Category Archives: U.S. Economy

Silver Demand Shows A Consumer In Trouble

Global demand for silver declined from 2015 to 2016 by 123 million ozs per numbers from the Silver Institute presented in an article on The Daily Coin yesterday.   In fact, for the demand categories primarily driven by the consumer, demand plummeted 125 million ozs, or 15.3%.   Industrial demand for silver increased slightly but this was because of the global expansion in the solar panel industry, primarily in India and China.

The consumer portion of global silver demand is derived from jewelry, coins and bars (investment), silverware and electronics.  The 15.3% plunge in demand reflects the fact that consumer disposable income is drying up.   After making required monthly expenditures – food, mortgage/rent, debt service, healthcare – consumers, especially in the United States, are out of money.

Disappearing disposable income explains only part of the equation.  The illusion of economic improvement in the U.S. was created by debt issuance.   Between Q3 2012 and now, total household debt expanded by $1.38 trillion dollars.  In fact, total household debt is now at an all-time high, driven by auto, student, credit card and personal loans.  The truth is that “discretionary” consumption was fueled by the Fed enabling the average U.S. household to accumulate a record level of debt.

The economy likely hit a wall in late 2016 and is now contracting.   Today’s retail sales report – to the extent that the numbers have any credibility – showed a .4% gain in retail sales for April vs. March.  But these are nominal numbers.   On an inflation-adjusted basis, retail sales declined.

While demand for silver products reflects the fact that the average consumer is out of money, restaurant sales confirm this.   April restaurant sales declined 1% in April and foot traffic into restaurants dropped 3.3%.  This was the 12th month out of the last 13 that restaurant sales fell.  Restaurant sales have dropped five quarters in a row.  The last time a streak like this occurred was 2009-2010.   Sound familiar?

Regardless of what the Fed says in public, the U.S. economy is in trouble.  The illusion of economic growth post-2009 was a product of debt issuance.  Now the consumer – 70% of the economy – has hit a wall with regard to its ability to take on more debt – look out below. In today’s episode of the Shadow of Truth, we review the silver demand numbers and discuss the implications for U.S. and global economy:

Macy’s Crushed But Don’t Blame E-Commerce

The economy is collapsing as the credit creation, which has been the device used to cover-up structural economic decay after the official money printing program terminated, has hit a wall.  Retail sales are the first to bear the financial beating consumers are taking, followed by auto sales and, soon, housing.

Macy’s reported its Q1 earnings this morning.  Revenues tanked 7.5% vs Q1 2016 and missed Wall Street’s analysts’ fairytale estimate by a country mile.  Comp-store sales dropped 5.2%.  Operating income collapsed 20.2% year over year.

Retail “Apocalypse” Is Actually Debt “Apocalypse”

More than 8,500 stores are scheduled to be shuttered in 2017. JC Penny, Macy’s, Sears, Kmart, Crocs, BCBC, Bebe, Abercrombie & Fitch and Guess are some of them marquee retailing names that will be closing down mall and strip mall stores. The Limited is going out of business and closing down all 250 of its stores.

The demise of the mall “brick and mortar” retail store is popularly attributed to the growth of online retail sales. To be sure, online retailing is eating into the traditional retail sales
distribution mechanism – but not as much as the spin-meisters would have have you believe.

At the beginning of 2015, e-commerice sales were about 7% of total retail sales. By the end
of 2016, that metric rose to 8.3%. However, looking at the overall numbers reveals that
nominal retail sales have increased for both brick/mortar stores and online. In Q4 2015, total nominal retail sales were $1.186 trillion. Brick/mortar was $1.096 trillion and online was 89.7 billion, which was 7.6% of total retail sales. In Q4 2016, total sales were $1.235 trillion with brick/mortar $1.133 trillion and online $102.6 billion, which was 8.3% of total retail sales. As you can see, there was nominal growth for both brick/mortar and online retailers.

My point here is that the spin-meisters present the narrative that online retailers are eating alive the brick/mortar retailers. That’s simply not true. Part of the problem is is that total retail sales “pie” is shrinking, especially when analyzing the inflation-adjusted numbers. I created a graph on from the St. Louis Fed’s “FRED” database that surprised even me:

The graph above shows the year over year percentage change in nominal (not inflation adjusted) retail sales on a monthly basis from 1993 (as far back as the retail sales data goes) thru February 2017, ex-restaurant sales, vs. outstanding consumer credit. As you can see, since 1994, the growth in nominal retail sales on a year over year basis has been in a downtrend, while the level of consumer credit outstanding as been in a steady uptrend. Since 2014, the rate of growth in debt has exceeded the rate of growth in retail sales. If we were to adjust the retail sales using just the Government-reported CPI measure of “inflation” retail sales would be outright declining.

Economic activity in the United States has relied heavily on an increasing amount of debt issuance for several decades. At some point consumer borrowers reach a point at which they can no longer support taking on more debt, whether in the form of mortgages, auto loans/leases or credit cards. The problem for the U.S. financial system is that there are going to be widespread defaults on the debt that’s already been issued. This is already occurring with sub-prime auto loans and credit cards.

The media and Wall Street want you to believe the “narrative” that online sales are cannibalizing brick/mortar retailing.  This is a lie.  The problem is that the big retailers like Sear’s and Macy’s have entirely too much debt, as do their customers.  It’s systemic Debt Apocalypse that is going to destroy the U.S. economic and financial system, including e-commerce.

The above analysis is the type of content you get in IRD’s Short Seller’s Journal.  In addition to providing an in-depth look at the economic and financial numbers that the media and Wall Street refuse to report, the Short Seller’s Journal provides ideas to make money on stocks like Macy’s which are ultimately headed into history’s dust-bin.  You can learn more about the Short Seller Journal here:  Subscription information.  I guarantee that it’s the best value newsletter on the market because there’s no minimum subscription commitment.  If you don’t like it, you can cancel after the first month.

SNAP Snapped – Stock Plunges 18%

SNAP just reported horrible numbers vs. Wall Street forecasts.  Net income was actually a Net loss of $2.31 vs. a loss of 19 cents forecast.  Revenues were light by $8 million, coming in at $149.6mm vs. $157.9 million expected.  Active subscribers were also lower than expected.   The Ponzi stock is down 18% as I post this:

IRD reviewed SNAP when it IPO’d and warned investors to avoid or short this stock:  Avoid SNAP.  Short Seller Journal subscribers were presented with an even more detailed analysis.

Investment Research Dynamics’ Short Seller’s Journal has presented several ideas recently which offered subscribers significant gains from shorting or buying puts on the ideas. KATE and IBM are two examples. Find out more clicking the link above or the banner below

Is The U.S Ponzi Scheme About To End?

“How did you go bankrupt?” “Two ways. Gradually, then suddenly.”
– Ernest Hemingway, “The Sun Also Rises”

I was chatting with a friend two days ago who was agitated by the insanity of the markets. Look at TSLA, for instance.   This thing loses $13,000 for every car sold.  Soon the tax credits – i.e. the taxpayer subsidies – will expire and TSLA will lose even more per car because it will have to lower the price to entice buyers.   Its balance sheet is a ticking time bomb in the form of residual value guarantees issued by TSLA used to induce buyers into paying up for a car that has depreciated in value considerably more than the value of the guarantee. Those poor saps don’t realize it yet, but they will be unsecured creditors to a bankrupt corpse of a company.  And yet, the market has pushed the market cap above the market caps of GM and Ford.

To say this is absurd is an insult to the word “absurd.”  I’m still trying to decide whether TSLA or AMZN is the biggest Ponzi scheme in U.S. history.  I have not had a chance to dissect TSLA’s financials and operations to the extent that I have done so with AMZN.  With AMZN the market doesn’t seem to care that, on a net income basis, in its latest quarter AMZN’s product sales business (it’s non-cloud, or AWS, business) lost money (that’s right, if you subract the operating income of AWS from total net income,  AMZN lost money – AMZN manufactures net income for its non-AWS business via GAAP gimmicks) .  But why focus on the facts?  The operating income of its AWS cloud business dropped 29%.   Once GOOG, MSFT and ORCL have fully implemented their attack on AMZN’s cloud market share, AWS will become irrelevant.   I would bet every single entity that bought AMZN stock since it released its Q1 earnings does not know these facts.  AMZN, pure and simple, is a Ponzi scheme.

Amusingly, there’s a contest on CNBC over whether AMZN or GOOG hits $1000 first.  This is the surest signal that the end of this fiat currency-driven credit and stock bubble globally is about to collapse.

Given the inability to manipulate its market via paper derivative instruments and short selling, this is the message that Bitcoin is signaling:

In the absence of the ability to manipulate the market, this is the same message that gold and silver would be sending to the world, only the scramble for gold and silver bullion in any form would be more frenzied and it would be widespread. There actually is a somewhat frenzied scramble for gold and silver in eastern hemisphere markets based on the premiums to melt being paid for refined products in places like India, China, Turkey and Viet Nam.

At some point the western Central Banks will lose the ability to manipulate the gold and silver price and the Comex will default.  That’s when chaos will break out in the physical gold and silver markets.  That may be what it will take to trigger the collapse of the U.S. Ponzi scheme.   Apparently JP Morgan understands this inevitability.  Prior to 2011, JPM did not operate a Comex vault.  It had zero Comex silver.   Currently JPM is holding nearly 108 million ozs of silver, or 54% of the total silver reportedly held in Comex silver vaults.   This tells us, or at least me, that smart insider money is loading up on precious metals – not Bitcoin – and that silver is a better bet than gold.

Hemingway’s “slowly” method of going bankrupt has nearly run its course.  There’s no way to tell the timing on the “all at once” side of this trade but the price action in Bitcoin is signaling to the world that the obviously inevitable draws near.

The Traitors Who Enable The Deep State’s Dying War On Gold

Stewart Dougherty returns with another guest post. I am grateful for the time and effort Mr. Dougherty puts into his articles for the purpose of shining a light on the truth.

Evidence is mounting that the Deep State (DS) is starting to lose the dirtiest financial war in history: their War on Gold. More deeply, it is a war against something the Deep State profoundly loathes: personal financial liberty. The War on Gold, which has raged for 37+ years, has generated more than $1 trillion in criminal profits for the Deep State plunderers, while costing the worldwide owners of physical gold multiple trillions of dollars. All of this is coming to an end.

Due to its criminal hyper-manipulation, gold’s price has become a paradox: its weakness actually reflects its strength. With everything that has been thrown at it, it is astounding that its price is anything north of zero. The fact that it has been resilient at around $1,200.00 per ounce should concern the manipulators, because if this is as low as they can take it despite their full-spectrum, multi-billion dollar assault against it, then it is defeating them. Which is not surprising. By every conceivable, objective financial and monetary measure, gold is one of the most underpriced assets on earth. It is not going to stay that way. (Most of the dynamics we will discuss also apply to silver, but to streamline this article, we will focus on gold.)

The Deep State’s first strategic objective in the War on Gold has been to steal as much money as possible by conspiratorially rigging its price. They have perpetrated this crime in the full knowledge that it will never be investigated or prosecuted, because it is state sponsored. The Deep State is the state, and never prosecutes itself for its own crimes, no matter how flagrant and egregious they are.

The second, broader strategic objective has been to discredit gold as a monetary asset and safe financial haven throughout the west. The Deep State realized at the outset of the war that it would be impossible to achieve this in the east, which has a deep, cultural affinity for gold, so they have confined this gambit the west.

There are eight primary tactics in the War on Gold.  TO CONTINUE READING CLICK HERE: TRAITORS/GOLD

Another Fraudulent Jobs Report

“Willing suspension of disbelief” is defined as a willingness to suspend one’s critical faculties and believe the unbelievable; sacrifice of realism and logic for the sake of enjoyment.  First off, I want to state upfront that there’s nothing enjoyable about the monthly non-farm payroll report unless you enjoy being subjected to brain damage.

Each month the Government asks us to suspend our critical faculties and accept the headline-reported number of new jobs created by the economy as well as the unemployment rate.   Once again the Government did not disappoint, as it headline-flashed the alleged creation of 211,000 jobs and an unemployment rate of 4.4%.

Unfortunately, for the mindless masses who consume fast-food style news from mainstream news sources, once the headline numbers are absorbed and the “experts” reaffirm them with their idiotic psycho-babble, the numbers as reported miraculously become The Numbers.

To say that the latest non-farm payroll report stretches the ability to suspend one’s disbelief is an understatement.  The Government wants us to believe that 211,000 new jobs were created in April – “seasonally adjusted,” of course.    A cursory glance reveals that 162,000 working age civilians decided to just leave the labor force, which explains the alleged decline in the unemployment rate.  Either those folks who walked away were bequeathed with Social Security disability, took out a big student loan and enrolled for an online degree program at one of the many online universities or, most likely, their jobless benefits expired and they simply gave up looking for a job that pays more than minimum wage (Note:  the latter explanation is supported by the recent spike up in auto loan, credit card and mortgage delinquency rates).

As for the 211k alleged jobs created…The Government appears to have generated those jobs via its “create-a-job” program otherwise known as the “birth/death model.”  The birth/death model assumes that every month new businesses are created and terminated. New businesses hire employees and terminated businesses fire employees.  You can read more about it here:  birth/death modelling technique.   The b/d sausage grinder for April produced 255,000 new jobs, before seasonal adjustments (note:  most people assume the 255k jobs were the actual number of jobs added into the headline count, but the 255k is run through the “seasonally adjusted” total jobs blender and folded into the final number).

On the surface, the Government wants us suspend our disbelief and buy into the assumption that significantly more new businesses were started in April than were shuttered.  Unfortunately, according to the Census Bureau’s own numbers, new business creation is at a 40-year low.  In other words, the number of jobs that can be accounted for in the 211k headline number by the b/d model were never really created.  In fact, judging from the estimated 8,640 retail stores to be closed in 2017, added to the 10 retail chains that have already closed down this year, it’s more likely that more jobs were lost by deaths than were created by start-ups.    Yet, here’s the Government’s b/d estimate for retailing:

As you can see, the Government credits the retail industry with creating 5,000 new jobs in April from new business start-ups. But look at the leisure/hospitality category. It shows 84,000 jobs created by that sector. Again, suspension of disbelief is impossible when you consider that the restaurant industry alone is shedding jobs on a “net” basis, as private data sources show that restaurant sales have declined in 11 of the last 12 months (LINK). In fact, the restaurant industry is experiencing its worst period of sales since 2009.  I could go through each line item and annihilate the report, but for the sake of time  I would urge the Government to take a closer look at its assumptions underlying the b/d model job creation calculus.

John Williams of Shadow Government Statistics has been presenting the Conference Board Help Wanted Online Index (HWOL).  This  is the online transformation of a data series that measures help-wanted advertising going back to 1919.  This series has accurately correlated with every economic recessionary period in the post-WW1 era.  The graph presented by Williams in his latest newsletter shows that the HWOL index peaked in mid-2010 and has been declining ever since – both total HWOL ads and new HWOL ads.  Rate of year over year growth for the metric went negative in 2016, suggesting that the economy has not only not produced jobs since the beginning of 2016 but has in fact lost jobs.   The rate of decline in HWOL advertising  currently is contracting at a 20% year over year rate.  The last time it was contracting at this rate was in 2008.

Without question, it can be shown even with cursory analysis that the Government’s monthly non-farm payroll is fraudulent, serving no purpose than other than for political propaganda.  Looked  at another way, if the true unemployment rate was truly 4.4%, not only would the Fed be raising interest rates at a rapid pace, but it would also be shrinking its balance sheet in order to remove the threat of an accelerating rate of inflation stimulated by an acute labor shortage (4.4% is well below the economically defined long-run 5% natural rate of unemployment).

Empty Gold Vaults and Fresh Out of Bombs

Guest post from The Daily Coin:

Paul Volker was the last central bankster to actually do the right thing and push interest rates to 21%. Can you imagine that happening today? The entire global financial system would blow apart before lunch.

As U.S. politicians are in a constant state of bickering and arguing, not only with the world, but within our borders, how are we to compete with an economic machine the size of China and Russia? The citizens of this country need to understand these projects are happening and will change the course of history. The economic and power shift is happening right now. The now unavoidable economic collapse coming to the shores of America is happening. The Western economies began unraveling in earnest in 2008 and, as we are seeing today, will continue to accelerate until its bitter end.

You can read the rest of this here:   Out of Gold and Bombs

Key Economic Data Continue To Show A Recession

Goldman Sachs’ net income declined 42% from 2009 to 2016.   How many of  you reading this were aware of that fact?  Yet GS’ stock price closed today 36% above its 2009 year-end closing price.  See below for details.

Auto sales in April declined again, with the Big Three domestic OEMs (GM, F and Chrysler) missing Wall St estimates by a country mile.  The manipulated SAAR (seasonally adjusted annualize rate) metric put a thin layer of lipstick on the pig by showing a small gain in sales from March to April.  But this is statistical sleight of hand.  The year over year actuals for April don’t lie:   GM -5.7%, F -7% and Chrysler -7.1%.  What is unknown is to what extent the numbers reported as “sales” were nothing more than cars being shipped from OEM factory floors to dealer inventory, where it will sit waiting for an end-user to take down a big subprime loan in order to use the car until it gets repossessed.

The growth in loan origination to the key areas of the economy – real estate, general commercial business and the consumer – is plunging. This is due to lack of demand for new loans, not banks tightening credit. If anything, credit is getting “looser,” especially for mortgages. Since the Fed’s quantitative easing and near-zero interest rate policy took hold of yields, bank interest income – the spread on loans earned by banks (net interest margin) – has been historically low. Loan origination fees have been one of the primary drivers of bank cash flow and income generation. Those four graphs above show that the loan origination “punch bowl” is becoming empty.

HOWEVER, the Fed’s tiny interest rate hikes are not the culprit. Loan origination growth is dropping like rock off a cliff because consumers largely are “tapped out” of their capacity to assume more debt and, with corporate debt at all-time highs, business demand for loans is falling off quickly. The latter issue is being driven by a lack of new business expansion opportunities caused by a fall-off in consumer spending. If loan origination continues to fall off like this, and it likely will, bank earnings will plunge.

But it gets worse. As the economy falls further into a recession, banks will get hit with a double-whammy. Their interest and lending fee income will decline and, as businesses and consumers increasingly default on their loans, they will be forced to write-down the loans they hold on their balance sheet. 2008 all over again.

Because of this, I think Goldman Sachs (GS) makes a great short idea, although I don’t want to suggest timing strategies. It’s an idea that, in my view, you need to short a little at a time and add to it if the stock moves against you. I could also be a good “crash put” idea.

Goldman will be hit by a fall-off in loan demand and by a big drop in the fees from securitizing the loans it underwrites into asset-backed securities (ABS). In addition, GS facea an even bigger drop in the fees from structuring and selling OTC “hedge” derivatives to the buyers of Goldman-underwritten loans and ABS.

Goldman’s net interest income has declined over the last three years from $4.1 billion in 2014 to $2.6 billion in 2016. This is a 36.5% drop. To give you an idea of the degree to which bank net interest income has dropped since the “great financial crisis,” in its Fiscal Year 2009, Goldman’s net interest income was $7.4 billion. That’s a 64% drop over the time period.  In FY 2009, Goldman’s net income was $12.2 billion. In 2016, GS’ net income was $7.1 billion, as 42% decline.

To give you an idea of how overvalued GS stock is right now, consider this: At the end of GS’ FY 2007, 6 months before the “great financial crisis” (i.e. the de facto banking system collapse), Goldman’s p/e ratio was 9.5x. At the end of its FY 2009, its p/e ratio was 6.9x. It’s current p/e ratio 13.5x. And the factors driving Goldman’s business model, other than Federal Reserve and Government support, are declining precipitously.

As for derivatives…On its 2016 10-K, Goldman is showing a “notional” amount of $41 trillion in derivatives in the footnotes to its financials. This represents the sum of the gross long and short derivative contracts for which Goldman has underwritten. Out of this amount, after netting longs, shorts and alleged hedges, Goldman includes the $53 billion in “net” derivatives exposure as part of its “financial instruments” on the asset side of its balance sheet. Goldman’s book value is $86 billion.

If Goldman and its accountants are wrong by just 1% on Goldman’s “net” derivatives exposure, Goldman’s net derivatives exposure would increase to $94 billion – enough to wipe out Goldman’s book value in a downside market accident (like 2008). If Goldman and its “quants” have mis-judged the risk exposure Goldman faces on the $41 trillion in gross notional amount of derivatives to which Goldman is involved by a factor of 10%, which is still below the degree to which GS underestimated its derivatives exposure in 2008, it’s lights out for Goldman and its shareholders.

Think about that for a moment. We saw how wrong hedge accounting was in 2008 when Goldman’s derivative exposure to just AIG was enough to wipe Goldman off the Wall Street map had the Government not bailed out the banks. I would bet any amount of money that Goldman’s internal risk managers and its accountants are off by significantly more than 1%. That 1% doesn’t even account for the “fudge” factor of each individual trading desk hiding positions or misrepresenting the value of hedges – BOTH crimes of which I witnessed personally when I was a bond trader in the 1990’s.

As you can see in the 1-yr daily graph above, GS stock hit an all-time high on March 1st and has dropped 12.5% since then. I marked what appears to be a possible “double top” formation. The graph just looks bearish and it appears Goldman’s stock is headed for its 200 dma (red line,$202 as of Friday). To save space, I didn’t show the RSI or MACD, both of which indicate that GS stock is technically oversold.

The analysis above is from the April 16th issue of IRD’s Short Seller’s Journal. I discussed shorting strategies using the stock plus I suggested a “crash put” play. To find out more about the Short Seller’s Journal, use this link: SSJ Subscription information. There’s no minimum subscription period commitment. Try it for a month and if you don’t think it’s worth it, you can cancel. Subscribers to the SSJ can subscribe to the Mining Stock Journal at half-price.

Economic Demise Breeds Public Unrest

The Government reported its “advance” estimate of first quarter 2017 GDP today.  The data-monkeys at the Bureau of Economic Analysis (BEA) reported that the economy grew at just 0.7% annualized in Q1.  This is down from the alleged 2.1% annualized growth rate in the fourth quarter of 2016.  It was also 36% below the 1.1% forecast of the average Wall Street monkey economist.

Next to the monthly employment report, the GDP report is subjected to the highest degree of statistical manipulation in order to make the reported reality look better than reality itself.  If the Government was willing to release a report showing a 67% decline in economic growth from Q4 2016 to Q1 2017, imagine how bad the real numbers would show the economy to be.

The report itself, like the employment report, serves no purpose other than as tool for political  goal-seeking and propaganda.   The consumer spending component of the report fell to a .23% annualized growth rate.  It was the worst level of consumer spending since 2009.   If the Government were to apply a realistic GDP deflator (price change index) to its numbers, rather than the 2% used to calculate the final number, consumer spending would have been negative.

Worse, the various Government agencies are reporting inconsistent numbers.  The Census Bureau’s monthly retail sales report showed a .4% gain in retail sales for January followed by .3% and .2% declines in February and March, respectively.  To be sure, retail sales do not encompass the entirety of the “consumer spending” category.  But, with average real disposable income declining, it’s difficult to believe that consumers were spending money on anything other than necessities in Q1.

The problem with the phony economic reports is that eventually the public begins to see and feel the truth.  Fake economic news does not create real economic activity or real jobs. The economic separation between the “haves” and “have nots” has never been wider, both in the size of each cohort and the degree of separation.

When someone who is working two menial part-time jobs to make ends meet and reads that 200k jobs were allegedly created in a given month, that person knows and feels the truth. That person also begins to get angry.    In fact, the general level of anger across the U.S. population is rising at an alarming rate.  When 2x part-time jobber is driving in a high-mileage vehicle in need of repairs next to a brand new Ferrari with “FLIPPER” on the license plate, it foments anger.  When this occurs daily across  the country, it foments civil unrest.

If the economy were producing real growth in employment and wealth, as purported by the Government, not many people would care which person or political party occupies the White House.  In fact, the party in power would get credit.  But the growing political discord among the population is a reflection of a middle and lower class that is rapidly transitioning to lower and poverty  class – and they are getting pissed.   The  stock market bubble, which is another form of  propaganda, is only serving to intensify the anger.

The Shadow of Truth discusses the idea that the increasing civil discord is seeded in a collapsing economy in today’s podcast, along with a brief conversation about developments in the precious metals market:

Click on either banner below to find out more about each publicaton:

On The Home-Stretch To Collapse

The warning signs are there but very few look for them or want to see them. But it’s a dynamic in which once you see it you can’t “unsee” it. A teacher I know told me this morning that Colorado school districts are quietly cutting staff across all districts. The only reason this would be occurring is that the State is projecting a decline in tax revenues. The only reason tax revenues would be declining is because economic activity is slowing or contracting. And Colorado supposedly has one of the more “vibrant” State economies.

The soaring level of “hope” that, for some unexplainable reason, accompanied the election of Trump is now crashing. The so-called “hard data” which somewhat measures the level of economic activity never moved higher in order to justify the optimism – an optimism tragically seeded in ignorance. As an example, the Kansas City Fed released its economic survey today. The composite index crashed from 20 to 7. Not surprisingly, Wall Street snake-oil salesmen – otherwise known as “economists” – were expecting a reading of 17 on the index.

As for individual components of the index, the average workweek and number of employees dropped; the production component of the index fell precipitously; and new orders collapsed. In fact, new orders expectations fell below the pre-Trump level. The six-month outlook metric – aka the hope index – plunged to its lowest level since November.

The truth is that all of the regional Fed economic activity surveys were largely driven by “hope,” which registered in the form of new orders for goods that will sit on the shelves of car dealers and non-food retailers and in the form of “expectations” about the level of economic activity in six months.

But there has not been any follow-through in form of actual growth in economic activity to justify the unrealistic level of “hope.” Real disposable income and the real level of retail/auto sales have been declining on the way to a tail-spin plunge. Any pulsations in final retail sales and home purchases have been fueled by the parabolic issuance of sub-prime quality debt. In fact, an increasing percentage of home purchases are from aspiring flippers. We are at the point in the cycle, just like 2007-2008, in which many of these flipper purchases will never end up with end-users and instead will land on bank balance sheets.

Auto sales through the end of March were down 10% since the beginning of 2017, resulting in the steepest decline in auto sales since 2009.  New car inventory at some of the biggest auto dealers around Denver is spilling over into the giant parking lots at vacant malls as OEMs push overproduction onto the dealer network.   Once the debt capacity of those still buying pick-up trucks at record incentive pricing hits the wall, the auto industry will see a spectacular cliff-dive.  The Government is too broke to provide the “cash for clunker” safety-net put in place in 2010.

In addition to trillions in printed (electronically generated) currency, the Fed has been able to fabricate the illusion of economic growth with an enormous amount of credit creation.   Credit is debt-issuance.   The part about debt that is conveniently overlooked by economists is that borrowed money behaves like printed money until it has to be repaid. The problem is that most debt created in the U.S. is never repaid.  For instance, the level of outstanding Government debt has been increasing every day since before Nixon closed the gold window.  This is not “debt” in the traditional sense of a loan that gets repaid.  This is money printing.

Consumer  and corporate debt levels have been rising in parabolic fashion and are at all-time highs.  Given that large chunks of this debt will never be repaid, just like in 2008-2009, the issuance of this debt is the same as printed money.  Amusingly, though not surprisingly, the Fed stopped reporting the total amount of debt outstanding in the system (Government + Corporate + Household) on March 25, 2016.  On that day the total debt outstanding was $63.5 trillion.  It’s likely well over $65 trillion by now.   That debt, until it’s repaid, is no different that printed currency.

This would be great in a pretend world in which debt could be issued to borrowers ad infinitum.  It would be the proverbial money tree on which free lunches blossomed for everyone forever.  Unfortunately, debt can not be issued in increasing amounts to eternity. Currently it would appear as if the non-Government borrower segment of the debt statistic has reached its borrowing capacity.   It happens gradually then all at once.   The United States is getting close to the “all at once” stage.

This is why the Deep State has resorted to the last stage of history’s Empiric life-cycle curve:  when all else fails start a war…