Last week we looked at a chart showing new orders, inventories and personal consumption expenditures.
The significance as you can see is what results when all three series are contracting in unison, a recession. In the old days when things were “normal”, recessions were no big deal. They were inconvenient and yes, they did clean out some mal investment but they were deemed necessary. Recessions were even expected and considered a natural event even though induced by the credit cycle. This is no longer true and has not been since at least the year 2000, it can even be argued all the way back to the early 1990’s.
Why? Because recessions cannot be allowed to go full cycle to clean out mal investment and bad debt. Again, why? The answer is so simple and in our face, “debt saturation”. There is simply too much debt in every corner of the economy (and global economy). “Every corner” by the way includes the government itself and the fact that our national debt cannot nor will ever be paid back with current values. As it stands now, the next recession will be the final recession …for the current monetary system and a new one will by necessity be created. China is working on this, but a story for another day.
I want to show you another chart which is as scary as any I know of but would like to frame it first. From a broad perspective, “bubbles” don’t just happen on their own, they need “fuel”. The fuel of course is credit or an overabundance of credit and on easy terms. This is certainly not a new phenomenon, we can look back to the tulip mania, the French Revolution and John Law as early examples. In current day, we have become accustomed to bubbles because they seem to form every seven years or so as a result of Fed ease and Treasury largesse to abort the previous recession. Each time the U.S. has refused to accept the medicine of a recession going through to fruition was an act of creating the fuel for the next bubble.
After viewing the chart, do you see anything that it really is “different this time”? Yes, this time it is not just one sector in a bubble, we now have all sectors at once! This chart shows you real estate, the Russell 2000 and the hot biotech sector. We could of course overlay a chart of bonds (interest rates inverted) and even add in the dollar for a five bagger of bubbles. Globally it is the same story, real estate, stocks and bonds (with interest rates even negative) are all in bubbles. Needless to say, the falls from grace will be at least equal to if not far worse than previous falls. Why is this you ask? There is far more debt now than in 2007 entering recession. As for the U.S., there was no alternative to the dollar as a reserve currency, say what you will but the rest of the world has been working at break neck speed to change this monopoly.
The problem is, there are TOO MANY problems (bubbles) all at one time. We also have these bubbles at a very bad time so to speak. The Fed has already quintupled their balance sheet and the Treasury has now borrowed more than 100% of GDP …AND, interest rates are ZERO! What tool or tools exactly are available to temper the fall? I guess another obvious question would be “who?”. Who exactly has the ability to ride in on a white horse and use these nonexistent tools? You know the answers of course, there are no tools left, the white horse has died and the rider is broke.
Hopefully this last chart strikes a chord with you because of the ease to “see what it is saying”. The coming collapse and panic could not be more obvious to those who can look at numbers and truly understand them. Some people are more visual and need to see a “picture” to understand what is happening. The picture tells me that almost EVERYTHING we as “value” is in a bubble and will collapse with much of it actually “going away”. Our current situation has everything to do with credit. Too much of it and too easily obtained. The central bank(s) and Treasury(s) are to blame as they painted themselves into the corner where we can never again be allowed to have a recession. Mother Nature says we will have another recession, she also says the next one will be the biggest and most all engulfing ever … and at a time our policymakers have no options or tools left! Very scary indeed, even if you see it coming and have prepared to the best of your ability.
Want more proof that the banks are running on fumes.
Go to your bank..try and withdraw more than $5,000.00 in cash at once..
What you will be faced with is stalling, questions of WHY you need this cash and maybe you will be sent home and told they will have to request it from a main branch and you can return the next day to get your cash.
Last week I received a call from my bank. They wanted to offer me preferred customer status.
I then spent the next 5 minutes explaining why I have mostly removed myself from the banking system and that I had no desire to become a prefered customer.
Thank God that before I began, I told her that what I was about to tell her about the banking system might shock her.
I ended my conversation by thanking her for listening and stating…now you understand why I see the banking system in trouble. She stated. Thank you for sharing… you have given me reason to research and think.
congratulations Mike, your name is now on the list!
Lol Bill he is now considered a threat to the banking system. They may have already filled out a SAR(Suspicious Activity Report)on you.
maybe several times.
Which list Bill….
The tin hat wearing list…
The trouble makers list….
The do not call again list….
or a hit list….lol
What a empowering feeling to not need a banker…
The ultimate form on being in control delusion.
As you state Bill..Too many problems and no more solutions.
all of the above and then some.
One last question Bill..
Are you on those lists too…
if so then I am proud to be there with you.
All kidding aside.
I am sad for my children and grandchildren.
They will not have an easy life due to our excesses of the last 50 years.
I suppose on them all. We have overlived the good life, that’s for sure.
No “BANG” left in the BUCK! More like Poof!
From debt to GDP ratios of 35 years ago, for each $1.00 of debt the GDP received a $2.63 boost. After the 1980 downturn and Volker’s inflation killing very high interest rate hike, the economy bounced back on quality debt issuance.
Today for every $1.00 of debt issued, the GDP receives a measly 2 cents worth of boost! Some say the “boost” has now gone negative, and any further addition of debt will negatively impact the GDP. In economic speak this is known as, the diminishing marginal productivity of debt.
Just as ZIRP will morph into NIRP debt impacted GDP will fall to a negative, forcing more of the same of what the Fed and Treasury are presently doing. No other choice left for them. That’s why TPTB are praying for war and begging the Chinese to let them in their new bankers club!
QE4 comes.
According to my neighbour everything is FANTASTIC and I need to relax and enjoy the springtime in Canada. My neighbour is a real estate agent and he literally just purchased a brand spanking new GM Seirra 1500LT Truck and Toyota Venza, both fully loaded. House sales are stilling booming here!
until the credit spigot gets turned off.
As far as I can tell, the people in my hometown and adjacent counties are partying like no tomorrow. It’s rare to see a car older than five years old, heck I don’t know how many new cars I see in a given day with a dealer tag still attached. It’s nearly impossible to find a restaurant during dinner hours or a new store, spa, etc. that is not packed to the point that there is literally nowhere to move or get a table, etc. Either we’re that much more aware of the situation than most, or we’re off base and this fiat money scam is actually viable. Maybe this time really is different. (Sarcasm)
glad you finished with “sarcasm”, you had me going there for moment.
I’m not sure he was being sarcastic about what he sees. I see the same thing, everywhere I oook. I have to travel for work quite a lot, I see ONLY record demand, record crowds, record occupancies, record hotel rates, record car rental rates, restaurants packed to the gold, parks packed, trucks (thousands) on the roads, trains freight non-stop when near rail lines, traffic busy, parks busy, expensive frills like helicopter flights packed to the Gils thousands per ride in some cases. Near home, I see THOUSANDS (not hundreds) of new homes under construction, within just a couple square mile area no less! When I read ZH etc I hear nonstop depression, debt, EBT cards, etc…when I look around, EVERYONE I see is busy, buying, spending, and spending non-stop and at RECORD prices/pricing. Honestly, I have no clue, I’m just stating what I see with my own eyes. If I didn’t read ZH etc and someone asked me, I’d say we’re in a gigantic boom of everything, and people have TONS of “money” to spend. What gives?? I’ve stated things I’ve personally seen, paid for, competed with others to even be able to BOOK, etc…with my own eyes, not a single part of above is hearsay.
I meant restaurants packed to the gils…interesting Freudian slip there maybe, but the spell checker did that one for me. Lol
no problem.
If I’m not mistaken, housing starts are about 30% of what they were20 years ago. I am sure you would not see this in the heartland.
What do you make of all the people out there spending money? I’m talking about hotel rooms $350-850/night, booked as far as they can see at this time. Trucks and trains rolling, etc? It just doesn’t match ZH doom and gloom, and I’m confused. Honestly confused. It’s all real, I just had to avoid all that stuff this last week again lol
it depends where you are, there are some cities where credit spews forth, and not in other areas. Look at the gaming figures in Atlantic City and Vegas …not so much spending.
Another one right on topic, Bill.
Kurt Gödel’s incompleteness theorem states that– One can’t prove the consistency and completeness of a mathematical theory using the rules from within that theory.
I bring this up because our current monetary system is based on the theory that we can solve a problem created by easy money, with more easy money. Since the FED can only operate within this system, Gödel’s theory proposes that they will never recognize these errors until the system breaks. It also means that one can only recognize the flaws in the system using information outside the system.
Case in point, “TOO MANY problems (bubbles) all at one time.” These indicators (bubbles) are outside the system…and they are blowing up everywhere and all at once. They represent an outside-the-paradigm axiom that all is not well with our monetary policy.
You and I agree there will be a reckoning; and it will not be pretty. I have great sympathy for my kids, who will bear the brunt of fixing this situation even though they (and I) had no role in its creation.
I believe it’s time for another Constitution Convention. It won’t solve the current issues, but perhaps we can prevent them from reoccurring.
more debt can never cure too much debt.
Hi Bill,
Thought you will find this interesting, today here in Toronto they open a Renminbi trading hub. The hub gives businesses the ability to convert yuan and Canadian dollars without going through a conversion into U.S. dollars. From the article Toronto won’t be the only city.
http://business.financialpost.com/2015/03/23/renminbi-trading-hub-opens-in-toronto/
Kind regards,
Daniel
thanks Daniel, it leads to less dollar demand.
bill
should i buy some rmb, with my extra cash hoard, as i have g&s, buying regularly. someone said keep 5 to 10k around in small bills. Bix Weir says, get coinage, as it is stamped by ustd, not part of fed res.
don’t know where you would spend rmb.
bill
possibly this system,
https://www.youtube.com/watch?v=TMnyFpiXwko&feature=youtube_gdata
or I am thinking by these yuan currency swaps located in canada, and i think in SF, or LA. I am thinking sooner or later the yuan will have alot of clout.
al
if the system is broken down, will you walk to SF or LA to exchange your rmb?
I read recently that banks are mandated to file SAR forms (suspicious activity something) if you request cash of $5000 or more – if they do not file enough of these forms, they face fines. I thought it was $10000 – the SOB’S must be desparate.
desperate people do desperate things.
Bill,
Like many, I read your articles daily, as well as Andy’s and understand what you indicate is occurring daily. My question is simple: How will this all play out for the average Joe down the street who, say has 100K in a well diversified portfolio, several income streams and some PM and cash savings? Joe has no debts and wonders, “What should I expect over the next year?”. Thanks bb.
what does “well diversified” mean? Will your broker still be in business? Have you “GOTS” yet?
BB. You should look up Bill’s article on Jack and Jill.
funny, 3rd reference to that article today.
Jim Sinclair recently referred to this time as CREDIT GONE WILD…
It does not take a Math degree to figure out that if debt gets bigger than ones ability to service and repay that this debt will eventually cause destruction.
YET, our leaders have allowed this to pass the point of no return.
By Design or simply due to total lack of fiduciary responsibility…that is the question.
It saddens me greatly to know that those responsible will never…ever….be made to pay restitution to those of us the have harmed.
The greed of man has destroyed the future of my children and grandchildren.
Mr Sinclair is a most finest man. Many just do not have the mental capacity to read the words. I used to think that problem was my problem. They’re on their own now. Unleashed. Great article Bill, It’s been awhile. You know what I’m doing? I’m saying a prayer for my family, not for myself, but for my best friends. I’m sure you understand the nick is the new kick. Grtz.
My prayers are almost always for others.
Mr Holter, Your incisive appraisal of the current economic state of America and the world is the most frightening article, I have read in recent days. The nightmare of the inevitable reset looms large on the horizon, while our political leaders sit and fiddle in same fashion as did Nero, as Rome burned. The graphs presented in your article shows the “triple witching” of which history has never seen. I might not be the sharpest pencil in the box, but I see the truth of what you say. I have never seen anybody or any sovereign state spend their way out of debt. Even more frightening is the fact that JP Morgan, Bank of Nova Scotia, HBSC and larger financial interest control enough physical silver to impact price by less than ethical methods. Since January 18th,2015 through April 1st, silver has dropped $1.86 an ounce. I believe much of this loss is due to market manipulation. The aforementioned entities hold long physical positions while “shorting paper” to drive the price of silver down, then taking delivery, when the faint of heart flee the silver market. Their strategy may not be illegal but it is most certainly morally reprehensible. Perhaps I am paranoid, but even paranoids have enemies. As for me, I continue to buy as much silver as I can and continue to stack. Right or wrong, I have taken my stand.
stand tall!