The Crash In US Economic Fundamentals Is Accelerating, by Brandon Smith

Note: This article first appeared at Alt-Market.com, and is re-posted with permission.

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 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

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 roles. 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

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 QE 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 QE 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.

Fed is Not Backing Off

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).

Debt at All-Time High

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.

Trade Warring

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 it’s 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 also 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 Next Crash Has Already Begun

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.

 




15 Comments

  1. It is easy for any American to see that the economy is not all roses just by driving through almost any retail area and noting the closed stores found there. For the last several years more businesses have closed than have opened so we have a continual net loss. When this is pointed out many people say it is because of on-line sales destroying brick-and-mortar stores. But on-line sales are still only 10% of all sales and much of the on-line sales are from brick-and-mortar stores (Walmart, Target, etc).
    I would say to prep up.

  2. Did a little research:

    Roughly 328,000,000 American Citizens live in the United States.
    There are 73,900,000 children, 17 and under in the United States.
    There are 55,287,000 Americans on Social Security retirement or disabled and not working in the United States.
    There are 156,970,000 Americans who are employed in the United States.
    That leaves 41,843,000 Americans who are not working, roughly a 12% not officially working.

    This is a little closer to reality. I can’t find a number for those who are self employed or whether it counts in the total number employed. I also can only find roughly 5.5 million who are officially on unemployment, U3, and just 8 million in the U6 number (unemployed plus those who have quit looking or who are underemployed). Also there is no number for the number of Americans who work off the books. When I looked into the welfare statistics, there is no real breakdown of how many are kids, how many are working age adults who are not employed. All I find is statistics, percentages, not very useful when trying to find real world numbers.

    Then again, since when do politicians and bureaucrats live in the real world.

    So I’m skeptical of Mr. Smith’s number of those not in the workforce. Almost 42 million is a lot, and 12% is high, but 24% not not in the workforce, please.

  3. A timely article indeed. As a former financial advisor I can tell you that the Federal Goverment is very interested in NOT admitting to inflation.

    The minute they admit to an inflation number they are immediately on the hook to pay out on “TIPS”.

    TIPS are Treasury Inflation Protected Securities, essentially bonds that have been sold to American and Foreign investors for decades with the promise that when inflation wemt up so would their bind coupon payment.

    Of course these were marketed to the elderly as being “safe investments”.

  4. This is a good article on the state our financial conditions. I agree that the government lies to the masses ( that be us ) about inflation, true employment numbers and the state of financial stuff in general .It is really a smoke and mirrors scenario.
    One only has to pay attention to increasing grocery prices while shopping. It will be interesting to see how high food prices go concerning the recent flooding and freezing around the country.This is definitely stock up time for the pricey road ahead.

  5. Mr Smith really never tells how to prepare for the economic collapse in detail. And the crisis is always just around the corner or it’s already happening but no one is seeing it.

    I wonder if Mr Smith and Mr Richards or Mr Dent agrees on which calamity will happen first since all of them are on the same page give or take the individual metrics that will cause the collapse.
    And will climate change be a factor?

    I just cannot take these people seriously. These salesmen of the fear trade are old and tiresome.

    1. I must agree with you, Skip. In the early 80s I read much the same kind of “warnings”.

      When I sought a simple solution or two (had to be simple since I never had a lot of money) I usually came up dry. All I found was more things I should fear, according to the author of the day.

      Now, this is what I love about SurvivalBlog. Down-to-earth, practical, “I did this” writing. Simple. Something I can implement with the little money I have.

      Raise your own food. Buy nickels and silver. Develop teams of trust and action. Even make your own soap. My kind of “can-do” people.

      Carry on

  6. My hubby and I are retired and live on a fixed income. We have been “preppin” food wise with a small garden the past few years and stocking our pantry so that we could live for 6-8 months. We are mostly debt free except for a vehicle that we make payments on and other normal expenses like electric and water bills ect. Please help by listing some real life practical things we can do (while we still have time) to prepare! Thank you.
    LuLu

  7. One nitpick: Intel’s sales are in trouble because they screwed up their next-gen transition and AMD looks like they won’t. Intel’s bleeding market share and that should accelerate over the next year.

  8. Hi lulu,
    Congrats on being nearly debt free and on your food stocks.We are on a fixed income also . One of the big challenges and it is a very basic foundation of living within your means, is to discern between between “wants” and “needs”.

  9. One of the key pieces of information Mr. Smith didn’t list was that the major market props were corporate stock buy backs which were up 91% over last year. They use this major tool of cheap interest rates to boost earnings. As that slowly goes away the real market slide begins.

  10. This ‘crash’ started in 2007/2008 and has not stopped, only slowed, notwithstanding the government’s pronouncement that the Great Recession ended in 2009. Government debt, corporate debt, and private debt is so far out of control that we will all be in for a hard landing when it returns to Earth. For the past 100+ years, private banking cartels have been squeezing the lifeblood out of our economy by means of inflation, deficit spending by the government, and ‘loaning’ money to the government. The last drops are all that remains. Everyone knows this including President Trump, who is working to provide as soft a landing as possible. Hence his talk about a strong economy. But he knows that it is coming. So do the democrats. They want Trump to take the blame when the dollardebt finally dies, as they blamed Hoover in 1929. BTW, Hoover had only been in office for 5 months when Wall Street crashed- he can hardly be blamed- but the democrats still falsely blame Hoover after 80 years. This is the real reason that they will not impeach Trump. And there is still a chance that Trump will get his soft landing- despite having NO support from the traitors in his own party. Let us hope so.

  11. Yesterday I was re-reading Mr. Smith’s previous imminent doom diatribe and found several of his predictions were months overdue, and just plain wrong. Yeah, I know no one can see the future, and I enjoy his fiction novels, but he really needs to stick to facts – or stick to fiction. No single benchmark indicator tells the whole story, and if you want to see how “bad” it is here just look at any other country for a dose of perspective.

    1. Exactly, it’s mostly garbage to get clicks to get ‘ad revenue’. These guys continuously forecast a crash and then they claim to be ‘right’ on any bad number that comes out.

      I’ve been involved in finance and economics for 25 years after 10 years as a military officer (including working for 2 of the top generals personally). I’ve been involved/worked for some of the biggest firms. The Great Recession of 2007-9 was NOT the norm it was an anomaly caused by greed and poor regulation that has been mostly corrected and was likely a generational event, not a common one. I could talk at length about the difference between a business cycle recession (normal) and credit recession (not normal) and why it takes decades to get to build up for a credit recession.

      What makes a lot more sense is to go about your business, live your life and prepare for the LIKELY eventualities and when you feel like you’ve got that done, then add for the SHTF stuff.

  12. “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%.”

    When I was a kid, typically the husband worked (outside the home) and the wife did not. But you didn’t count that as 50% unemployment.

    Granted, these days typically both have to work.

    1. Don in Oregon,

      Yes, yes, yes! In a healthy, good, American society our women would be mostly home with the children, teaching them, feeding them real, good food, managing an efficient household, building community, etc, etc.

      That doesn’t mean none of them would be “employed.” But the notion that all of them should be working for someone else than their families (and community) is awful, modern garbage.

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