The global economy, including and especially the United States, is collapsing. It’s debatable whether or not the western hemisphere countries produced true inflation-adjusted real GDP growth from 2009 to present. Yes, I know the numbers the U.S. Government’s BEA spits out purport to show “seasonally adjusted, annualized” economic growth. But a book could be written detailing the ways in which the Government manipulates and outright fabricates the data. John Williams of Shadowstats.com publishes a newsletter with highly compelling evidence. Anyone who dismisses Williams’ work does so out of complete ignorance.
The Baltic Dry Index is one of the primary tell-tales of economic collapse. It measures the demand for container cargo shipments of bulk raw materials used for all stages of manufacturing. It’s been twisted into evidence that China is slowing. But it tracks global shipments and the U.S. and Europe are China’s two biggest export markets. If China is not shipping, it’s because there is no demand from it’s two biggest customers. It’s really that simple.
Need another indicator of the collapsing U.S. economy? The mass layoffs that occurred in 2008-2009 are starting to hit the system again. We know the energy sector is shedding jobs quickly. But the retail and financial sector are close on the heels of the energy sector with job cuts – LINK. And all those bartender and waitress jobs that the Government alleges to have been created are to disappear again: Service economy is tanking. But there’s always this graph to the left if you think I’m making this up.
The point here is that the entire global economic system is in a state of collapse. I find it curious that the financial media and analysts in the United States want to blame the problem on the rest of the world, specifically pointing at the distressed debt market in China.
It’s not debt that weighs on economic growth. If debt issuance is required to generate economic growth, then the “growth” was not sustainable unless the growth could generate enough wealth to support the additional debt. Continuous systemic debt issuance is unsustainable and defies all natural natural laws of economics. At its base level it’s nothing more than a simple Ponzi scheme. A simple Ponzi scheme is probably what best describes the modern application – or misapplication – of Keynesian economics. I guess it’s poetic justice that Keynes’ economic thoughts were adopted by U.S. policy-makers originally at the onset of the first Great Depression and have been reinvented and re-mis-applied at the onset of the 2nd and bigger Great Depression.
I find it fascinating that the U.S.-based financial propaganda incessantly obsesses on this idea that China is the cause of the world’s ills. This is nothing more than narcissistic jingoism in its “best” light. But I prefer to see it as a form of yellow journalism seeded in pathetic ignorance. This article from the NY Times’ “Deal Journal,” for instance, references $5 trillion of troubled debt in China, calling it the world’s biggest problem. Hmmm…
Let’s shine just brief light on the United States. Currently the U.S. credit markets, enabled and partially backed by the Government, have now created over $1 trillion in student loan debt, at least 30% – 40% of which is in some form of technical default; over $1 trillion in auto debt, of which at least 30% can be considered of the toxic subprime variety and which I suspect will begin to collapse sometime during 2016; close to $2 trillion in junk bonds have been issued since 2009, with close to 25% of that in the energy sector, which is collapsing as I write this; since 2013, roughly $500 billion of new mortgage debt has been issue, a large portion of which is of the subprime variety masquerading as 3.5% down payment “conventional mortgage” debt. That’s $4.5 trillion of already or potentially toxic debt and that number does not include generic bank and revolving credit loans extended to consumers, small businesses and large corporations. We know already that the banking system is choking badly on a couple hundred billion of toxic energy loans.
The point here is that global economy activity – including the United States – is collapsing independent of the amount of debt sitting on top of the financial system. If the wealth created by economic activity was adequate to support the debt issued against the “hope” of economic growth, then servicing the debt would not be an issue. But economic cycles never have been and never will be growth in perpetuity. Unfortunately, the amount of debt issued since the advent of modern QE has taken a parabolic growth path.
We are about to be confronted with an economic catastrophe that will likely shock and awe just about everyone. The amount of fatal debt piled on top of the global economy will have the effect of throwing thermate into a napalm fire.
The Fed knows this and it’s why a couple of the Fed officials, including the highly influential NY Fed President, have been floating the concept of negative interest rates in this country. Think about that for a moment. The policy makers are considering the idea of paying you to borrow money. If that’s not an admission of defeat on the use of money printing to spur economic growth, I don’t know what is. Not only are we at the Bernanke Moment of dropping money from helicopters (apologies to Milton Friedman, who’s notion was hypothecated and abused by Bernanke), but they want to pay you to catch the money falling from tree tops in order to spend it. Man, this is going to get weird – I hope you are bracing for impact.