People, including SLL, have been saying a cataclysmic crisis is coming for years. It hasn’t happened yet, but that doesn’t make them wrong, just early. From Jim Quinn at theburningplatform.com:
“Do not underestimate the ‘power of underestimation’. They can’t stop you, if they don’t see you coming.” ― Izey Victoria Odiase
During the summer of 2008 I was writing articles a few times per week predicting an economic catastrophe and a banking crisis. When the biggest financial crisis since the Great Depression swept across the world, resulting in double digit unemployment, a 50% stock market crash in a matter of months, millions of home foreclosures, and the virtual insolvency of the criminal Wall Street banks, my predictions were vindicated. I was pretty smug and sure the start of this Fourth Turning would follow the path of the last Crisis, with a Greater Depression, economic disaster and war.
In the summer of 2008, the national debt stood at $9.4 trillion, which amounted to 65% of GDP. Total credit market debt peaked at $54 trillion. Consumer debt peaked at $2.7 trillion. Mortgage debt crested at $14.8 trillion. The Federal Reserve balance sheet had been static at or below $900 billion for years.
Posted in banking, Business, Civil Liberties, Collapse, Debt, Economics, Economy, Financial markets, Foreign Policy, Geopolitics, Government, History, Money, Morality
Tagged 2008 crisis, central bank policies, interest rates, Jerome Powell
We’re no longer getting enough economic bang from each additional buck of debt to reduce the debt pile. From Bill Bonner at bonnerandpartners.com:
YOUGHAL, IRELAND – Today, we turn to something no one cares much about, even though it threatens to cause the biggest financial calamity in US history:
Total U.S. debt – public and private – now approaches $74 trillion. The economy that supports this debt has grown steadily, but nowhere near fast enough to keep up with it.
As we remarked yesterday, money is time. So when you owe money, what you really owe is time. And time is not something you can fool around with. It comes and it goes… no matter what you think or what you do.
Historically, Americans have owed 1.5 days of work in the future for every day of work in the present. That is, the ratio of debt to GDP averaged about 1.5 to 1 for the first eight decades of the 20th century.
Then, debt went up, and now stands at 3.5 days of future GDP for every day of present output.
Have we arrived in some great and glorious Valhalla, where the old rules no longer apply, where debt no longer matters… or where time is no longer our master, but our servant?
The coming chaos
The US government has gone all in on taxation, redistribution, spending, expansion of its power, ever more intrusive laws and regulations, the increasing curtailment of liberty, debt funding, and debt-based “money” it and the Federal Reserve produce at will. The coercion and fraud implicit in these measures have been poisons on American political culture and are destroying the US economy and way of life.
Control, illusory or otherwise, requires resources. Government produces nothing, so the resources must be taken or borrowed. The economic grave it’s digging for itself is the greatest threat to the US government’s control. Taxation discourages production. Regulation throws sand in the economy’s gears and can stop it entirely. Steadily mounting debt and its consequent debt service exact an increasing toll. Most US debt funds consumption, which generates no offsetting return, not production, which potentially does.
Monetary flim-flam—the central bank using its created-at-will debt to buy the government’s created-at-will debt—is embraced in some particularly deluded quarters as a panacea, but it’s really a perpetual motion snare. Nothing is created or produced, so it’s tempting to say the central bank-government fiat debt exchanges have the same economic effect as two people exchanging twenty-dollar bills.
Do what you can to protect yourself from the downpour. From Charles Hugh Smith at oftwominds.com:
The price of this “solution”–the undermining of the financial system–will eventually be paid in full.
The financial storm clouds are gathering, and no, I’m not talking about impeachment or the Fed and repo troubles–I’m talking about much more serious structural issues, issues that cannot possibly be fixed within the existing financial system.
Yes, I’m talking about the cost structure of our society: earned income has stagnated while costs have soared, and households have filled the widening gap with debt they cannot afford to service once the long-delayed recession grabs the economy by the throat.
Debt bubbles that grow faster than the underlying economy’s ability to service that debt invariably pop. From Charles Hugh Smith at oftwominds.com:
All of America’s bubbles will pop, and sooner rather than later.
Financial bubbles manifest three dynamics: the one we’re most familiar with is human greed, the desire to exploit a windfall and catch a work-free ride to riches.
The second dynamic gets much less attention: financial manias arise when there is no other more productive, profitable use for capital, and these periods occur when there is an abundance of credit available to inflate the bubbles.
Humans respond to the incentives the system presents: if dealing illegal drugs can net $20,000 a month compared to $2,000 a month from a regular job, then a certain percentage of the work force is going to pursue that asymmetry.
In our current economy, corporations have sunk $2.5 trillion in buying back their own stocks because this generates the highest work-free return. This reflects two realities:
1. Corporations can’t find any other more productive, profitable use for their capital than buying back their own shares (enriching the managers via stock options and the 10% of American households who own 93% of the stocks)
2. Thanks to the Federal Reserve and other central banks injecting trillions of dollars of nearly-free credit into the financial sector, corporations can borrow billions of dollars to play with at near-zero rates that are historically unprecedented.
So borrow billions at 2.5%, pour it all into buying back your own stock and reap the gains as your stock rises 10%. Recall the basic mechanism of stock buy-backs: by reducing the number of shares outstanding, sales and profits go up on a per share basis–not because the company generated more revenues and profits, but because the number of shares has been reduced by the buy-backs.
Fiat debt and central banking have created an artificial economy. The end result will be disastrous. From Gary D. Barnett at lewrockwell.com:
In the past, there was a belief in the logic of the market, but no science of reasoning concerning the stock market was ever fully legitimate, as logic requires a market free from outside interference. Fast forward to today, and the manipulation is so extreme that little if any honesty is evident, and only fraud remains.
This stark reality should alarm investors, but many if not most, continue to rely on black magic economics as espoused by the mainstream media, those like Paul Krugman and his ilk, and a cadre of other Keynesian followers. As a rule, Keynesian or not, when it comes to market conditions and predictions, economists are always wrong. This is so due to the manipulative and bogus aspects of the Federal Reserve driven market, but even those who have genuine knowledge and understanding of free market economics, best described as Catallactics, cannot forecast with certainty. In a corrupt and fabricated market system such as exists today, it is impossible to predict outcomes with any accuracy because no pure market economy actually exists.
Currently, most open discussions about economics are convoluted and rely on a mix of politics, managed and controlled trade, trade wars, Fed policies, and minute-by-minute tweets from a narcissistic president consumed by his false prowess as manipulator-in-chief. The entirety of the American financial system is simply asinine at this stage of the game.
We need to audit the Fed to see what’s it done, then we need to get rid of it. From Ron Paul at ronpaulinstitute.org:
Former Federal Reserve official Bill Dudley’s recent op-ed calling for the Federal Reserve to implement policies that will damage President Trump’s reelection campaign states that such action would be unprecedented. Dudley claims the Federal Reserve bases its policies solely on an objective evaluation of economic conditions. This is an example of a so-called noble lie — a fiction told by elites to the masses supposedly for the people’s own good, but really designed to maintain popular support for policies that benefit the elites. Dudley’s noble lie is designed to bolster a rapidly (and deservedly) eroding trust in the Federal Reserve. The truth is the Federal Reserve has always been influenced by, and has always tried to influence, politics.
President George H.W. Bush and other members of his administration blamed his 1992 defeat on then-Federal Reserve Chairman Alan Greenspan’s refusal to reduce interest rates. Greenspan was more cooperative with Bush’s successor, Bill Clinton. Lloyd Bentsen, Clinton’s first Treasury secretary, wrote in his autobiography that the Clinton administration and the Federal Reserve had a “gentleman’s agreement” regarding support for each other’s policies. Greenspan also boosted President George W. Bush’s “ownership society” agenda by lowering interest rates after 9-11 and the collapse of the tech bubble, thus creating a housing bubble.