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…

 

11 thoughts on “On The Home-Stretch To Collapse

  1. sucks renting here in Denver, but no effing way am i paying these prices

    people i work with that had a similar mindset are finally giving in and paying 500k for a 200k house with a 500 sq ft backyard in Highlands Ranch

    total fools—-but the jokes on me, cuz guess who will be bailing them out when they default?

    1. “total fools—-but the jokes on me, cuz guess who will be bailing them out when they default?”
      The individual homeowner deafulters won’t be bailed out. But the big banks holding bad loans may be

    2. Yes. That’s true. Although it will be uglier this time around. Not sure I’d want to have a big mortgage on house I paid $500k for that will be worth $200k at some point in the future.

  2. The Rockies rated 14-9, 2nd in National League West were beat 16 to 5 yesterday.
    It predicts the Colorado Economy. The claim and now the reality.
    Colorado is still running on the fumes of the oil/gas bust.
    Then, with low Fed loans, the home prices for re-finance with cash-out based on overpriced inflation almost tripled housing prices. Yet, downtown is full of empty stores and the homeless make it a dangerous place to go.
    Denver is famous for housing drops of 70%.
    A friend of mine got a job on a database service for all the empty apartments that cost an average of $1,400 for a tiny 1 bedroom (bills not included).
    The database and services plants furniture and other items on the balcony of empty apartments. The appearance of looking occupied from the outside helps the rental cartel keep prices high.
    Wasn’t it Steely Dan that had the album “The Royal Scam”.

    1. You can get up to 2 months free to move in to most new apt buildings in Denver and there’s still thousands of units being built. Same deal starting to occur in the burbs.

      1. I guess they are anticipating the continued influx of people fleeing California for a better [more affordable?] life. They are pouring into Austin.

  3. Schools are seeing declining enrollment because the illegals are going HOME! Fk them and fk the schools and fk everyone who made us pay for that sh!t.

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