When looking at the health of an economic system it is impossible to gauge growth or stability by only taking two or three indicators into account. The problem is, this is exactly what central banks and governments tend to do. In fact, governments and central banks wildly and deliberately promote certain indicators as the signals everyone should care about while ignoring a whole host of other fundamentals that do not fit their “recovery” narrative. When these few chosen indicators don’t read well either, they rig the numbers in their favor.
The most promoted and by extension most rigged indicators include GDP, unemployment, and inflation. I would include stock markets to a point in this list, but as I’ve always said, stocks are a trailing indicator and never tell us accurately when an economic crash is taking place. If anything, stocks are and always have been a placebo for the masses, a psychological crutch meant to lull them to sleep while the crash begins. Other than that, they have no value in determining the health of the system. As a lagging indicator, we will cover stocks at the end of this analysis.
GDP rigging is mostly a government affair, as much of how GDP is calculated today includes government spending. So, even though the government has to steal your money through taxation in order to then spend money, government spending is still counted as “production”. This includes programs like Obamacare, which despite assumptions among some conservatives, continues to operate today. “Official” establishment estimates of government spending as a percentage of GDP stand at around 20%. More accurate estimates accounting for ALL expenditures show that US government spending accounts for around 35% of GDP. This is an enormous fraud.
Most of my regular readers know full well how unemployment numbers are rigged to show recovery; but to summarize, around 95 million working-age Americans who are unemployed are not counted as unemployed by the Bureau of Labor Statistics because they have been jobless for long enough to be removed from welfare benefits rolls. Now, to be clear, the BLS does keep track of this statistic, but, they DO NOT treat it as a measure of unemployment when reporting their stats to the public.
To clarify, 102 million WORKING-AGE people (counted and not counted as unemployed) are jobless in the US. This is almost 50% of the total 206 million working age people in the country. Yet, the BLS reports the unemployment rate at an astonishing 4%. Recovery indeed…
Inflation rigging is a bit more complicated, but the primary method has been for the government and the Fed to simply change their methods of calculation over the past 4 decades, and to exclude inflation in certain goods like food and energy from the numbers. If you want to see real inflation numbers calculated the way they should be, visit John Williams over at Shadowstats.
Another issue that we must take into account is the Federal Reserve’s role as a creator of financial bubbles, and the destroyer of financial bubbles. The Fed can and does act with impunity to influence the system, but they also seek to exploit certain economic indicators as a rationale for their policy decisions. For example, the Fed’s QT policies have for the past couple of years relied on positive GDP, unemployment and inflation stats. In the meantime, the Fed has all but ignored the vast array of stagflationary and deflationary warning signs which run contrary to their interest rate hikes and balance sheet cuts.
For at the past ten years, the Fed has refused to acknowledge that there is no recovery. For the past two years, the Fed has been tightening liquidity despite the lack of recovery. And, even in the past four months with all the talk of the Fed “retreating” on QT and going “dovish”, Fed bankers still claim in their public statements that the US economy is enjoying a “solid” recovery.
This creates some serious confusion, as we saw this week when the Jerome Powell finally hinted to the public that the Fed was more hawkish than it had allowed everyone to believe.
I think the message is clear, though. The Fed continues to cut its balance sheet almost weekly, the Fed’s benchmark interest rate KEEPS RISING despite all the claims that the Fed is “backing off”, the Fed is still insistent that the US is in recovery, and now GDP numbers are coming in rigged to shocking highs. This tells me that the Fed is NOT backing off of tightening measures, even though they have been feeding dovish rhetoric to the mainstream and alternative media.
But what about all the other fundamentals that are alerting us to an ongoing economic crash? What about all the numbers that the Fed is pretending don’t exist when they say that we are enjoying a strong recovery?
How about the recent plunge in earnings forecasts for global companies like Google parent company Alphabet, 3M or Intel? Alphabet saw a 9% drop in earnings growth and the worst day for its stock since 2012. 3M has reported its worst earnings forecast in a decade, and is now planning to cut at least 2000 jobs. Intel also reported earnings expectations well below Wall Street estimates. It smells like 2008 all over again.
Global banks such as Goldman Sachs and Citigroup earnings have also disappointed estimates, along with oil majors Exxon and Chevron.
This is a trend which is accelerating. Not only in earnings forecasts, but across the board in terms of economic data. Expect the situation to get much worse as the numbers continue to roll in.
Poor corporate earnings reports are the latest signal that we are entering (or returning to) a recessionary crash. But other signals have been visible for at least the past year. Corporate debt has hit historic highs once again, as companies sink into the red at levels not seen since 2007, just before the last economic disaster. This problem has been mostly dismissed in the mainstream economic media because companies were still reporting healthy profits, but now, as we’ve seen, profits are staring to falter. So, it is likely you will be hearing a lot more about massive corporate debt levels in the coming months. For now, the globalists at the IMF are preempting the disaster by “warning” about potential outcomes of corporate debt instability, just as they did before the 2008 crash (a little too late).
Consumer credit card debt and household debt has hit all time highs, yet retailers report a multi-month plunge in sales. This tells me that households are likely being forced to take on more and more debt to pay off previous debts. Once again, this is exactly what happened just before the crash of 2008.
US retail numbers continue to fall month after month and have been declining since the last quarter of 2018. Despite a jump in March (primarily due to higher gas prices), the downward trend appears as though it will continue.
US auto sales in almost every category are falling, and rising interest rates are at the core of the decline.
Existing home sales continue to crumble since the end of 2018, while new homes sales finally saw a jump in March. This jump, however, is probably due to the fact that home price growth is beginning to fall back to reality in many markets. The tenuous nature of the housing market is reaffirmed in the latest numbers on mortgage applications, which have now fallen to six year lows even in the face of a recent drop in mortgage rates.
In the meantime, US rental costs are skyrocketing, and have been rising exponentially for at least the past year. This is the conundrum of stagflation in play, with value being lost in some goods, while the prices of necessities spike and strangle consumers.
There are a few factors which have been artificially propping up public hopes on economic health in the US – the hope that the trade war with China will soon end with a “huge” deal brokered by Trump, the hope that the Fed will reverse on its tightening policies and start cutting interest rates again, and the performance of the stock market. All of these things seem to be tied together in a fantastic mess of false promises.
First, every time the Trump Admin injects the notion of a trade deal with China, it has consistently proven false, or exaggerated. My position is this – the trade war is an excellent distraction from the sabotage the Federal Reserve is initiating against the US economy as it pops the “Everything Bubble”. This is why the trade war never seems to end. And, even if a trade deal is finally announced with China, I predict it will also be a farce, a fake deal which will result in no meaningful benefits to the US and one that will eventually fall apart. Ultimately, as the current crash progresses the trade war will be blamed, rather than the central bankers that created the mess in the first place.
Second, the Fed will not be cutting interest rates anytime soon. In fact, I continue to believe the Fed will hike rates again this year. Not that it matters, because the Fed’s benchmark interest rate has been climbing anyway, which may indicate the central bank is seeking to tighten liquidity while pretending it is “remaining patient”.
Third, global stocks have been propped up for the past four months by a number of factors, as mentioned above, but first and foremost they have been enjoying massive stimulus injections from China. It is China’s QE, not the Federal Reserve or the “plunge protection team”, which has kept global stocks alive. I expected China to cut their stimulus efforts much sooner and for stocks to begin dropping back to their December lows, but it appears as though they have opted to continue into May.
I will be covering this issue in an article soon, but it is clear that China is getting diminishing returns from this QE. Also, Chinese stimulus may be a temporary response to trade war conditions (or trade talks). We will see how long it lasts if the trade discussions fall apart, or if a trade deal is finalized. For now, China is hinting that it will soon pull back on QE.
The bottom line is, the next crash has already begun. It started at the end of 2018, and is only becoming more pervasive with each passing month. This is not “doom and gloom” or “doom porn”, this is simply the facts on the ground. While stock markets are still holding (for now), the rest of the system is breaking down right on schedule. The question now is, when will the mainstream media and the Fed finally acknowledge this is happening? I suspect, as in 2008, they will openly admit to the danger only when it is far too late for people to prepare for it.
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