Category Archives: Economy

11 Facts That Prove That The U.S. Economy In 2017 Is In Far Worse Shape Than It Was In 2016, by Michael Snyder

How bad do things have to be before even puffed-up government statistics cannot hide the deterioration in the economy? Things are getting worse. From Michael Snyder at theeconomiccollapseblog.com:

There is much debate about where the U.S. economy is ultimately heading, but what everybody should be able to agree on is that economic conditions are significantly worse this year than they were last year.  It is being projected that U.S. economic growth for the first quarter will be close to zero, thousands of retail stores are closing, factory output is falling, and restaurants and automakers have both fallen on very hard times.  As economic activity has slowed down, commercial and consumer bankruptcies are both rising at rates that we have not seen since the last financial crisis Everywhere you look there are echoes of 2008, and yet most people still seem to be in denial about what is happening.  The following are 11 facts that prove that the U.S. economy in 2017 is in far worse shape than it was in 2016…

#1 It is being projected that there will be more than 8,000 retail store closingsin the United States in 2017, and that will far surpass the former peak of 6,163 store closings that we witnessed in 2008.

#2 The number of retailers that have filed for bankruptcy so far in 2017 has already surpassed the total for the entire year of 2016.

#3 So far in 2017, an astounding 49 million square feet of retail space has closed down in the United States.  At this pace, approximately 147 million square feet will be shut down by the end of the year, and that would absolutely shatter the all-time record of 115 million square feet that was shut down in 2001.

#4 The Atlanta Fed’s GDP Now model is projecting that U.S. economic growth for the first quarter of 2017 will come in at just 0.5 percent.  If that pace continues for the rest of the year, it will be the worst year for U.S. economic growth since the last recession.

To continue reading: 11 Facts That Prove That The U.S. Economy In 2017 Is In Far Worse Shape Than It Was In 2016

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Cataclysm, by Robert Gore

Collapse generally comes as a surprise, even to those who predict it.

The USSR didn’t just fail one day, as does a person who dies of a sudden heart attack or stroke. It was more like a wasting illness brought on by an unhealthy lifestyle. A physician tells a morbidly obese patient: “Your daily consumption of twelve cocktails, three packs of cigarettes, and 4,000 calories, and your refusal to engage in exercise more strenuous than walking to the refrigerator will kill you, but I can’t say when.” For both individuals and governments, certain choices are incompatible with continued existence, and the Soviet government made plenty of those.

Very few people foresaw its failure when it was imminent, even purported experts. The small group who said Soviet communism wouldn’t work because it couldn’t work were disparaged right up until it didn’t work. However, the deck is always stacked in favor of those predicting this or that government will fail. Ultimately they all do because they all come to rest on a foundation of coercion and fraud, which doesn’t work because it can’t work.

There is both a quantitative and qualitative calculus for individuals subject to a government: what the government takes versus what individuals get back. Government is a protection racket: turn over your money and it promises physical security from invasion and crime, and adjudication and restitution in the event of civil or criminal wrongs. The quantitative calculus: am I getting more back than I put in? The qualitative calculus: what activities and people does the government help or hinder?

Need a good laugh before the shtf?

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Protection rackets are often indistinguishable from extortion rackets, the “protector” a bigger threat to the “protected” than the threats against which they’re supposedly protected. Such is the case with the US government, as it was with the former Soviet government. Blessed with naturally defensive geographies and huge nuclear arsenals, the chances of the US being attacked are (or were, in the case of the former Soviet Union) remote. The cost for actual protection provided by those governments has been a tiny fraction of what’s been extracted by force or fraud from their citizenries, the very definition of an extortion racket.

Freedom militates against stupidity; coercion compounds it. Competitive markets and a wide-open intellectual climate either kill the worst ideas or impel their improvement. Power corrupts so completely because those who hold it rarely face negative feedback or consequences. Critics are mocked, stifled, imprisoned, or murdered. The costs of failure are borne by the victims. The perpetrators blame those failures on lack of funding or authority and receive more of the same.

Nothing succeeds like failure in coercive systems. Just look at the US governments “wars” on poverty, drugs, and terrorism. For rational people in free, competitive systems an ever-expanding gap between shining intentions and dismal reality prompts psychological turmoil. The powerful salve outbreaks of cognitive dissonance with arrogance, which expands apace with their failing programs. Just look at Obamacare, which its progenitor hails as his greatest accomplishment.

As the protection racket and its sub-rackets expand, the “protected” receive less and less, but pay more and more. By now, both the quantitative and qualitative calculuses are clear to productive Americans: they’re being reamed by people they despise, who in their arrogance and willful blindness despise them. The government steals trillions directly, but still resorts to financial sub-grifts—debt, fiat money, and central banking—to feed its insatiable money-lust. Like the government’s debt, stupidity compounds exponentially and rational people wonder how long unsustainable rackets can persist. The racketeers, if they realize their rackets can’t last, don’t care; they’re going to milk them as long as they can.

With the world’s most powerful military, largest nuclear arsenal, and most intrusive surveillance apparatus, the ostensible power of the US government is daunting. Yet, if a tenth of the US population ran up their debts, withdrew their funds from the financial system, and then stopped making debt service payments for a few months, it would propel a run on the banking system, choking the government’s financial lifeline and exposing its worthless fiat debt scam. Thus, the government is hardly invulnerable. As stupidity compounds, so too do its vulnerabilities.

The foundation of the global economy and financial system is interlinked debt. Anyone paying attention during the last financial crisis recognized that it took surprisingly few defaults—debt markdowns that marked down the value of the corresponding credit-assets—in a highly leveraged and interconnected system before that system unraveled and imploded. Anyone with a modicum of analytic ability and intellectual integrity realizes that the “solution” to that last financial crisis—more government and central bank debt—was another instance of stupidity compounding itself. Now, there’s more craziness in the debt asylum than there was in 2007.

There probably won’t be a voluntary debt payment moratorium, although for anyone asking how “we the people” can throw off the burdensome yoke of “our” government that would be a fine place to start. There doesn’t have to be; the mechanics of debt implosion guarantee the same result. Most of the world’s financial assets are debt or equity claims. Equity has a lower legal right to a debtor’s assets than debt. A debt collapse will leave the world impoverished, and so too its governments. Many real assets will be tied up in creditors’ squabbles. Governments’ and their central banks’ vaunted abilities to drive interest rates to subzero, go further into debt, and exchange their pieces of paper or computer entries for other pieces of paper or computer entries will mean little in a world submerged in debt, worthless paper and computer entries.

Those who scoff at the notion of cataclysmic collapse ignore ubiquitous signs of deterioration and recent history. Real economic growth and incomes have been trending downward since the turn of the century, even by official statistics. One has to question how much of the growth in either is the product of statistical legerdemain—government statistics leave much to be desired—and debt. If debt grows at 5 percent and the economy and incomes grow at 2, is the economy actually growing? Should some present value accounting be made of the fact that the longer debt growth exceeds economic growth, the greater the burden that debt imposes on the economy?

Some say the last financial crisis proved that governments and central banks can prevent a debt implosion. They’re drawing the wrong conclusion. It “proved” that massive injections of fiat debt defibrillated the patient, and it still serves as essential life support. However, not even life support will keep the patient alive the next time the EKG flatlines. All governments will then have are lots of weapons, worthless debt, millions of angry beneficiaries, and whatever loyalty they can still command, literally, from the police-military-surveillance complexes.

At which point, the calculus becomes intolerable for those long milked and bilked by governments, and offering them only further pain with no gain. Inevitably, they will consider their options: flight, secession, devolution, or revolution. Governments are only temporary arrangement and pendulums swing. Cataclysm should afford, for those inclined, opportunities—if they’re willing to fight for them—to live under arrangements more conducive to individual freedom and voluntary interaction.

THE PINNACLE OF OPTIMISM

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The Last Time This Happened Was in 2008, by Bill Bonner

One of the best contemporaneous economic indicators, one that can’t be fudged or faked, is tax collections. Right now, they’re falling. From Bill Bonner at bonnerandpartners.com:

The Dow fell about 100 points yesterday.

It’s not hard to see why…

Factory output dropped the most since last August, led by declining auto sales.

Meanwhile, housing starts are at a four-month low. Bank loans are slipping. Commercial property is “rolling over.” Consumers have tapped out. And the Fed’s GDP growth estimates are getting lower and lower.

But the biggest deal is that tax receipts are down, year over year, for the fourth month in a row. Taxes are real money. They’re not fake news like unemployment and inflation statistics.

When people earn less, they pass less in taxes. A decline in tax receipts means that something real is happening in the economy.

The last time tax receipts fell like this was in 2008. You know what happened next.

False Impression

Meanwhile, evidence mounts that – outside of dividends – investing in stocks is rarely profitable.

According to a paper by Hendrik Bessembinder at Arizona State University, even without accounting for fees and expenses, roughly 70% of stocks deliver lower returns than the Treasury bill (considered to be one of the safest assets).

It’s part of the reason why, according to research firm Dalbar, only roughly one-quarter of active fund managers beat their indexes.

Winning stocks are rare.

We have long suspected that fund managers avoid slipping behind the indexes – which they use as benchmarks for their performance – in the simplest possible way: They buy the index!

This – and the fact that the big stocks in the index are the ones covered by the fake-news media (that is… by the popular press) – tends to boost the few popular stocks over the many unknown ones.

This also gives investors a false impression. With the index rising, say, 10% a year, they say: “If I buy ‘stocks,’ they should give me a 10% return.”

But a 2015 paper – “Why Indexing Works” by J.B. Heaton, Nicholas Polson, and Jan Hendrik Witte – revealed that the typical investor does not begin at zero with a 50-50 chance of beating the indexes.

To continue reading: The Last Time This Happened Was in 2008

US Restaurant Industry Suffers Worst Collapse Since 2009, by Tyler Burden

The restaurant industry had been a pillar of strength for the US economy. No more. From Tyler Durden at zerohedge.com:

What tentative hope had emerged for a rebound for the U.S. restaurant industry at the start of the year, was doused last month when in its February Restaurant Industry Snapshot, TDn2K found that “Restaurant Sales and Traffic Tumble in February” and reported that same-store sales fell -3.7% in February, with traffic declining -5.0% . It did however leave a possibility that things may turn around as a result of the prompt disbursement of withheld tax refunds in the month, which it suggested may have adversely affected sales and traffic.

Alas, that did not happen, and restaurant struggles continued in March as sales and traffic again declined year-over-year: same-store sales were down 1.1% while traffic dropped 3.4%. March results were disappointing for an industry desperately trying to reverse performance trends; with sales now negative in 11 out of the last 12 months, the longest stretch since the financial crisis. There was a modest improvement sequentially, however, and while still negative, sales improved by 2.5% points compared to February as traffic rose marginally by 1.6%.

Source: TDn2K

Explaining the sequential “improvement”, Victor Fernandez, executive director of insights and knowledge for TDn2K, said “March sales were expected to be somewhat better than February due in part to the catch-up of tax refunds that were initially delayed in February. In addition, the industry likely benefited from the shift in the Easter holiday, which fell in March in 2016. For the largest segments (quick service and casual dining), this holiday represents a potential loss of sales.”

However, it was not enough: “The fact that sales were still negative in March given these tailwinds highlights the challenge chains have faced since the recession. Factors like restaurant oversupply and additional competition for dining occasions continue to take their toll on chain traffic.”

To continue reading: US Restaurant Industry Suffers Worst Collapse Since 2009

Creating Another “Crash of 1929” by Jeff Thomas

There are already similarities between the present day and 1929. Jeff Thomas opines there may be more. From Thomas at internationalman.com:

Regarding the Great Depression… we did it. We’re very sorry… We won’t do it again.

– Ben Bernanke

Waiting too long to begin moving toward the neutral rate could risk a nasty surprise down the road—either too much inflation, financial instability, or both.

– Janet Yellen

In his speech above, future Federal Reserve Chairman Ben Bernanke acknowledged that, by raising interest rates, the Fed triggered the stock market crash of 1929, which heralded in the Great Depression.

Yet, in her speech above, Fed Chair Janet Yellen announced that “it makes sense” for the Fed to raise interest rates “a few times a year.” This is a concern, as economic conditions are similar to those in 1929, and a rise in interest rates may have the same effect as it did then.

So let’s back up a bit and have a look at what happened in 1929. In the run-up to the 1929 crash, the Federal Reserve raised rates to 6%, ostensibly to “limit speculation in securities markets.” As history shows, this sent economic activity south rather quickly. Countless investors, large and small, who had bought stocks on margin, would be unable to pay increased interest rates and would be forced to default. (It’s important to understand that the actual default was not necessary to crash markets. The knowledge that investors would be in trouble was sufficient to send the markets into a tailspin.)

Mister Bernanke was quite clear in 2002 when he stated that the Fed would not make the same mistake again that it made in 1929, yet, then, as now, there’s been a surprise victory by a Republican candidate for president. Then, as now, a wealthy man who had never held elective office was unexpectedly in the catbird seat and had the potential to endanger the control of the political class, at a time when that political class had been complicit in damaging the system by creating massive debt.

To continue reading: Creating Another “Crash of 1929”

Buy the Dip? by James Howard Kunstler

James Howard Kunstler reminds us to keep our on the ball: the debt-laden economy and its financial dynamics. From Kunstler at kunstler.com:

The military frolics of spring have distracted the nation’s attention from the economic and financial dynamics that pose the ultimate mortal threat to business as usual. Note the distinction between economic and financial. The first represents real activity in this Land of the Deal: people doing and making. The second, finance, used to be a minor branch — only about five percent — of all the doing in the days of America’s putative bigliest greatitude. The task of finance then was limited and straightforward: to manage the allocation of capital for more doing and making. The profit in that enabled bankers to drive Cadillacs instead of Chevrolets, but not much more.

These days, finance is closer to 40 percent of all the doing in America, and it is not about making anything, but getting more than its share of “money” — whatever that is now — and what “money” mostly is is whatever the people engaged in finance say it is, for instance, Fannie Mae bonds representing millions of sketchy loans for houses of vinyl and strand-board built in places with no future… or stock issued by the Tesla corporation… or the sovereign IOUs of the US Treasury.

The list of things that pretend to be “money” these days would be long and shocking and the sheer churn of these instruments among the banks and markets “produces” the fabled “revenue streams” beloved of The Wall Street Journal. What happens when the world discovers that these instruments (securities and their derivatives) represent falsely? Why, bigly trouble.

To continue reading: Buy the Dip?

So Who Are the Debt Slaves in this Rich Nation? by Wolf Richter

There’s an old joke that if you put one foot in a bucket of ice and one in a bucket of boiling water, on average you’re comfortable. The use of economic averages masks an ugly reality: for every wealthy American there are many Americans with small incomes, a lot of debt, and negative net worths. From Wolf Richter at wolfstreet.com:

The American economy has split in two: how averages of wealth & debt paper over the profound risks.

We constantly hear the factoids about “American households” that paint a picture of immense wealth – and therefore a lack of risk for consumer lenders during the next downturn. We hear: “This – the thing that happened in 2008 and 2009 – won’t happen again.”

For example, total net worth (assets minus debt) of US households and non-profit organization (they’re lumped together) rose to an astronomical $92.8 trillion at the end of 2016, according to the Federal Reserve. This is up by nearly 70% in early 2009 when the Fed started its QE and zero-interest-rate programs.

Inflating household wealth was one of the big priorities of the Fed during the Financial Crisis. It would crank up the economy. In an editorial in 2010, Fed Chair Ben Bernanke himself called this the “wealth effect.” So with this colossal wealth of US households, what could go wrong during the next downturn?

Here’s what could go wrong:

About half of Americans do not have enough savings to pay for even a minor emergency expense. The Federal Reserve found that 46% of adults could not cover an emergency expense of $400, such as a broken windshield. They would either have to borrow the money or try to sell the couch or something. So nearly half of the adults in the US live from paycheck to paycheck.

About 15% of American households have either zero or negative net wealth, according to the New York Fed. Negative net worth means they have more debt than assets.

And nearly 47 million Americans, or nearly 15% of the population, live below the poverty line, according to the Census Bureau.

So who benefited from the “wealth effect”? Those who had the most assets. At the very tippy-top: Warren Buffet. At the other end of the spectrum, in 2016, only 52% of households owned stocks directly or indirectly. The phenomenal stock market boom left 48% – usually those below the poverty line, those who cannot cover emergency expenses, those with zero or negative net worth, etc. etc. – in the dust.

To continue reading: So Who Are the Debt Slaves in this Rich Nation?