"My faith is that governments and central banks will continue to run up debt and debase currencies until a crisis brings the whole experiment to a disastrous conclusion. There is simply no historical precedent to reach any other conclusion. I also have faith that human beings will always prefer a piece of gold to a stack of paper. Separate a paper currency from its perceived value and you just have a stack of paper and ink. However, if they would just print it on softer and absorbent stock and put it on rolls, it might have some intrinsic value if we run out of toilet paper."
When we discuss an "economic collapse," most people think of a collapse of the financial markets; and without a doubt, one is coming very shortly. But let us not neglect the long-term economic collapse that is already happening all around us. If you stand back and take a broader view of things, what has been happening to the U.S. economy truly is quite shocking. The following are 12 ways that the U.S. economy is already in worse shape than it was during the depths of the last recession...
There has now been an unprecedented 31 consecutive months of CAT retail sales declines. This compares to "only" 19 during the near systemic collapse in 2008. In other words, if global demand for heavy industrial machinery, as opposed to unemployed millennials' demands for $0.99 Apple apps, is any indication of the true underlying economy, forget recession: the world is now in a second great depression which is getting worse by the month.
All eyes may be on Greece right now, but in reality, the economic malaise is widespread across the continent. It’s clear that Greece is not the problem. It’s a symptom of the problem. The real problem is that every one of these nations has violated the universal law of prosperity: produce more than you consume. This is the way it works in nature, and for individuals.
Why are commodity prices, including oil prices, lagging? Ultimately, it comes back to the question, “Why isn’t the world economy making very many of the end products that use these commodities?” If workers were getting rich enough to buy new homes and cars, demand for these products would be raising the prices of commodities used to build and operate cars, including the price of oil. If governments were rich enough to build an increasing number of roads and more public housing, there would be demand for the commodities used to build roads and public housing. It looks to me as though we are heading into a deflationary depression, because prices of commodities are falling below the cost of extraction. We need rapidly rising wages and debt if commodity prices are to rise back to 2011 levels or higher. This isn’t happening.
This seemingly inexhaustible credit line is now drying up, with severely negative consequences for oil producers with debt that's coming due. The row of dominoes swaying unsteadily in these stiff winds won't take much to topple.
The US economy is widely seen as the world’s best performing major economy at the moment. However, so far this year most economic data have actually been somewhere between very soft and lackluster. The steep fall in truck tonnage is definitely an alarm signal. It indicates that inventories are already too high relative to demand, something that seems to be confirmed by recent industrial production and retail sales data. Given that tonnage has continued to decline since the end of Q1, one can no longer blame the port strikes either. To be sure, the US economy is not yet signaling an imminent recession. At best though it is muddling through at a very subdued pace. It probably won’t take much to push it over the edge.
While this week has been, and continues to be, devoid of macro updates, yesterday's flurry of mostly disappointing earnings releases both before and after the open, including some of the biggest DJIA companies as well as the current and previously biggest and most important companies in the world, AAPL and MSFT, both of which came crashing down following earnings and forecasts that were well short of market expectations, came as a jolt to a market that was artificially priced by central bank liquidity and HFT momo algos beyond perfection. Add to that yesterday's downward revision to historical industrial production which confirmed the US economy is a step away from recession, as well as last night's Crude API inventory build which is once again pressuring WTI lower and on the verge of a 49 handle, and perhaps the biggest question is why are futures not much lower.
The action in gold in 2013 was a warning about the “dollar”, a warning that went completely unheeded yet has been largely fulfilled. Again, 2013 provides a guide as to why gold prices may be declining in sharp moves, especially right at the open or in weaker trading hours, and it has very little to do with interest rates apart from fixed income suggesting the same factors about the “dollar.” Whether it is growing unease about the global economic picture or the “sudden” recurrence of financial irregularity almost wherever you wish to gaze, the “dollar” is once more wreaking havoc. This isn’t controversial at all, but somehow economists can miss that gold is global and universal collateral and when the eurodollar system is stressed it becomes activated in that manner.
For all the back-patting exuberance over manipulated record high stock prices and record periods of illusory job gains, it appears the administration and its Obamanomics forgot one important thing - the children! As USA Today reports, a higher percentage of children live in poverty now than did during the Great Recession, according to a new report from the Annie E. Casey Foundation released Tuesday.
The one line item everyone looks for in every Greek forecast is what its debt will be now that reality is finally allowed to creep in. We have dutifully highlighted it on the chart below: it is now expected to hit 238% by 2018. But it was another number that caught our attention: Citi's estimate for Greek HICP (inflation) in 2017. 22.5% In other words, Citi predicts that by 2017 Greece will have hyperinflation even if it remains in the Eurozone.
This charmed circle includes Google, Amazon, Baidu, Facebook, Saleforce.com, Netflix, Pandora, Tesla, LinkedIn, ServiceNow, Splunk, Workday, Ylep, Priceline, QLIK Technologies and Yandex. Taken altogether, their market cap clocked in at $1.3 trillion on Friday. That compares to just $21 billion of LTM net income for the entire index combined. The talking heads, of course, would urge not to be troubled. After all, what’s a 61X trailing PE among today’s leading tech growth companies?
Since yesterday there has been another of wave of negative, misleading and almost triumphalist commentary on gold most of which studiously ignores the clear evidence of manipulation of the price on Sunday night.
My own most likely Grexit scenario is a different one yet again. Donald Tusk, the president of the European Council, hinted at this in his interview with the Financial Times last week when he said that he felt "something revolutionary" in the air. He is on to something. The most probable scenario for me is Grexit through insurrection.
What does an economy do when it no longer produces enough goods to pay its own bills? It “consumes”, meaning it cannibalizes (i.e. consumes) all of the accumulated wealth of that society. And when the “consumer economy” has cannibalized all that wealth? It turns to debt.