Most people’s strongest memory of the last financial crisis was the September 2008 bankruptcy of Lehman Brothers. However, thirteen months prior to that, August 2007, two Bear Stearns’ mortgage hedge funds went bankrupt. That was the bell tolling for the housing market, the mortgage securities market, and—because of the leverage and the interconnections—the global financial system itself. The Dow Jones Industrial Average would not make its high for another couple of months, but for those who knew what they were looking for, the Bear Stearns’ bankruptcies signaled the impending reversal in financial markets and the economy.
Sometimes one has to see the big picture, and sometimes looking at a host of smaller pictures is more worthwhile. While housing and mortgage finance were the epicenters of the last crisis, there will probably be no single identifiable catalyst for the next one. Not because there are no central-bank sponsored debt-driven bubbles out there, but because there are so many of them, all over the world. Multiple coal mine canaries are in extremis and they’re sending the same message as the Bear Stearns’ bankruptcies did.
If the US real economy is not already in a recession, it’s on the verge. Since 2014, the economy has lost 32,000 manufacturing jobs, while adding 547,000 food service jobs. Factory orders have declined on a year-over-year basis for 22 straight months, the longest non-”official” recessionary streak in history. As of August, the Cass Freight Index of transactions by large, non-bulk-commodity shippers has fallen year-over-year for eighteen straight months. Orders for new long-haul trucks have been in a twenty-month downtrend, and orders last month were the worst for a September since 2009. Volvo Trucks North America, Freightliner (a unit of Daimler), Navistar, and Paccar have announced or implemented layoffs this year.
The Merchandise World Trade Monitor topped out in January, 2015 and July’s number takes it back to the reading for September 2014. The world’s seventh largest container carrier, South Korea’s Hanjin, recently filed for bankruptcy. Closures and consolidation are the orders of the day for the remaining shippers. Bear markets, overcapacity, and gluts in a range of commodities, other raw materials, intermediate goods, and finished goods garnered a lot of headlines last year and early this year. The headlines have faded but not the underlying conditions. It will take years—far beyond the media’s attention span—and substantial pain before those conditions are remedied or even ameliorated.
Only in Wall’s Street’s bizarro world can the goods economy be dismissed as a small part of the overall economy, which is supposedly driven by finance and services. What does the finance industry finance and the service economy service? In many instances—this will come as no surprise to anybody but Wall Streeters—manufacturing, mining, oil extraction and refining, shipping and trade; all the sectors that are taking gas. Also no surprise: real economy deterioration affects finance and the rest of the service economy.
In August, commercial and industrial loans made by US banks fell for the first time since October 2010. The automobile sector has been a bright spot in the economy, but the lending, particularly subprime lending, that has fueled sales is unraveling. Delinquencies and defaults are rising for subprime auto loans. The delinquency rate is rising even for prime auto loans, although the absolute rate remains low. The aggregated earnings of companies in the S&P 500 have been down for five straight quarters, and will most likely be down for the quarter just ended. In 2015 and all but certainly for 2016, those companies have paid out more in share buybacks and dividends than they have earned.
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US commercial bankruptcy filings were up 38 percent year-over-year in September. For the first nine months of 2016 they were up 28 percent from the same period in 2015. Bankruptcy is no longer confined to the oil patch and mining industry. Notably, filings by retailers and restaurants, two bulwarks of the service economy, are increasing. In the last two weeks, four restaurant chains have filed. Say good-bye to that industry’s stellar job growth.
The recovery since 2009, such as it is, has bestowed most of its meager blessings on those in the top 1 percent of income and wealth. Here’s another inescapable reality for Wall Streeters: a central bank exchanging its conjured-from-thin-air fiat debt scrip for the government’s thin-air fiat debt scrip does not, cannot, produce anything of real economic value. It drives down the interest rate on the government’s fiat debt and it provides a windfall for the 1 percenters who can borrow at low or negative rate and propel asset prices. For the rest of us it’s inconsequential at best, but generally deleterious.
The inconsequentiality of debt monetization is confirmed by the real world details enumerated above, which indicate the weakest so-called recovery on record is faltering and will soon end, if it has not already done so. There is, of course, no chance that even the faltering will be officially recognized before the election. SLL has maintained that the period since 2009 is merely an interlude in an ongoing depression, similar to respites during the Great Depression. By discouraging true savings, adding to the debt pile, and driving down the return on investment, debt monetization has hindered rather than helped the real economy. The anemic growth rate since 2009 is not despite skyrocketing government debt and soaring central bank balance sheets, but because of them. FDR and his hapless New Dealers would be proud.
Weakness is even percolating up to the rarified ranks of the 1 percent. Rents are falling and high-end real estate sales slowing in Silicon Valley, the Bay Area, New York, and Houston, formerly pockets of economic strength. The art market, especially for “art” that most of us don’t call “art,” has noticeably softened. The demand for luxury goods isn’t what it used to be, and many purveyors have issued revenue and profit warnings. Those markets have been propelled by Chinese, Russian, and Arab buyers, but home economies are facing challenges and they’re pulling in their horns.
The “donut” of the global economy is history’s greatest debt bubble, fueled by governments and central banks. The unimportant “hole” is whatever critical hot spot ultimately sends markets and economies down the drain. Who knows which crisis will be assigned the “blame” for the impending cataclysm. The odds-on-favorite is the looming European banking crisis, but here are plenty of other contenders—a pension fund or insurance company driven to insolvency by ZIRP and NIRP, Chinese debt, an upside break out in Middle Eastern or Ukrainian hostilities, political turmoil in Europe or the US—take your pick. No matter which possibility proves out, be prepared. Things will get very ugly, very fast.
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The “crash” of 29, followed by the liquidations and bankruptcies, leading to government soup lines in the major cities followed by the tentative beginnings of our current welfare state, were from but a nostalgic past. The majority of our county’s citizens still lived on farms and did/could exist relatively independently. They also respected themselves, their country, and “authority.”
When something wicked again this way comes, only more severe and consequential than the events of the 20’s and early 30’s, one can only imagine what will then ensue. The current potential for liquidations and bankruptcies staggers the consciousness. Soup lines, to the extent they occur, will become Ramen lines, only they will not be “lines” at all. They will become mobs trying to plunder whatever Ramen might be attempted to be provided.
Underlying it all will be the ever-present police, already militarized, backed up by the military itself. Their goal, their ONLY goal, will be to establish/maintain order, that will quickly become focused on protecting themselves and the “status quo” that, in the end, serves to protect them.
What is one to do? I am reminded of that fundamental value when considering real estate. “Location, location, location.” Followed by – and in concert with, “imperceptible,” imperceptible, imperceptible.”
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I’ll tell you what brother, Live Free or Die that’s what. Join the honorable resistance. We are in good company.
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Reblogged this on Starvin Larry.
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Mr. Gore, I’m thinking there is incomprehensible incompetence and special interest of the amerikan Nomenklaturer class to consider. A collection of trough feeders who basically do, and probably will do anything to protect their interests in the future. They pretty much comprise a shadow government of unaccountability with a political power all their own. Pretty much out of control for all intents and purposes.
Takes an exorbitant amount of money to provide them the pay scale bennies and lifestyle they live. Never mind they are not only not producers, they are bloodsuckers in a myriad of ways upon the entire system of economics, from their rule via administrative tyranny to the extractive and extortionary practices where their powers are derived from.
Regardless of their legitimacy what have you, they are a power and a force in all this your talking about.
If my observations have any logical creedence, I’m thinking they may be a precursor to collapse when the money runs out to the point where their political power begins to suffer.
After all, this federal cadre of trough feeders makes the entire skim and wealth strip mining possible to begin with. So it strikes me plainly they are an essential component of the federal wealth laundering operation. And they have elements within who are arming and equipping themselves to the teeth.
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I have no disagreement with what you say. I’ve said the same things and will continue to do so, including in my next post, going up today.
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Looking forward to that.
They certainly all got themselves in an unprecedented in scale and scope faustian pickle. They are a serious factor regardless of their corrupt and immoral nature. Like you said, it is going to be ugly when the gravy train ends.
I’m thinking it’s not all that a man has to be concerned with, but in simple terms how they will lash out at us dirt people and how to be prepared.
It has become evident the reaction and actions taken against those boys up in Burns Oregon, and down at the Bundy Ranch, with the death of LeVoy Finnicum and imprisonment of almost everyone involved who had the courage to defy the amerikan Nomenklaturer, it is a grave deadly serious matter. These are people who our fellow American’s. And the reaction against people who disagree with them goes far beyond the limits of Habeas Corpus, along with employing violent Writs of Attainder in the process.
It is a very bad sign to put it politely.
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Only ever been two ways to live.
Do valuable and productive work … or find some way to exploit the productivity of others.
No exceptions to that, afaics.
Government is merely the most refined means of exploitation that has been tried. So far.
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I am always gratified to read what I read here, which is an island of sanity, clarity, brevity, and intelligence, the like of which is rare, and brilliant. I don’t know whether you would be able to govern and lead, Mr. Gore, but I would like to see you try. I already know the answer, which is, “What sane and intelligent person would want to get caught up in the coming shit-storm?” Which brings us back to your latest missive. Not only is it going to be very ugly, very fast, we don’t seem to have anybody on the stage who could play Caesar, or even PT Beauregard, and at least wrangle us a draw. Soon, I fear, the shouting and screaming will become the hurricane voice of the unreasoning mob, untold civilizations will be lost, and all because of a lack of basic integrity. I am more or less prepared, and pray that you are well prepared too. Kommt sofort.
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You said it Sean, Robert is a serious and considerate thought leader. Thoughtful common sense and truth really counts.
Like the title of his blog says: Straight Line Logic
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Sean and mtnforge,
Thank you for your comments. I don’t think what I write is all that extraordinary, I just try to go where the straight lines take me. I hope you both either take advantage of the free PDF offer or get yourselves copies of Prime Deceit, because if you like SLL, you’ll like the novel. I won’t subject you to any further plugs. As far as what Sean said about me governing and leading, his answer was exactly what I’d say, perhaps word for word, if asked.
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You put a lot of time and effort into your blog. you take a number of potential risks, especially what with the things the political class is doing to restrict the truth from outing and controlling the message of the alternative media, never mind your thoughtful and considerate writing.
Personally I think you and many other new media leaders deserve much appreciation and credit.
Not for nothing, where would we be if we had only the legacy media to rely on for their egregious lies and treasonous deciet which they foist on us as “news” and a “free press”?
The pen is mightier than the sword.
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Thank you, I really appreciate your comments. It’s nice to know I’m not writing in a vacuum.
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Excellent observation MTNFORGE!
The pen, of which MR. Gore is simply superb, is an instrument to convey the product of the mind – the intellect. The sword is an instrument to convey the product of the mindless – the brute, only wielded by the intellect when left no other option.
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Yep. On point.
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