#7 According to the Federal Reserve, 40 percent of all households in the United States are currently showing signs of financial stress.

#8 The U.S. homeownership rate has fallen to the lowest level since 1995.

#9 According to one survey, 76 percent of Americans do not have enough money saved to cover six months of expenses.

#10 Rumblings of a stock market correction have become so loud that even the mainstream media is reporting on it. For example, just check out this CNN headline from earlier this month: “Is a correction near? Wall Street on edge“.

#11 The civil war in Iraq is spiraling out of control, and Barack Obama has just announced that he is going to send 130 troops to the country in a “humanitarian” capacity. Iraq is the 7th largest oil producing nation on the entire planet, and if the flow of oil is disrupted that could have serious consequences.

#12 As a result of the conflict in Ukraine, the United States, Canada and the European Union have slapped sanctions on Russia. In return, Russia has slapped sanctions on them. Will this slowdown in global trade significantly harm the U.S. economy?

#13 The three day cease-fire between Hamas and Israel is about to end, and Hamas officials are saying that they are preparing for a “long battle“. If a resolution is not found soon, we could potentially see a full-blown regional war erupt in the Middle East.

#14 The number of Ebola deaths continues to grow at an exponential rate, and if the virus starts spreading inside the United States it has the potential to pretty much shut down our entire economy.

Meanwhile, things look even more dire in much of the rest of the globe.

For example, the economic slowdown has gotten so bad in some nations over in Europe that they are actually experiencing deflation…

Portugal has crashed into deep deflation and Italy’s inflation rate has fallen to zero as the eurozone flirts with recession, automatically pushing these countries further towards a debt compound spiral.

The slide comes amid signs of a deepening slowdown in the eurozone core, with even Germany flirting with possible recession. Germany’s ZEW index of investor confidence plunged from 27.1 to 8.6 in July, the sharpest fall since June 2012, during the European sovereign debt crisis. “The European Central Bank has to act now,” said Andrew Roberts, credit chief at RBS.

And in Japan, GDP just contracted at a 6.8 percent annual rate during the second quarter…

Japan’s economy suffered its worst contraction since 2011 in the second quarter as consumer spending on big items slumped in the wake of a sales tax rise.

Gross domestic product shrunk by an annualized 6.8% in the three months ended June, Japan’s Cabinet Office said Wednesday. The result was actually better than the 7% contraction expected by economists.

On a quarterly basis, Japan’s GDP dropped by 1.7% as business and housing investment declined. Japan’s economy last suffered a hit of this magnitude after the 2011 tsunami and nuclear disaster.

There is no way that this bubble of false prosperity was going to last forever. It was never real to begin with. It was just based on a pyramid of debt and false promises. In fact, the condition of the global financial system is now far worse than it was just prior to the financial crisis of 2008.

Sadly, most people do not understand these things. Most people just assume that our leaders have fixed whatever caused the problems last time. And when the next crisis arrives, they will be totally blindsided by it.

Stone Cold Proof That Government Economic Numbers Are Being Highly Manipulated

June 25, 2014 by Michael

How in the world does the government expect us to trust the economic numbers that they give us anymore? For a long time, many have suspected that they were being manipulated, and as you will see below we now have stone cold proof that this is indeed the case. But first, let’s talk about the revised GDP number for the first quarter of 2014 that was just released. Initially, they told us that the U.S. economy only shrank by 0.1 percent in Q1. Then that was revised down to a 1.0 percent contraction, and now we are being informed that the economy actually contracted by a whopping 2.9 percent during the first quarter. So what are we actually supposed to believe? Sometimes I almost get the feeling that government bureaucrats are just throwing darts at a dartboard in order to get these numbers. Of course that is not actually true, but how do we know that we can actually trust the numbers that they give to us?

Over at shadowstats.com, John Williams publishes alternative economic statistics that he believes are much more realistic than the government numbers. According to his figures, the U.S. economy has actually been continually contracting since 2005. That would mean that we have been in a recession for the last nine years.

Could it be possible that he is right and the bureaucrats in Washington D.C. are wrong?

Before you answer that question, read the rest of this article.

It just might change your thinking a bit.

Another number that many have accused of being highly manipulated is the inflation rate.

But we don’t have to sit around and wonder if that figure is being manipulated. The truth is that even those that work inside the Federal Reserve admit that it is being manipulated.

As Robert Wenzel recently pointed out, Mike Bryan, a vice president and senior economist in the Atlanta Fed’s research department, has been very open about the fact that the way inflation is calculated has been changed almost every month at times…

The Economist retells a conversation with Stephen Roach, who in the 1970s worked for the Federal Reserve under Chairman Arthur Burns. Roach remembers that when oil prices surged around 1973, Burns asked Federal Reserve Board economists to strip those prices out of the CPI “to get a less distorted measure. When food prices then rose sharply, they stripped those out too—followed by used cars, children’s toys, jewellery, housing and so on, until around half of the CPI basket was excluded because it was supposedly ‘distorted'” by forces outside the control of the central bank. The story goes on to say that, at least in part because of these actions, the Fed failed to spot the breadth of the inflationary threat of the 1970s.

I have a similar story. I remember a morning in 1991 at a meeting of the Federal Reserve Bank of Cleveland’s board of directors. I was welcomed to the lectern with, “Now it’s time to see what Mike is going to throw out of the CPI this month.” It was an uncomfortable moment for me that had a lasting influence. It was my motivation for constructing the Cleveland Fed’s median CPI.

I am a reasonably skilled reader of a monthly CPI release. And since I approached each monthly report with a pretty clear idea of what the actual rate of inflation was, it was always pretty easy for me to look across the items in the CPI market basket and identify any offending—or “distorted”—price change. Stripping these items from the price statistic revealed the truth—and confirmed that I was right all along about the actual rate of inflation.

Right now, the Federal Reserve tells us that the inflation rate is sitting at about 2 percent.

But according to John Williams, if the inflation rate was calculated the same way that it was in 1990 it would be nearly 6 percent.

And if the inflation rate was calculated the same way that it was in 1980 it would be nearly 10 percent.

So which number are we supposed to believe?

The one that makes us feel the best?

And without a doubt, “2 percent inflation” sounds a whole lot better than “10 percent inflation” does.

But anyone that does any grocery shopping knows that we are definitely not in a low inflation environment. For much more on this, please see my previous article entitled “Inflation? Only If You Look At Food, Water, Gas, Electricity And Everything Else“.

Of course the unemployment rate is being manipulated as well. Just consider the following excerpt from a recent New York Post article…

In case you are just joining this ongoing drama, the Labor Department pays Census to conduct the monthly Household Survey that produces the national unemployment rate, which despite numerous failings is — inexplicably — still very important to the Federal Reserve and others.

One of the problems with the report is that Census field representatives — the folks who knock on doors to conduct the surveys — and their supervisors have, according to my sources, been shortcutting the interview process.

Rather than collect fresh data each month as they are supposed to do, Census workers have been filling in the blanks with past months’ data. This helps them meet the strict quota of successful interviews set by Labor.

That’s just one of the ways the surveys are falsified.

The Federal Reserve would have us believe that the unemployment rate in the U.S. has fallen from a peak of 10.0 percent during the recession all the way down to 6.3 percent now.

But according to shadowstats.com, the broadest measure of unemployment is well over 20 percent and has kept rising since the end of the last recession.

And according to the Federal Reserve’s own numbers, the percentage of working age Americans with a job has barely increased over the past four years…

The chart above looks like a long-term employment decline to me.

But that is not the story that the government bureaucrats are selling to us.

So where does the truth lie?

What numbers are we actually supposed to believe?

Please feel free to share your thoughts by posting a comment below…

The Velocity Of Money In The U.S. Falls To An All-Time Record Low

June 1, 2014 by Michael

When an economy is healthy, there is lots of buying and selling and money tends to move around quite rapidly. Unfortunately, the U.S. economy is the exact opposite of that right now. In fact, as I will document below, the velocity of M2 has fallen to an all-time record low. This is a very powerful indicator that we have entered a deflationary era, and the Federal Reserve has been attempting to combat this by absolutely flooding the financial system with more money. This has created some absolutely massive financial bubbles, but it has not fixed what is fundamentally wrong with our economy. On a very basic level, the amount of economic activity that we are witnessing is not anywhere near where it should be and the flow of money through our economy is very stagnant. They can try to mask our problems with happy talk for as long as they want, but in the end it will be clearly evident that none of the long-term trends that are destroying our economy have been addressed.

Discussions about the money supply can get very complicated, and that can cause people to tune out, but it doesn’t have to be that way.

To put it very basically, when there is lots of economic activity, there is lots of money changing hands.

When there is not very much economic activity, the pace at which money circulates through our system slows down.

That is why what is happening in the U.S. right now is so troubling.

First, let’s look at M1, which is a fairly narrow definition of the money supply. The following is how Investopedia defines M1…

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. It does not contain “near money” or “near, near money” as M2 and M3 do.

As you can see from the chart posted below, the velocity of M1 normally declines during a recession. Just look at the shaded areas in the chart. But a funny thing has happened since the end of the last recession. The velocity of M1 has just kept falling and it is now at a nearly 20 year low…

Next, let’s take a look at M2. It includes more things in the money supply. The following is how Investopedia defines M2…

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.

In the chart posted below, we can once again see that the velocity of M2 normally slows down during a recession. And we can also see that the velocity of M2 has continued to slow down in the “post-recession era” and has now dropped to the lowest level ever recorded…

This is a highly deflationary chart.

It clearly indicates that economic activity in the U.S. has been steadily slowing down.

And if we are honest, we have to admit that we are seeing signs of this all around us. Major retailers are closing down stores at the fastest pace since the collapse of Lehman Brothers, consumer confidence is down, trading revenues at the big Wall Street banks are way down, and the steady decline in home sales is more than just a little bit alarming.

In addition, the employment situation in this country is much less promising than we have been led to believe. According to a report put out by the Republicans on the Senate Budget Committee, an all-time record one out of every eight men in their prime working years are not in the labor force…

“There are currently 61.1 million American men in their prime working years, age 25–54. A staggering 1 in 8 such men are not in the labor force at all, meaning they are neither working nor looking for work. This is an all-time high dating back to when records were first kept in 1955. An additional 2.9 million men are in the labor force but not employed (i.e., they would work if they could find a job). A total of 10.2 million individuals in this cohort, therefore, are not holding jobs in the U.S. economy today. There are also nearly 3 million more men in this age group not working today than there were before the recession began.”

Never before has such a high percentage of men in their prime years been so idle.

But since they are not counted as part of “the labor force”, the government bureaucrats can keep the “unemployment rate” looking nice and pretty.

Of course if we were actually using honest numbers, the unemployment rate would be in the double digits, our economy would be considered to have been in a recession since about 2005, and everyone would be crying out for an end to “the depression”.

And now we are rapidly approaching another downturn. In my recent articles entitled “Has The Next Recession Already Begun For America’s Middle Class?” and “27 Huge Red Flags For The U.S. Economy“, I detailed much of the evidence for why this is true.

And those that run the Federal Reserve know all of this.

That is one of the reasons for all of the “quantitative easing” that they have been doing. The folks at the Fed know that the U.S. economy would probably drift into a deflationary depression if they just sat back and did nothing. So they flooded the system with money in a desperate attempt to revive economic activity. But instead, most of the new money just ended up in the pockets of the very wealthy and further increased the divide between those at the top and those at the bottom in this country.

And now Fed officials are slowly scaling back quantitative easing because they apparently believe that the economy is getting “back to normal”.

We shall see.

Many are not quite so optimistic.

For example, the chief market analyst at the Lindsey Group, Peter Boockvar, believes that the S&P 500 could plummet 15 to 20 percent when quantitative easing finally ends.

Others believe that it will be much worse than that.

Since 2008, the size of the Fed balance sheet has grown from less than a trillion dollars to more than four trillion dollars. This unprecedented intervention was able to successfully delay the coming deflationary depression, but it has also made our long-term problems far worse.

So when the inevitable crash does arrive, it will be much, much worse than it could have been.

Sadly, most Americans do not understand these things. Most Americans simply trust that our “leaders” know what they are doing. And so in the end, most Americans will be completely blindsided by what is coming.

Economists: The U.S. Economy Shrank In Q1, But Better Days Are Just Around The Corner

May 29, 2014 by Michael

During the first three months of this year, the U.S. economy contracted at a 1 percent annual rate. Despite this, mainstream economists flooded the mainstream media with assurances that much better days are just around the corner on Thursday. In fact, many of them boldly predicted that U.S. GDP would grow at a 3 or 4 percent annual rate in the second quarter. None of them seem the least bit concerned that another major recession is rapidly approaching. Instead, they just blamed the bad number for the first quarter on a “severe winter“, and the financial markets responded to the GDP news quite cheerfully. In fact, the S&P 500 soared to another brand new record high. No matter how bad the numbers get, almost everyone in the financial world seems quite optimistic. But is there actually good reason to have such optimism?

As Zero Hedge has pointed out, if it wasn’t for dramatically increased healthcare spending due to the implementation of Obamacare, U.S. GDP would have actually dropped at a 2 percent annual rate during the first quarter of 2014.

That would have been an absolutely disastrous number.

But within a very short time of the revised U.S. GDP number being released, the mainstream media was inundated with positive stories about the news.

For example, CNN published a story entitled “U.S. economy shrinks, but it’s not a big deal” and CNBC released a survey of nine prominent economists that showed that their consensus forecast for the second quarter of 2014 is GDP growth at a 3.74 percent annual rate.

It just seems like almost everyone wants to forget about what happened during the first quarter and wants to look ahead to a great number for quarter two.

Joseph Lavorgna, the chief U.S. economist at Deutsche Bank, is boldly forecasting a 4 percent growth rate for the second quarter. So is Jim O’Sullivan. In fact, it is hard to find any “expert” in the mainstream media that does not expect rip-roaring economic growth this quarter.

For example, just check out these quotes…

–Stuart Hoffman, the chief economist for PNC Bank: “The first quarter was disappointing, but rather than view that as an omen of a recession or the first of a down leg in the economy, I see the seeds of a big bounce back in spring.”

–Paul Ashworth of Capital Economics: “For those worried about a recession, it’s worth remembering that employment increased by nearly 300,000 in April.”

–The Bank of Tokyo’s Chris Rupkey: “2Q growth seen at nearly 4%… Weak 1Q is stone cold dead as an indicator of where the economy is headed.”

–Jan Hatzius of Goldman Sachs: “Because of weaker inventory investment in Q1, we increased our Q2 GDP tracking estimate by two-tenths to 3.9%.”

–Dun & Bradstreet Credibility Corp. CEO Jeffrey Stibel: “Using an alternative model for projecting job growth, we see an entirely different scenario, one in which the U.S. unemployment rate will fall below 5 percent by no later than the middle of next year.”

Hopefully they are right.

Hopefully we are not heading into another recession.

But as I discussed in an article earlier this week, evidence continues to mount that another recession has already begun for much of the country.

And there was another number that was released today that seems to confirm this. According to CNBC, there was a 6 percent drop in exports in the first quarter of 2014 when compared to the first quarter of 2013…

The U.S. economic reversal was led by a 6 percent drop in exports year over year, until recently hailed as a key driver of the U.S. recovery, and which had risen 9.5 percent in the last three months of 2013.

The slackening of trade has spread to the developing world, where emerging economies are seeing less demand from the U.S., Europe and China for raw materials and other exports.

We saw a similar decline happen in mid-2008 as the U.S. economy plunged into recession.

And Bloomberg’s Consumer Comfort index has fallen to the lowest level that we have seen in six months. U.S. consumers are increasingly tapped out, and the ongoing “retail apocalypse” is evidence of that fact.

A declining middle class simply cannot support the massive retail infrastructure that America has developed. As the middle class has fallen to pieces, it was just a matter of time before big trouble started erupting for the retail industry. This is something that David Stockman recently wrote about…

It does not take much analysis to see that these bell ringers do not represent sustainable prosperity unfolding across the land. For example, around 1990 real median income was $56k per household and now, 25 years later, its just $51k—-meaning that main street living standards have plunged by about 9% during the last quarter century. But what has not dropped is the opportunity for Americans to drop shopping: square footage per capita during the same period more than doubled, rising from 19 square feet per capita at the earlier date to 47 at present.

This complete contradiction—declining real living standards and soaring investment in retail space—did not occur due to some embedded irrational impulse in America to speculate in real estate, or because capitalism has an inherent tendency to go off the deep-end. The fact that in equally “prosperous” Germany today there is only 12 square feet of retail space per capita is an obvious tip-off, and this is not a teutonic aberration. America’s prize-winning number of 47 square feet of retail space per capita is 3-8X higher than anywhere else in the developed world!

Without middle class jobs, you can’t have a middle class. That is why our employment crisis is at the very heart of our economic problems. Even using the government’s highly manipulated unemployment figures, there are still quite a few cities out there that have official unemployment rates in the double digits…

The unemployment rate in Yuma, Ariz., is 23.8%. In El Centro, Calif., it is 21.6%. El Centro sits in an area of California in which unemployment in many metro areas is double the national average. In Merced the figure is 14.3%, in Yuba City the figure is 14.5%, in Hanford it is 13.1% and in Visalia it is 13.4%. In several metros close to these, the figure is above 10%. Most of them are inland from San Francisco and the area just south of it, which also happens to be among the nation’s most drought-plagued regions. This means jobs recovery is highly unlikely.

But of course the truth is that if the government actually used honest numbers, the unemployment rate for the entire nation would be in double digits.

And as I like to remind people, according to the government’s own numbers approximately 20 percent of the families in the entire nation do not have a single member that is employed.

So how is it possible that the “unemployment rate” is just a little above 6 percent?

It is a giant sham.

But that is what they want.

They want us feeling good and thinking that everything is going to be okay.

Unfortunately, they used the same approach back in 2007 and 2008, and we all remember how that turned out.

Has The Next Recession Already Begun For America’s Middle Class?

May 28, 2014 by Michael

Has the next major economic downturn already started? The way that you would answer that question would probably depend on where you live. If you live in New York City, or the suburbs of Washington D.C., or you work for one of the big tech firms in the San Francisco area, you would probably respond to such a question by saying of course not. In those areas, the economy is doing great and prices for high end homes are still booming. But in most of the rest of the nation, evidence continues to mount that the next recession has already begun for the poor and the middle class. As you will read about below, major retailers had an absolutely dreadful start to 2014 and home sales are declining just as they did back in 2007 before the last financial crisis. Meanwhile, the U.S. economy continues to lose more good jobs and 20 percent of all U.S. families do not have a single member that is employed at this point. 2014 is turning out to be eerily similar to 2007 in so many ways, but most people are not paying attention.

During the first quarter of 2014, earnings by major U.S. retailers missed estimates by the biggest margin in 13 years. The “retail apocalypse” continues to escalate, and the biggest reason for this is the fact that middle class consumers in the U.S. are tapped out. And this is not just happening to a few retailers – this is something that is happening across the board. The following is a summary of how major U.S. retailers performed in the first quarter of 2014 that was put together by Jim Quinn…

Wal-Mart Profit Plunges By $220 Million as US Store Traffic Declines by 1.4%

Target Profit Plunges by $80 Million, 16% Lower Than 2013, as Store Traffic Declines by 2.3%

Sears Loses $358 Million in First Quarter as Comparable Store Sales at Sears Plunge by 7.8% and Sales at Kmart Plunge by 5.1%

JC Penney Thrilled With Loss of Only $358 Million For the Quarter

Kohl’s Operating Income Plunges by 17% as Comparable Sales Decline by 3.4%

Costco Profit Declines by $84 Million as Comp Store Sales Only Increase by 2%

Staples Profit Plunges by 44% as Sales Collapse and Closing Hundreds of Stores

Gap Income Drops 22% as Same Store Sales Fall

American Eagle Profits Tumble 86%, Will Close 150 Stores

Aeropostale Losses $77 Million as Sales Collapse by 12%

Best Buy Sales Decline by $300 Million as Margins Decline and Comparable Store Sales Decline by 1.3%

Macy’s Profit Flat as Comparable Store Sales decline by 1.4%

Dollar General Profit Plummets by 40% as Comp Store Sales Decline by 3.8%

Urban Outfitters Earnings Collapse by 20% as Sales Stagnate

McDonalds Earnings Fall by $66 Million as US Comp Sales Fall by 1.7%

Darden Profit Collapses by 30% as Same Restaurant Sales Plunge by 5.6% and Company Selling Red Lobster

TJX Misses Earnings Expectations as Sales & Earnings Flat

Dick’s Misses Earnings Expectations as Golf Store Sales Plummet

Home Depot Misses Earnings Expectations as Customer Traffic Only Rises by 2.2%

Lowes Misses Earnings Expectations as Customer Traffic was Flat

That is quite a startling list.

But plummeting retail sales are not the only sign that the U.S. middle class is really struggling right now. Home sales have also been extremely disappointing for quite a few months. This is how Wolf Richter described what we have been witnessing…

This is precisely what shouldn’t have happened but was destined to happen: Sales of existing homes have gotten clobbered since last fall. At first, the Fiscal Cliff and the threat of a US government default – remember those zany times? – were blamed, then polar vortices were blamed even while home sales in California, where the weather had been gorgeous all winter, plunged more than elsewhere.

Then it spread to new-home sales: in April, they dropped 4.7% from a year ago, after March’s year-over-year decline of 4.9%, and February’s 2.8%. Not a good sign: the April hit was worse than February’s, when it was the weather’s fault. Yet April should be the busiest month of the year (excellent brief video by Lee Adler on this debacle).

We have already seen that in some markets, in California for example, sales have collapsed at the lower two-thirds of the price range, with the upper third thriving. People who earn median incomes are increasingly priced out of the market, and many potential first-time buyers have little chance of getting in. In San Diego, for example, sales of homes below $200,000 plunged 46% while the upper end is doing just fine.

As Richter noted, sales of upper end homes are still doing fine in many areas.

But how long will that be able to continue if things continue to get even worse for the poor and the middle class? Traditionally, the U.S. economy has greatly depended upon consumer spending by the middle class. If that continues to dry up, how long can we avoid falling into a recession? For even more numbers that seem to indicate economic trouble for the middle class, please see my previous article entitled “27 Huge Red Flags For The U.S. Economy“.

Other analysts are expressing similar concerns. For example, check out what John Williams of shadowstats.com had to say during one recent interview…

We’re turning down anew. The first quarter should revise into negative territory… and I believe the second quarter will report negative as well.

That will all happen by July 30 when you have the annual revisions to the GDP. In reality the economy is much weaker than that. Economic growth is overstated with the GDP because they understate inflation, which is used in deflating the number…

What we’re seeing now is just… we’ve been barely stagnant and bottomed out… but we’re turning down again.

The reason for this is that the consumer is strapped… doesn’t have the liquidity to fuel the growth in consumption.

Income… the median household income, net of inflation, is as low as it was in 1967. The average guy is not staying ahead of inflation…

This has been a problem now for decades… You were able to buy consumption from the future by borrowing more money, expanding your debt. Greenspan saw the problem was income, so he encouraged debt expansion.

That all blew apart in 2007/2008… the income problems have continued, but now you don’t have the ability to borrow money the way you used to. Without that and the income problems remaining, there’s no way that consumption can grow faster than inflation if income isn’t.

As a result – personal consumption is more than two thirds of the economy – there’s no way you can have positive sustainable growth in the U.S. economy without the consumer being healthy.

The key to the health of the middle class is having plenty of good jobs.

But the U.S. economy continues to lose more good paying jobs.

For example, Hewlett-Packard has just announced that it plans to eliminate 16,000 more jobs in addition to the 34,000 job cuts that have already been announced.

Today, there are 27 million more working age Americans that do not have a job than there were in 2000, and the quality of our jobs continues to decline.

This is absolutely destroying the middle class. Unless the employment situation in this country starts to turn around, there does not seem to be much hope that the middle class will recover any time soon.

Meanwhile, there are emerging signs of trouble for the wealthy as well.

For instance, just like we witnessed back in 2007, things are starting to look a bit shaky at the “too big to fail” banks. The following is an excerpt from a recent CNBC report…

Citigroup has joined the ranks of those with trading troubles, as a high-ranking official told the Deutsche Bank 2014 Global Financial Services Investor Conference Tuesday that adjusted trading revenue probably will decline 20 percent to 25 percent in the second quarter on an annualized basis.

“People are uncertain,” Chief Financial Officer John Gerspach said of investor behavior, according to an account from the Wall Street Journal. “There just isn’t a lot of movement.”

In recent weeks, officials at JPMorgan Chase and Barclays also both reported likely drops in trading revenue. JPMorgan said it expected a decline of 20 percent of the quarter, while Barclays anticipates a 41 percent drop, prompting it to announce mass layoffs that will pare 19,000 jobs by the end of 2016.

Remember, very few people expected a recession the last time around either. In fact, Federal Reserve Chairman Ben Bernanke repeatedly promised us that we would not have a recession and then we went on to experience the worst economic downturn since the Great Depression.

It will be the same this time as well. Just like in 2007, we will continue to get an endless supply of “hopetimism” from our politicians and the mainstream media, and they will continue to fill our heads with visions of rainbows, unicorns and economic prosperity for as far as the eyes can see.

But then the next recession will strike and most Americans will be completely blindsided by it.

Who Needs The United States? Not Russia And China

May 21, 2014May 21, 2014 by Michael

Russia and China have just signed what is being called “the gas deal of the century”, and the two countries are discussing moving away from the U.S. dollar and using their own currencies to trade with one another. This has huge implications for the future of the U.S. economy, but the mainstream media in the United States is being strangely quiet about all of this. For example, I searched CNN’s website to see if I could find something about this gas deal between Russia and China and I did not find anything. But I did find links to “top stories” entitled “Celebs who went faux red” and “Adorable kid tugs on Obama’s ear“. Is it any wonder why the mainstream media is dying? If a particular story does not fit their agenda, they will simply ignore it. But the truth is that this new agreement between Russia and China is huge. It could end up fundamentally changing the global financial system, and not in a way that would be beneficial for the United States.

Russia and China had been negotiating this natural gas deal for ten years, and now it is finally done. Russia is the largest exporter of natural gas on the entire planet, and China is poised to become the world’s largest economy in just a few years. This new $400 billion agreement means that these two superpowers could potentially enjoy a mutually beneficial relationship for the next 30 years…

Russia reached a $400 billion deal to supply natural gas to China through a new pipeline over 30 years, a milestone in relations between the world’s largest energy producer and the biggest consumer.

President Vladimir Putin is turning to China to bolster Russia’s economy as relations sour with the U.S. and European Union because of the crisis in Ukraine. Today’s accord, signed after more than a decade of talks, will allow state-run gas producer OAO Gazprom (GAZP) to invest $55 billion developing giant gas fields in eastern Siberia and building the pipeline, Putin said.

It’s an “epochal event,” Putin said in Shanghai after the contract was signed. Both countries are satisfied with the price, he said.

Of course countries sell oil and natural gas to each other all the time. But what makes this deal such a potential problem for the U.S. is the fact that Russia and China are working on cutting the U.S. dollar out of the entire equation. Just check out the following excerpt from a recent article in a Russian news source…

Russia and China are planning to increase the volume of direct payments in mutual trade in their national currencies, according to a joint statement on a new stage of comprehensive partnership and strategic cooperation signed during high-level talks in Shanghai on Tuesday.

“The sides intend to take new steps to increase the level and expansion of spheres of Russian-Chinese practical cooperation, in particular to establish close cooperation in the financial sphere, including an increase in direct payments in the Russian and Chinese national currencies in trade, investments and loan services,” the statement said.

In my recent article entitled “De-Dollarization: Russia Is On The Verge Of Dealing A Massive Blow To The Petrodollar“, I warned about what could happen if the petrodollar monopoly ends. In the United States, our current standard of living is extremely dependent on the rest of the world continuing to use our currency to trade with one another. If Russia starts selling natural gas to China without the U.S. dollar being involved, that would be a monumental blow to the petrodollar. And if other nations started following the lead of Russia and China, that could result in an avalanche from which the petrodollar may never recover.

And it isn’t just the national governments of Russia and China that are discussing moving away from the U.S. dollar. For example, the second largest bank in Russia just signed a deal with the Bank of China “to pay each other in domestic currencies”…

VTB, Russia’s second biggest lender, has signed a deal with Bank of China, which includes an agreement to pay each other in domestic currencies.

“Under the agreement, the banks plan to develop their partnership in a number of areas, including cooperation on ruble and renminbi settlements, investment banking, inter-bank lending, trade finance and capital-markets transactions,” says the official VTB statement.

The deal underlines VTB Group’s growing interest in Asian markets and will help grow trade between Russia and China that are already close trading partners, said VTB Bank Management Board Vasily Titov.

You can almost feel the power of the U.S. dollar fading.

A few months ago, when I wrote about how China had announced that it no longer planned to stockpile more U.S. dollars, I speculated that it may be evidence that China planned to start making a big move away from the U.S. dollar.

Well, now China’s intentions have become even more clear.

The Chinese do not plan to allow the United States to indefinitely dominate the globe financially. In the long run, the Chinese plan to be the ones calling the shots, and that means that the power of the U.S. dollar must decline.

These days, instead of piling up mountains of U.S. currency, China has started accumulating hard assets instead. In the past, I have written about how China is rapidly stockpiling gold, and it turns out that the Chinese have also been very busy stockpiling oil as well…

China is stockpiling oil for its strategic petroleum reserve at a record pace, intervening on a scale large enough to send a powerful pulse through the world crude market.

The move comes as tensions mount in the South China Sea and the West prepares possible oil sanctions against Russia over the crisis in eastern Ukraine. Analysts believe China is quietly building up buffers against a possible spike in oil prices or disruptions in supply.

The International Energy Agency (IEA) said in its latest monthly report that China imported 6.81m barrels per day (bpd) in April, an all-time high.

Once upon a time, China was extremely dependent on the United States economically. The same was true with most of the rest of the world.

But now economic power has shifted so dramatically that nations such as Russia and China are realizing that they don’t really need to be dependent on the United States any longer.

And with each passing year, the relationship between Russia and China is becoming stronger. As Pepe Escobar recently observed, this emerging alliance is causing quite a bit of consternation in Washington…

And no wonder Washington is anxious. That alliance is already a done deal in a variety of ways: through the BRICS group of emerging powers (Brazil, Russia, India, China, and South Africa); at the Shanghai Cooperation Organization, the Asian counterweight to NATO; inside the G20; and via the 120-member-nation Non-Aligned Movement (NAM). Trade and commerce are just part of the future bargain. Synergies in the development of new military technologies beckon as well. After Russia’s Star Wars-style, ultra-sophisticated S-500 air defense anti-missile system comes online in 2018, Beijing is sure to want a version of it. Meanwhile, Russia is about to sell dozens of state-of-the-art Sukhoi Su-35 jet fighters to the Chinese as Beijing and Moscow move to seal an aviation-industrial partnership.

Meanwhile, the relationship that the U.S. has with both nations is quickly going sour. The crisis in Ukraine has caused relations with Russia to drop to the lowest point since the end of the Cold War, and now China is deeply offended by charges that Chinese military officers have been involved in cyberspying on the United States…

China on Tuesday warned the United States was jeopardizing military ties by charging five Chinese officers with cyberspying and tried to turn the tables on Washington by calling it “the biggest attacker of China’s cyberspace.”

China announced it was suspending cooperation with the United States in a joint cybersecurity task force over Monday’s charges that officers stole trade secrets from major American companies. The Foreign Ministry demanded Washington withdraw the indictment.

The testy exchange marked an escalation in tensions over U.S. complaints that China’s military uses its cyber warfare skills to steal foreign trade secrets to help the country’s vast state-owned industrial sector.

The divide between the East and the West is growing.

But the Obama administration has not figured out that we need the East more than they need us.

Right now, the number one U.S. export is U.S. dollars. Our massively inflated standard of living is very heavily dependent on the rest of the world using our currency to trade with one another and lending it to us at super low interest rates.

If the rest of the world quits playing our game, our debt-based financial system will quickly fall apart.

Unfortunately, nobody in the Obama administration seems to have much understanding of global economics, and they will probably continue to antagonize Russia and China.

In the end, the consequences for antagonizing them could end up being far greater than any of us ever imagined.

27 Huge Red Flags For The U.S. Economy

May 20, 2014 by Michael

If you believe that the U.S. economy is heading in the right direction, you really need to read this article. As we look toward the second half of 2014, there are economic red flags all over the place. Industrial production is down. Home sales are way down. Retail stores are closing at the fastest pace since the collapse of Lehman Brothers. U.S. household debt is up substantially, and in 20 percent of all U.S. families everyone is unemployed. In so many ways, what we are witnessing right now is so similar to what we experienced during the build up to the last great financial crisis. We are making so many of the very same mistakes that we made the last time, and yet our “leaders” seem completely oblivious to what is happening. But the warning signs are very clear. All you have to do is open your eyes and look at them. The following are 27 huge red flags for the U.S. economy…

#1 Despite endless assurances from the Obama administration that we are in an “economic recovery”, the number one concern for U.S. voters is “Unemployment/Jobs” according to a recent Gallup survey.

#2 Historically, sales for construction equipment manufacturer Caterpillar have been a pretty good indicator of where the global economy is heading next. Unfortunately, sales were down 13 percent last month and have now experienced year over year declines for 17 months in a row.

#3 During the first quarter of 2014, profits at office supply giant Staples fell by 43.5 percent.

#4 Foot traffic at Wal-Mart stores fell by 1.4 percent during the first quarter of 2014. Analysts seem puzzled as to why Wal-Mart is “underperforming“. Perhaps it is because the U.S. middle class is being steadily destroyed and U.S. consumers are tapped out at this point.

#5 It is being projected that Sears will soon close hundreds more stores and will eventually go out of business altogether…

The company said this week that it may sell its 51% stake in Sears Canada, which operates nearly 20% of the company’s stores worldwide. It has quietly closed nearly 100 U.S. stores in the last year. Next week, it’s expected to announce dismal fiscal first quarter results and possibly yet more store closings.

“They have too many stores and they’re losing a lot of money, burning cash,” said John Kernan, an analyst with Cowen.
Kernan expects the company to close 500 of its 1,980 U.S. stores in a few years and, ultimately, to go out of business.

“The lights are going off at Sears and Kmart,” he said. “There are tumbleweeds blowing through the parking lots at Kmart. They’re basically completely irrelevant.”

The “retail apocalypse” just continues to roll on, but the mainstream media is treating this like it is not really a big deal.

#6 The labor force participation rate for Americans from the age of 25 to the age of 29 has fallen to an all-time record low.

#7 According to official government numbers, everyone is unemployed in 20 percent of all American families.

#8 As families struggle to pay their bills, many of them are increasingly turning to debt in order to make ends meet. Earlier this month we learned that total U.S. household debt has increased for three quarters in a row. And as I noted in one recent article, total consumer credit in the United States has increased by 22 percent over the past three years, and 56 percent of all Americans have “subprime credit” at this point.

#9 Interest rates on student loans are scheduled to increase substantially on July 1st…

As of July 1, federal student loan rates will edge up. Rates overall will be up 0.8% compared to current rates.

Federal Stafford Loans for undergraduate students will be 4.66% — up from 3.86%. Federal Stafford Loans for graduate students will be 6.21% — up from 5.41%.

Federal Grad PLUS and Federal Parent PLUS Loans will be at 7.21% — up from 6.41%.

This is going to put even more pressure on the growing student loan debt bubble.

#10 U.S. industrial production fell by 0.6 percent in April. This should not be happening if the economy truly was “recovering”.

#11 Manufacturing job openings in the United States have declined for four months in a row.

#12 Existing home sales have fallen for seven of the last eight months and seem to be repeating a pattern that we witnessed back in 2007 prior to the last financial crash.

#13 In the real estate bubble market of Phoenix, sales in April were down 12 percent year over year, and active inventory was up 49 percent year over year. In other words, there are tons of homes on the market, but sales are going down.

#14 The homeownership rate in the United States has dropped to the lowest level in 19 years.

#15 Trading revenue at big banks all over the western world is way down…

Late Friday, it was JPMorgan who said trading revenues will be down 20 percent this quarter. Now Barclays says trading revenues in the first three months were down 41 percent. The company cited “challenging trading conditions resulting in subdued client activity.” Like JPMorgan, Barclays also warned they were seeing no improvement in trading in the second quarter.

#16 Jan Loeys, JPMorgan’s head of global asset allocation, is warning that the Federal Reserve is creating a huge financial bubble which could “push us into a credit crisis“…

Where do we go from here? To this analyst, still very subdued economic growth, both at the US and global level, implies continued easy monetary policy. The risk is that bond yields rise no faster than the forwards. Financial overheating (asset inflation) proceeds much faster than economic overheating (CPI inflation). Before CPI inflation has a chance to emerge, and before monetary policy is truly above neutral, a financial bubble will have popped up somewhere and will have corrected, pushing the economy down. That is what has happened in the past 25 years. The behavior of central banks gives us no confidence that this time will be different: Central banks talk about financial instability, but appear to define this mostly in term of bank leverage. Each successive boom and bust is always in another place. A bubble can emerge without leverage. It is not possible to project exactly where this boom and bust cycle will take place as knowing where it will be would induce evasive actions that should prevent it from occurring. One possible ending, among many, is that ultra-easy rates having induced credit markets to grow much faster than equity markets, combines with reduced market making by banks (many of whom have become like brokers) to create a liquidity crisis when the Fed starts the first set of rate hikes. This could then be bad enough to close primary markets, and thus push us into a credit crisis.

#17 Peter Boockvar, the chief market analyst at the Lindsey Group, is warning that the U.S. stock market could experience a 20 percent decline once quantitative easing completely ends.

#18 A lot of other big names are telling CNBC that they expect a significant stock market “correction” very soon as well…

A bevy of high-profile names have warned lately that the market is on the doorstep of a major move lower. From long-term market bulls such as Piper Jaffray to short-term traders such as Dennis Gartman, expectations are high that the major averages are poised for a big dip, with calls varying from 10 percent or so all the way up to 25 percent.

#19 The number of Americans enrolled in the Social Security disability program exceeds the entire population of the nation of Greece and has just hit another brand new record high.

#20 Poverty continues to grow all over the country, and right now there are 49 million Americans that are dealing with food insecurity.

#21 According to Pew Charitable Trusts, tax revenue in 26 U.S. states is still lower than it was back in 2008 even though tax rates have gone up in many areas since then.

#22 Barack Obama is doing his best to keep his promise to destroy the U.S. coal industry…

The EPA is about to impose a new regulation that will reduce carbon emissions from existing power plants starting June 2 and will become permanent in 2015. The new regulation, according to Politico, is the “most dramatic anti-pollution regulation in a generation.” Because the new regulation will further cripple the coal industry, as coal-burning plants will be severely affected, American power will become more dependent on natural gas, solar and wind.

#23 Climatologists are now saying that the state of Texas is going through the worst period of drought that it has experienced in 500 years.

#24 It is being reported that “dozens of Texas communities” are less than 90 days away from being completely out of water.

#25 It is being projected that the drought in California will cost the agricultural industry 1.7 billion dollars and that approximately 14,500 agricultural workers will lose their jobs.

#26 Due in part to the drought, the price of meat rose at the fastest pace in more than 10 years last month.

#27 According to recent surveys, only about a quarter of all Americans believe that the country is heading in the right direction.

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