This isn’t exactly an article loaded with Christmas cheer, but there’s a very good reason that my family has strictly limited our holiday splurges this year. It’s because all the signs right now seem to indicate the US is hurtling toward an economic collapse.
It’s inevitable, of course. Our economy has been artificially propped up for decades, since abandoning the gold standard. We’re $21 trillion dollars in debt, an unfathomable number. The fact that other countries still lend us money boggles the mind. If the United States was a person with such a high ratio of debt that we aren’t paying off, we wouldn’t even be able to buy a car with one of those 25% interest loans, that’s how bad our credit would be.
Not only that, but there are some parties who seem to want to see the economy go belly up for their own greedy and nefarious purposes.
Here are the red flags that have me concerned about an imminent economic collapse.
The stock market is crashing.
Right now, the market is on track for a month that is equivalent to the crash of 1929, when the Great Depression began. Both the Dow Jones Industrial Average and the S&P 500 are down by 8% during a month that is usually really good. Michael Snyder reported:
The ferocity of this stock market crash is stunning many of the experts, and many investors are beginning to panic. Back in early October, the Dow hit an all-time high of 26,951.81, but on Monday it closed at just 23,592.98. That means that the Dow has now plunged more than 3,300 points from the peak of the market, and many believe that this stock crash is just getting started. (source)
And Snyder isn’t alone. Even the mainstream is reporting on our precarious situation. (Albeit, just to make the President look bad.)
Dr. Ron Paul told CNBC (and they actually published it!) that we’re headed for a depression in the next 12 months.
“Once this volatility shows that we’re not going to resume the bull market, then people are going to rush for the exits,” Paul said Thursday on CNBC’s “Futures Now. ” The relentlessly bearish former congressman added that “It could be worse than 1929.”
During that year, the stock market began hemorrhaging, falling almost 90 percent and sending the U.S. economy into a tailspin.
Paul, a well-known Libertarian, has been warning Wall Street a massive market plunge is inevitable for years. He’s currently projecting a 50 percent decline from current levels as his base case, citing the ongoing U.S.-China trade war as a growing risk factor.
“I’m not optimistic that all of the sudden, you’re going to eliminate the tariff problem. I think that’s here to stay,” he said. “Tariffs are taxes.”
The scenario is exacerbating Paul’s chief reason behind his bearish call: 2008 financial crisis easy money policies. He contended the Federal Reserve’s quantitative easing has caused the “biggest bubble in the history of mankind. ” (source)
The stock market bears close watching over the next couple of weeks, for sure. To learn more about surviving a market crash, go read this article. To learn how to protect your money even if you don’t invest in the market, read this article.
The treasury futures market isn’t looking good either
An enlightening article by Jeffrey Snider of Alhambra Investment Partners explains why we need to be watching the Treasury futures market. Here are the highlights:
The Treasury futures market sort of runs the place, but it isn’t always a straightforward process from which to drive analysis.
What we do know is that December has been a total disaster.In the stock market, of all places, the S&P 500 entered the month on an upswing. The initial liquidation that began like WTI after October 3 by the last stretches of November seemed to be under control. The index had rallied back almost to 2800 by December 3.
It’s now down almost 10% in just a few weeks, more importantly setting a new low for the year (lower lows). While that has surprised many, the Treasury futures market issued up what might have been the biggest warning yet the last week in November…
…Treasury futures are a sort of catchall for general, nonspecific uncertainty. The more this one market gets busy the more we have to be on the lookout for bad stuff. When open interest skyrockets, really bad stuff…
…For the week of November 27, the CFTC reports that open interest in Treasury futures surpassed 1.1 million for the first time since the Asian flu in 1998. The last time the market had expanded to more seven-figure contracts? January through March 2008 – over a million right up until the week before Bear failed…
…In a world of warnings, this one’s way back in the shadows because it relates more than anything visible to the intricate pieces contained and safely hidden within them. But it was a big one.
When UST futures open interest gets near 1 million, bad things. Over 1 million? Buckle up. (source)
That’s some pretty unsettling stuff. I strongly recommend you read the whole article here.
But, like a Ginsu knife commercial, there’s more.
The amount of corporate, personal, and national debt is mind-blowing.
Brandon Smith explained it well in a must-read article on Alt-Market. Here’s an excerpt that perfectly sums up our situation.
The national debt is closing in on $22 trillion, with over $1 trillion a year currently being added for the American taxpayer.
Corporate debt is at historic highs not seen since 2008, with S&P Global reporting over $6.3 trillion in total debts and the largest companies holding only $2.1 trillion in cash as a hedge.
U.S. household debt currently stands at around $13.3 trillion, which is $618 billion higher than the last peak back in 2008, during the credit crisis.
U.S. credit card debt surpassed $1 trillion for the first time in 2018, the highest single year amount since 2007 (once again, we see that debt levels are spiking beyond the lines crossed just before the crash of 2008).
So how can this debt be exploited to engineer an economic crisis? Let’s start with household and consumer debt.
One would think that with so much lending and creation of consumer debt, we would see a massive expansion in home and auto markets. And for a time, we did. The problem was that most home purchases were being undertaken by major corporations like Blackrock, as they devoured distressed mortgages by the thousands and then turned those homes into rentals. In the auto market, there was a large spike in buying driven by lending, but this lending was accomplished through ARM-style car loans, the same kind of loans with lax standards that helped cause the mortgage crisis in 2008.
Today, both in the housing market and the auto market, a crash is indeed taking place as the Fed raises interest rates and makes holding these loans ever more expensive.
Pending home sales have tumbled to a four-year low, as one in four homes on the market is now forced to lower prices. Debt is becoming expensive, and therefore demand is slumping.
Overall U.S. auto sales began a precipitous decline this September, which has continued through November, mostly due to higher interest rates.
It is clear that an economic crash, which some are merely calling a bear market, is indicated in the swift decline in housing and autos, two of the most vital consumer sectors.
But what about corporate debt? Let’s use GE, GM and Ford as litmus tests.
GE is currently in the red for over $115 billion. And this doesn’t include its pension promises to employees, which amount to over $100 billion. Given that only $71 billion has been earmarked to cover the payments, any rate hikes from the Fed constitute a millstone on the necks of GE. The likely result will be continued layoffs. Last December, GE announced 12,000 jobs to be cut through 2018, and it is likely cuts will continue into 2019.
GM, with long term debt of $102 billion (as of September) and cash holdings of around $35 billion, is now cutting over 14,000 jobs and shutting down multiple factories in the U.S. This is due, in part, to a combination of interest rate hikes and tariffs. However, the true point of fracture is because of the expansive debt that GM is responsible for. Without such debt, neither rate hikes nor Trump’s tariffs would have as intense an effect on these corporations.
Ford, not to be outdone by GM, is set to announce up to 25,000 job cuts, though the bulk of them may be implemented in Europe. Ford has called this report by Morgan Stanley “premature”, but we saw many similar “non-denial-denials” of these kinds of info leaks during the crash of 2008, and most of them ended up being true. Ford saw its debt rating downgraded by Moody’s earlier this year to one step above junk. With current liabilities of around $100 billion and only $25 billion in cash holdings, Ford is yet another company of the verge of crumbling due to huge liabilities it cannot afford to pay more interest on.
We can see the stress that the Fed is able to place on corporations by looking at their stock buyback expenditures over the past few years. Until recently, it was the Fed’s low interest rates, overnight loans, and balance sheet purchases that allowed companies to buy back their own stocks and thereby artificially prop up the markets. In fact, one could argue that without stock buybacks, the bull rally that started in 2009 would have died out a long time ago and we would have returned to crash conditions much sooner.
Well, this is exactly what is happening today. Stock buybacks in the last half of 2018 are dwindling as the Fed tightens policy and interest rates draw ever closer to the designated “neutral rate” of inflation. All it took as a measly 2% increase in interest to create a crisis, but with the level of debt choking the system, this should not be surprising to anyone.
By lowering interest rates to near zero, what the Fed did was create a culture of irresponsible risk, and I believe they did this knowingly. Even Donald Trump has tied himself to the performance of the stock market and embraced the debt addiction, arguing for the Fed to stop or reduce interest rate hikes to keep the debt party going. Though, with Trump’s White House crawling with international banking agents and think-tank ghouls there might be far more than meets the eye as Trump anchors himself to the performance of the Dow.
The Fed is not going to stop. Why would they? They have created the perfect bubble. A bubble that encompasses not only corporate debt, consumer debt, and stock markets, but also bond markets and the U.S. dollar itself. If the goal is a move to centralize power, then the banking elites have the perfect crisis weapon in their hands, and they barely need to lift a finger (or raise rates) to trigger the event. (source)
And he’s not alone in his assertion that this may be deliberate.
Is the Fed trying to crash the market?
Michael Snyder wrote an article today asking if the Federal Reserve was actually trying to start a stock market crash.
The Federal Reserve has decided not to come to the rescue this time. All of the economic numbers tell us that the economy is slowing down, and on Wednesday Fed Chair Jerome Powell even admitted that economic conditions are “softening”, but the Federal Reserve raised interest rates anyway. As one top economist put it, raising rates as we head into an economic downturn is “economic malpractice”. They know that higher rates will slow down the economy even more, but it isn’t as if the Fed was divided on this move. In fact, it was a unanimous vote to raise rates. They clearly have an agenda, and that agenda is definitely not about helping the American people.
Early on Wednesday, Wall Street seemed to believe that the Federal Reserve would do the right thing, and the Dow was up nearly 400 points. But then the announcement came, and the market began sinking dramatically.
The Dow Jones Industrial Average lost 720 points in just two hours, and the Dow ended the day down a total of 351 points. This is the lowest that the Dow has been all year, 60 percent of the stocks listed on the S&P 500 are in bear market territory, and at this point approximately four trillion dollars of stock market wealth has been wiped out.
We haven’t seen anything like this since the last financial crisis. This is officially the worst quarter for the stock market since the fourth quarter of 2008, and it is the worst December that Wall Street has experienced since 1931.
It is insanity to raise interest rates when stocks are already crashing, but the Federal Reserve did it anyway.
They knew what kind of reaction this would cause on Wall Street and in other global markets, but that didn’t stop them. The financial world is in utter turmoil, and this move by the Fed has definitely added fuel to the fire.
Could it be possible that they actually want a stock market crash?
Some are suggesting that the reason why the vote was unanimous was because they wanted to send a “strong signal” to President Trump. He has been extremely critical of the Federal Reserve in recent weeks, and this could be a way for the Fed to show Trump who is really in charge. (source)
Is the Fed actually trying to teach Trump a lesson? If this turns out to be the case, then the Fed is sacrificing Americans on the altar of politics and. pf course, massive profit for a meager few.
Other things to watch
Chicago is probably going to default on pensions because to make it right, each person – not household – person – in Chicago would have to pony up $140,000. (source)
Almost half of the people in the United States struggle to pay for basics like food and rent. And if something throws a monkey wrench in their budget, they could quickly become homeless. Most folks are much closer to that point than we imagine.
While employment numbers look respectable, the number most people aren’t looking at is underemployment. This is when a person is unable to work as much as they’d like to. (source) Many overqualified people are working part-time at fast food restaurants and grocery stores – and taking more than one low-paying job – just to make ends meet. Now, there’s no shame in hard work, but when it takes multiple jobs to survive, we’ve definitely reached a point where our cost of living has risen beyond a reasonable point. As well, due to government policies requiring that employers pony up expensive healthcare for full-time employees, they simply can’t afford it, so they keep hours low.
Other countries are ditching the dollar. Both China and Japan have been quietly reducing treasury holdings and purchases. (source) They see what’s coming, although many people here appear to be blind to it.
When you put all these things together, it certainly paints an ugly picture, doesn’t it?
What you should do
First things first, I recommend following the steps in this article to protect any money you have in the bank.
At this point, paying off debt is not something I’d focus on, even though normally I advise being debt-free. Right now, I would focus on supplies and lifestyle changes that will help see you through a crash of our economy. (If you need help building a pantry, here’s a course to guide you.)
Should the situation devolve into what is predicted, no one is going to be paying off credit cards any time soon. I would switch to minimum payments and put my money toward physical supplies. If your physical supplies are in good shape, then look to paying off your home or car. Then, invest in precious metals. They may not do you much good during the collapse, but when things start to look brighter, you will have protected at least some of your wealth.
What do you think?
Is the economy in trouble? Are we headed toward a Venezuela-style economic collapse? How are you preparing for this?