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

Tyler Durden's picture

Submitted by Michael Snyder of The Economic Collapse blog,

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.

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Cattender's picture

as long as the Fed prints it's all good....

LooseLee's picture

Straight from the mouth of a PINKO COMMIE! Move to N Korea where your kind still think they have the answer!

Dr. Engali's picture

I was going to link to this article earlier just for Fonz. I know just how much he loves his lists.

fonzannoon's picture

Doc look where things are at. Does this blow your mind and make you want to crawl out of your skin at the same time?

http://www.cnbc.com/id/101921060

BeetleBailey's picture

Fellas....STOP watching/listening to/even muting cnbc....

brains.....into moosh

please......for the love of God....stop....

fonzannoon's picture

read the article. You are on here reading snyder who references cnbc all the time anyway...you may as well read that link anyway. It summarizes where things are at pretty well.

espirit's picture

Roaches check in, but...

Sounds like "Hotel California".

LordEffingtonThreeSticks's picture

Never fear!  Obama the clueless is on the job!

LordEffingtonThreeSticks's picture

Never fear!  Obama the clueless is on the job!

Theosebes Goodfellow's picture

[ECHO...echo...]

~"Obama the clueless is on the job!"~

No, he's not. He's on Martha's Vineyard shaking his hotness into the night with the mavens. The rest of the time he putts.

ISIS?

(Who gives a shit?)

Yasidis on a hill?

(We've got it bombed.)

Fiasco in Ferguson?

(He's sent in the Holder. Got it covered!)

Putin's convey in white?

(Breaker-breaker this, rubber ducky!)

The Border issue?

(What issue? We've finding them homes on military bases. I'd like to see those Tea Party people get pesky photos of them there!)

What, me worry?

 

California Nightmares's picture

Obama seems like a sulky teenager. He can't have his way in Washington, so he says FUCK IT. From now on, I'll just play golf and party.

 

BTW. Pretty impressive list.

So what am I supposed to do?

Save cash and await deflation?

Or spend cash while I can still spend it?

sixsigma cygnusatratus's picture

"#1 The U.S. junk bond market just experienced "a 6-sigma event" earlier this month."

What the hell, are they trying to pin this on me? Oh, er, uhm...

Keyser's picture

It depends, do you ride a Pale Horse? 

NoDebt's picture

We're gonna do it all over again.  Like nothing was learned.

The only thing that keeps me sane is knowing that the high levels of banking, finance and politics know this, too.  It's not just us.  They will never speak about it, but they must know.  It would be impossible for them not to.

They're not turning us into a surveillance state with a militarized police force for shits and giggles.

fonzannoon's picture

they barely got anyone back into the market as it is. I dunno that they can tank this thing again and then prop it up and tell everyone the water is warm. Meanwhile zirp is imploding the pension etc system as it is. If you "do it again" those things blow up and that is a very different "again".

BobPaulson's picture

Aren't we already at the last iteration?

fonzannoon's picture

just because 50% of us on here have mentally tapped out and the other 50% are just about to does not mean they will let us out of the headlock.

BobPaulson's picture

One of my themes has been that we are possibly stuck in what is called a an eschatalogical trap here, where we keep thinking it is the end times, simply because we are tired with the current situation and optimistically keep telling ourselves this crooked self destructive cycle will end and a new day will dawn. I was just being facetious saying perhaps this is actually steady state. Maybe were are in a painful repeating cycle like Gabriel Garcia Marqez's 100 years, where we perrenially keep making the wrong decisions and end up where we started over and over.

messymerry's picture

@BobPaulson:

Not yet, and I think the next iteration will be quite a bit different from the '08 slammer.  Remember, we are on the vertical part of the popuilation and technology curves.  Things are moving way faster than the PTB can manage these sorts of events.  I will stick by my assertion that it will hapeen while Yobama (the man who would be king) is still in office.  

LordEffingtonThreeSticks's picture

It would be delicious to see how his massive ego will be totally incapable of dealing with his failure.  He will be unable to fathom that he has failed.  ( he already has but he's too clueless to know )

LordEffingtonThreeSticks's picture

It would be delicious to see how his massive ego will be totally incapable of dealing with his failure.  He will be unable to fathom that he has failed.  ( he already has but he's too clueless to know )

brushhog's picture

"Remember, we are on the vertical part of the popuilation and technology curves. "

When talking about exponential growth, we are ALWAYS on the verticle section of the curve. Thats sort of the deceptive part about j curves, there really is no 'verticle' as opposed to horizontal the curve is continuously in one direction. You can freeze any point on the curve and, in that proportion make it look verticle.

messymerry's picture

I'm not sure exactly what you mean.  We have time on one axis and magnitude on the other.  If you look at population, it was barely rising for forever and then over the last two centuries, it has really taken off...just like technology.  At any rate, these curves look a lot like asymptotes and only one thing is certain:  The other side is going to be one hell of a ride.  Thanks for the reply.  ;-D

OpenThePodBayDoorHAL's picture

In the mornin you go gunnin'
For the man who stole your water
And you fire till he is done in
But they catch you at the border
And the mourners are all singin'
As they drag you by your feet
But the hangman isn't hangin'
And they put you on the street

[Chorus:]
You go back Jack do it again
Wheel turnin' 'round and 'round
You go back Jack do it again

Dr. Engali's picture

They're going to do it all over again because they know they can get away with it and this is their last hurrah.

fonzannoon's picture

you think? So we get the ekm triple lehman? That whole scenario all over again? Wow.

Dr. Engali's picture

How long do you think they can keep selling garbage like that?

fonzannoon's picture

as long as the other hand is buying it?

I don't see it. I know you remember 2008 well. By this point in the year Bear had blown up and everyone was screaming about all the firms behind them. This time around it is one portugese bank which was folded nice and calmly.

I just am surprised to see you guys going for the triple lehman. I did not expect that

NoDebt's picture

The problem isn't 2008.  It's 2008 only seven years after 2000/2001.  That wasn't some "once in a lifetime" event.  Not twice in seven years.  We've replaced the business cycle with the fiat cycle.  Central banks are playing God (complete with Papal Indulgences for the select few who run big financial institutions).  But they're not nearly as smart as God.  Frankly, they're not any smarter than the SEC or the CFTC, and I think we can agree those institutions have significant "blind spots", whether naturally occurring or "assisted" by being so close to those they are supposed to regulate.

Greenspan was "shocked" that institutions of finance could be so badly compromised by a small few who ran them onto the rocks for comparatively small personal gains.  The Fed should be prepared to be "shocked" again.  Their entire world is banks.  They only see the world through the persepctive of banks.  And banks spend a lot of time and treasure making sure their perceptions are favorable to them.

This thing will get out of control.  It will get out of control and we'll all be lucky to live through it.

fonzannoon's picture

btfci (buy the fuckin crazy ivan)

doctorZH's picture

Here's a link to my book, TURN OUT THE LIGHTS.  The thesis is that Nature is rational.  We see that Earth revolved around the Sun every 365 days.  Over and over again.  The Earth alternates between Day and Night over a 24 hour period, again and again.  Jupiter makes a complete circle in space every 12 years.  Saturn every 28 years.  The Moon has a 28 day cycle..... History on Earth has a 36-year cycle; 18 years of Growth/Expansion, Ego Expansion, Evolution of Matter; this is always followed by 18 years of deflation, rest, gestation, the destruction of matter. 

My book follows these cycles back to the 1700s in America.  These cycles this century:

1911-1929: Growth/Inflation Cycle

1929-1947: Deflation Cycle (this deflation cycle was a debt cycle)

1947-1965: Growth/Inflation Cycle

1965-1983: Deflation Cycle (this deflation cycle was a non-debt cycle, meaning that attempt to reinflate resulted in both inflation and deflation at the same time)

1983-2001: Growth/Inflation Cycle

2001-2019: Deflation Cycle (this deflatio cycle is a debt cycle)

Manuscript at:

http://www.hoalantrangallery.com/Turnoutlights.htm

espirit's picture

Problem is that there are increasingly fewer players in the pension ponzi.

All recent jobs created with no bennies means last one out is handed a steaming bag of wookie doo.

It's a fools game to be the bagholder.  WTFU. 

KnuckleDragger-X's picture

I saw today that one of the Cali pension funds has gone full retard so it won't be much longer.

Muppet's picture

Foz: "I just am surprised to see you guys going for the triple lehman".

I saw Rodney Dangerfield do that once.    Its extremely dangerous.

https://www.youtube.com/watch?v=rDMMYT3vkTk

sixsigma cygnusatratus's picture

Last time around, right after Bear Stearns, I was betting on whether Lehman or UBS would be next.  Who will it be this time? 

fonzannoon's picture

that's my point exactly. Last time we started with someone. There is no "this time' because we have not started with anyone yet. This time around it actually seems like the consumer is taking out the retailers directly. Their margins are imploding. The banks seem recapped and stuffed full of QE cash and are just hangin out.

Quus Ant's picture

The threat this time is outside of the system- BRICS- but the triggerman will be Europe.  Eventually they will rediscover self interest- after a measure of pain.

The rest from the WEST?  Smoke and mirrors. 

Anusocracy's picture

The Europeans love their government more than Americans do.

They will be rewarded appropriately for their stupidity.

Quus Ant's picture

They also love warm houses.

after a measure of pain.

 

LooseLee's picture

They will pay dearly for their compliance...

Dr. Engali's picture

I know, it's fucked up. I had a client bring me and a prospectus for a market linked CD from Goldman Sachs. Right in the prospectus it said, and I'm paraphrasing, "you should assume that we are betting against you". I'm getting sales shit from all the big banks for market link CDs right now.

toady's picture

I've been pitched 'market linked' CDs three times in the last four months, more times than i've been pitched any financial product in recent memory.

They must be getting a good reception. Probably a lot of boomers longing for the interest rates of their youth.

Carpenter1's picture

The junk bond market was surgically imploded by the FED in order to send scared money fleeing to nice safe, happy US treasurys.

FED must be so pleased with itself.

Makes their victory so much sweeter when they get to watch the trained seals do their bidding by trading with the FED

Dr. Engali's picture

I put some money to work in junk bonds on that implosion too. It's worked out pretty good so far.

mt paul's picture

mmmmmmmm

trained seals....

fonzannoon's picture

someone should show this to snyder

http://finance.yahoo.com/q/bc?s=HYG+Basic+Chart&t=1m

This is too much fun....

"If you want to track how close we are to the next financial collapse, there is one number that you need to be watching above all others.  The number that I am talking about is the yield on 10 year U.S. Treasuries, because it affects thousands of other interest rates in our financial system.  When the yield on 10 year U.S. Treasuries goes up, that is bad for the U.S. economy"

http://theeconomiccollapseblog.com/archives/what-is-going-to-happen-if-i...

http://finance.yahoo.com/q/bc?s=%5ETNX+Basic+Chart&t=1y