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The Mysterious Janet Yellen Plus The Retail Sales Data Farce
Retail sales for January were published by the Government’s Commerce Department today. They show an alleged .2% gain for January over December and a 3.5% gain from January 2015. Nothwithstanding the fact that these numbers are estimates based on highly questionable data samples, these numbers do not include any adjustment for price inflation.
Having said that, it’s impossible to know what’s real and what isn’t with Government economic data reports anymore because everything is based on “random samples” that are “seasonally adjusted” by some mysterious X-13ARIMA-SEATS econometrics program. Having studied econometrics and statistics while in the University of Chicago Graduate School of Business, I can say with 100% certainty that econometrics is much more of an “art” than “science.”
For instance, in today’s retail sales report, the Government discloses that the .2% month to month gain in retail sales could actually be anywhere from -.3% to +.7%. The level of “confidence” in this estimated range is 90%. It’s another way of saying that the estimate is useless. Of course, the estimate matched Wall St’s estimate and the stock market jumped up accordingly in knee-jerk HFT-algo driven predictability.
As it turns out, the estimated gain in retail sales reported in January is fully attributable to the seasonal adjustment factors in the X-13ARIMA-SEATS seasonal adjustment statistical meat grinder programmed by Government drones: January Retail Sales: It Was All In The Seasonal Adjustment.
This brings me to the topic of Janet Yellen on the heels of her semi-annual Humphrey-Hawkins (the old name for it) testimony to Congress earlier this week. I’m not really sure how or why Janet Yellen was elevated to the Chairmanship of the Fed, but quite frankly she is an utter disgrace to this country.
Unless she really believes the numbers fed to her by her handlers, she should be embarrassed to get in front of the public and state that the economy is in good shape. She looks like a complete idiot to everyone who studies the facts about the economy and about the data used to represent and “estimate” economic activity.
If she truly believes economic reports like the employment numbers, I have to question her 
level of intelligence. If she knows the economy is tanking but continues to assert that the economy is expanding, I have to question her ethics and morality.
Without a doubt she is not fit to be what is considered the most powerful Central Banker in the world. She hopelessly either stammered through or avoided some questions tossed out at her by Congressmen to which she should have known the answers cold.
Greenspan was “the Maestro,” not because it took ingenuity to flood the system with liquidity with system every time the stock market started to head south but because his of his ingenious ability to spin his words into something that sounded highly intelligent. Bernanke would show visible agitation and his face would flinch when he was given questions for which he was going to answer with a lie.
Janet Yellen, on the other hand, has been put into a seat for which she is pitifully unqualified. Not only does she appear to be incompetent as an economist, but she lacks any ability to think on her feet when confronted with questions beyond the scope of those she’s been programmed to answer since starting her career at the Fed in 1977.
Canada Is Now “Burning Furniture” To “Heat The House”
Canada is selling off its gold reserves:
Back in the 1960s, Canada held more than 1,000 tonnes of gold. But it began steadily selling off its hoard, and by 2003, the country had just 3.4 tonnes. Now, Canada has less than one tonne. (CBC News – a division of the Canadian Broadcasting Corporation)
Contrary to the recent “Pet Rock” theories, gold is perhaps the most liquid asset in the world next to Treasuries. When an entity is reduced to selling assets as a last resort like this, it’s analogous to a household having to burn its furniture in the winter in order to heat the house.
Somewhat reminds me of when the Bank of England dumped half of its gold reserves at the bottom of the 1981 – 2000 gold bear market, marking the beginning the current secular bull market in precious metals.
Deutsche Bank Burns – Silver Is The Trade Of The Decade
If I’m right and this is the start of what happened starting in late Oct.2008, guys like Bron and [Jeffrey] Christian and Trader Dan are going to end up looking like the biggest assholes in the world. Although I think that trip is booked and the train has already left the station, no matter what the price of gold does. – comments from me to some long-time colleagues
Deutsche Bank management spent Tuesday and Wednesday trying to make the case that it had plenty of liquidity and a gameplan to address structural issues. They threw the hail Mary yesterday when they announced the possibility of using available “liquidity” to repurchase a few billion euros worth of senior bonds. I have quotes around “liquidity” because, as I outlined in my blog post about this yesterday, DB is technically insolvent.
What has unfolded this week at the zombie bank is almost exactly the path to collapse taken by Bear Stearns. In fact, just like he did with Bear Stearns when he issued a table-pouding, booyah screaming buy on Bear Stearns about two weeks before it collapsed, Jim Cramer was out earlier this week telling investors not to worry about Deutsche Bank and that, “the European banks have a plan. The government has a plan…This is not 2008, because they learned from 2008.”
Cramer has proved to be a remarkably accurate contrarian indicator on stocks just ahead of a collapse in price. DB stock has already partially collapsed since August, falling more than 50% since then.
If you want to dismiss my view, that’s fine. But ignoring the action in the credit default swaps is a big mistake. The CDS on DB’s subordinated debt have gone parabolic, jumping to a spread over Treasuries of well over 500 basis points today. Over the past week, the CDS spread on both the senior and subordinated debt of DB has gone parabolic. This is the clearest possible signal, other than the truth from upper management, that DB is on the ropes.
CDS investors are among the smartest in the market because they tend to be closest to the real inside information at banks. I know this because when I traded junk bonds which, prior to the proliferation of CDS, were the “smartest” eyes in the market, our desk was right next to the bank debt trading desk. The bank debt crew always had access to internal numbers on the companies they traded. We were very tight with the bank debt traders, if you know what I mean.
This leads me to silver. I’l be going on record tomorrow in a podcast with Silver Doctors that silver is the trade of the decade. Also, the LBMA silver fraud fix was the cartel’s last gasp effort to grab as much physical silver as cheaply as possible. That silver fix event was outright theft of silver from the sellers of physical silver on the LBMA that day.
I believe, just an educated guess, that the accumulation of silver was out the necessity to make deliveries under paper obligations – LBMA contracts, Comex futures, OTC derivatives. I believe the looming shortage in physical silver is worse than in physical gold and last summer was an omen of what’s coming.
The ratio of price appreciation in today’s trading for gold:silver is 95:1. A normalized GSR is 16 or lower. The GSR hit 32 when silver was approaching its top in 2011. My point here is that they are throwing the kitchen sink at silver right now to keep the price down as much as possible in order to limit the potential damage that is going to occur to the banking entities that are perilously short paper silver, while their counterparties are starting to pound on “the door” looking for deliveries.
We are likely transitioning into the third and final leg of the precious metals bull market. I believe that the smart money will eschew all fiat currencies and move their capital into the best possible contra-fiat currency asset: gold and silver. Today, for instance, the dollar is down on a day when typically the dollar is used as a flight to safety. Gold is up $60. The smart money will get the train wheels rolling and the retail crowd will pile on about 2/3 of the way through the ride, paying extraordinary premiums to get physical gold and silver in their hands.
All fiat currencies are backed by nothing but promises from Governments that are leveraged up to their eyeballs. Physical gold and silver do not have any counterparty risks as long as you do not buy them on margin and keep them in a custodial account. The margin risk is obvious, for most people the custodial risk is non-obvious but very real. Just ask the traders who owned physical silver in MF Global’s Comex warehouse account…
Dave, I wouldn’t be surprised if half of the JPM silver “horde” doesn’t exist and that they’ve screwed clients ala Morgan Stanley (the only mega investment bank to have been officially busted in the last 50+ years for not having customer precious metal in allocated and segregated accounts). Ted Butler et al. have this wrong too. It’s not clear how much fraud we’re talking about, but hey, we’re talking JPM. – a well known market analyst and blog host and silver market expert
Deutsche Bank Is A Complete Joke
That place has been on death-watch forever. However bad it was before Anshu Jain was fired, it has to be worse now. – Former insider
Deutsche Bank stock has popped 6% today and the move was attributed to an announcement in the Financial Times that DB was looking at buying back several billion in senior bonds in the market at a discount – Financial Times
Before I get to the bond buyback farce, it’s safe to say the jump in DB’s stock is fully attributed to the rumor floated in Europe that the ECB was going to consider buying big bank stocks in an effort to shore up the appearance of a “healthy” banking system. Furthermore, DB has been relentlessly sold and shorted since the beginning of 2016, down 31% in 25 trading days. It was due for a technically-driven, dead-cat, short-covering bounce. Central Bank intervention rumors being the perfect catalyst to frighten hedge fund computers into covering shorts and moronic perma-bulls into buying the dip.
Let’s first examine this notion of a bond buyback. The first item that will be pointed out by Wall Street puppets is that a bond buyback would enable DB to book accounting gains, thereby padding net income and book value. But the idiocy of this logic is that gains recognized from buying back bonds at a discount are 100% non-revenue, non-cash generating events. In fact, a bond buyback is a use cash – it further erodes the liquidity of the entity buying back bonds or stock.
In addition, if DB were to buy back its bonds in the market, why on earth would it pre-announce this? The only result this accomplishes, other than a brief surge in foolish optimism issued by perma-corrupt stock analysts, is to trigger front-running into DB’s bonds thereby increasing the overall cash cost of the bond buyback.
DB’s announcement was first reported in the Financial Times. You’ll note the FT asserts that “banks can generate capital gains my buying back bonds at a discount to their face value.” However this is highly misleading because the only “gains” generated are a non-cash generating accounting “gain” that is now permitted. It was an accounting change that was passed after the 2008/2009 collapse which gave banks the ability to fabricate net income for the purposes of padding their retained earnings and therefore their book value. It’s nothing more than legalized fraudulent accounting.
Curiously, Reuters referred to DB’s announcement as an “emergency buyback plan on senior bonds.”
The FT alludes to DB having 220 billion euros of liquidity reserves with which to use for a bond buyback. However, glancing at DB’s latest balance sheet, I can only find 102 billion consisting of 27 billion euros in cash and cash due from other banks plus 75 billion euros in interest bearing deposits with banks. Notwithstanding the risk embedded in “cash due from others” plus “deposits” with other banks, if DB truly had 220 billion euros of “reserve” liquidity, we would not be having this conversation, DB’s senior credit default swaps would be trading at +100 spread instead of +250, it’s subordinated CDS would be trading at +200 instead of +450 and the stock would still be well above $20 instead of staring down the barrel at $10.
But let’s take a closer look at DB’s overall balance sheet, something which clearly no Wall Street analyst or financial bubblevision moron has ever experienced. DB’s latest balance sheet from 9/30/15 shows “total financial assets at fair value” of $881 billion euros; 71 billion euros of “assets available for sale; 428 billion euros in “loans:” and 153 billion euros in “other assets.” All told it reports 1.7 trillion euros in total assets, leading to a declaration of 68 billion euros in “total equity” (book value). That’s an eye-watering leverage ratio of 25x.
Now let’s take a look at the quality of the assets listed above. DB has very heavy asset/loan exposure to emerging markets, energy, peripheral European credits (like Greece, Italy and Spain), commodities, Glencore and leveraged finance/high yield. And course there’s the 60 trillion or so in derivatives. But we are leaving that out for purposes of this analysis.
Although DB made a big production out of the 6 billion write-down and loss it would take in its third quarter, 5.8 bilion of that was a write-down of goodwill and intangibles. Considering DB’s exposure to the collapsing asset sectors listed above, this 5.8 billion write-down of what amounts to thin air anyway is nothing short of shocking. I would conservatively estimate that the 1.53 trillion euros of financial assets + for sale assets + loans + other assets should be written down by at least 20%. That would imply that, conservatively, DB could write-down its assets 306 billion euros and likely still be overstating the value of its total asset base. A write-down of that magnitude would imply that DB has negative net worth of 238 billion euros.
In other words, DB is technically insolvent. When I did this exact same analysis in early 2008 on JP Morgan, Lehman, Wash Mutual and Countrywide, my write-down estimates turned out to be exceedingly conservative. I would wager anything that my analysis above is “exceedingly conservative” x 2.
Keep in mind this entire analysis does not include DB’s derivatives. It’s fine with me if DB management wants to puff up its image by taking a few billion of liquidity that it technically does not have and buy back some of its debt. I could care less. But anyone who is not selling their stock into this rally is a complete moron.
The only thing demonstrated to me by DB’s bond buyback bravado is that investors learned nothing from 2008/2009 and bank upper management and directors are even more corrupt now than they were 8 years ago.
The Shameless, Blatant Fraud Of Morgan Stanley’s Former CEO, John Mack
This idea that I heard yesterday, the possibility of not making their [Deutsche Bank] interest payments, it’s just absurd. The government will not let that happen…the German central bank should make a statement in support of the lender [DB]…the bank’s name is Deutsche Bank. It’s the German bank. Politically, they will stand up, if they need a safety net, and give it to them. – former Morgan Stanley CEO, John Mack on CNBC (from Zerohedge)
John Mack is the former CEO of Morgan Stanley, after Deutsche Bank and JP Morgan, one of the most 
financially unsound banks in the world. The statement above is coming from the CEO of a Wall Street bank that was saved from extinction in 2008 by U.S. Taxpayers. It was a move forced on the public by a Government that is controlled by Wall Street bankers. It enabled John Mack and his cronies to continue stealing $10’s of millions from the middle class.
What set me off is the flagrant arrogance coming from a man who’s outright failures as a businessman and banker were bailed out by the U.S. Government. This is the malicious sense of entitlement from a man who is steering Morgan Stanley back into bankruptcy.
Have we learned anything from what happened in 2008 – or from the Bernie Madoff and Enron lessons of history? Obviously not. Not only is the western financial system entering a collapse much bigger than that of 2008, the big banks are already lining up with their hands out and pockets open.
Currently Morgan Stanley’s ratio of assets to “tangible” book value is 13:1. The problem is that the book value of Morgan Stanley’s “assets” is likely exceedingly overvalued and will eventually be written down at least 30% (and probably more). This bank will blow-up if the U.S. Government allows the market to do what markets are supposed to do.
John Mack’s comment about Governments bailing out banks is nothing more that the childish appeal of a desperate man who knows the end is in sight for a bank that had failed under his leadership.
Global Economic And Banking Collapse On Deck
Always love your analysis. A friend shared with me one week of your short sellers journal and I was impressed. GLNG took an extra week after you published it but it did start dropping. I’m very experienced in options. Just ordered it for your short picks…I don’t really need the info of how to play options… just like your research and analysis. – “Colin” – SHORT SELLER’S JOURNAL (link)
All eyes are focused on Deutsche Bank. Rightly so, for the most part. “As you said, Deutsche Bank is blowing up” (Dr. Paul Craig Roberts in an email to me this morning). It was reported this morning that the bank’s CEO released a memo to employees in which he assured the “troops” that everything was fine. Most people do not remember this but I’ve been cursed with a great memory for certain details. Jimmy Kayne, the CEO of Bear Stearns, when Bear blew up gave the same type of pep talk to Bear employees shortly before Bear was flushed down the toilet. Reaching even further back in the annals of epic corporate fraud induced collapses, Ken Lay gave the exact same kind of pep talk to his people right before Enron collapsed.
As the adage goes, once a rumor is denied at least three times, the fact-basis of the rumor has been confirmed.
But it’s not just DB – it’s the entire western banking system. While DB stock was getting pummeled yesterday, it escaped everyone’s attention that Morgan Stanley stock was down over 7% as well. Bank of America stock was hit 5.4%. Goldman Sachs as drubbed 
nearly 6%. Today Credit Suisse stock is getting hit 7.7%. These banks all have one common denominator: an exceedingly high degree of exposure to Euro-debt credit default swap counterparty risk. Include RBS and Barclays on that list as well, both of which are headed for the credit default swap waste bin unless the Fed and the ECB decide to print enough digital money to keep them alive. The most stunning collapse in stock price is perhaps Credit Suisse (green line) which had been the best performing stock among the group until mid-July. Wonder what changed? Nearly as a notable as CS is Morgan Stanley (dark purple), which has managed to stay out of the media but it clearly exhibiting signs of extreme underlying financial distress. Most might not remember, but Morgan Stanley should have been one of the primary casualties of the 2008 de facto collapse but it was quietly re-monetized so that it could continue fleecing the public by raking in big fees from the huge volume of “Club Med” European credit default swaps that it sells.
It’s nearly impossible to identify the specific root cause of the obvious banking system melt-down that is occurring. By design the use of OTC derivatives by the banks has been completely obscured and hidden from sight. As was evident from Jamie Dimon’s admissions during the “London Whale” crisis at JPM, even the people running these banks do not have a full understanding of the magnitude and degree of risk buried in the big bank balance sheets. Since the Central Banks get their bank-specific information from the banks, it means that Central Banks therefore do not fully understand the scope and severity of the problem either.
That fact alone should be enough to frighten anyone paying attention out of the banking system and into the relative safety of precious metals.
I was chatting with a close friend of mine in NYC. He lived with me through the turbulence at Bankers Trust (Proctor and Gamble derivatives lawsuit, Long Term Capital exposure, etc). He stayed on and worked at Deutsche Bank and then at Lehman. He knows when something is irrevocably wrong at these banks. His comment to me this morning was that “something is blowing up behind the curtain in the banking system and it has to be the derivatives.”
Of course, the reason the derivatives are blowing up is because the underlying credit instruments from which they are “derived” are melting down as well. We know about energy, industrial commodities and high yield – all of which the banks above have heavy exposure – but I would also suggest that auto loans and mortgage paper (luxury housing bubble pops) are starting to crack hard too. Banco Santander has been one of the more aggressive auto finance lenders and its stock has is down 50% since April and down 38% since early October. Capitol One down 25% since early December.
The message is clear: the credit markets are beginning to accelerate in their collapse.
Will Deutsche Bank Be Saved From Collapse?
Deutsche Bank stock is down over 8% today. It’s trading at $15.53. This is 20% lower than the previous low it hit at the apex of the great financial crisis (de facto collapse) in 2008/2009.
With rumors flying because of DB’s stock performance this year, management issued a statement defending the bank’s liquidity position: LINK “Additional Tier 1 coupons” references the debt that was issued as part of a transaction to raise Tier 1 regulatory capital by Deustche Banks. The accounting behind the scheme – yes, it’s a scheme – is complicated but the regulators permitted DB is issue a security that behaves like debt but is treated as Tier 1 capital for the purposes of measuring the bank’s ability to withstand hits to its asset base.
Suffice it to say that historically, when a bank has been forced to issue a statement defending its solvency, insolvency is not far behind. We saw this with Bear Stearns and Lehman. Denial of a catastrophic problem is affirmation that the problem is very real.
Typically the credit markets sniff out a very real problem before the equity market “catches up.” Deutsche Bank has emerged as one of the most recklessly managed “Too Big To Fail” banks. Under Anshu Jain’s “leadership,” DB became a financial nuclear weapon bloated on derivatives, exceedingly risky assets and highly corrupt upper management. It’s a literal cesspool of financial fraud and Ponzi scheme banking activity. The graph of the spread on DB 5-yr credit default swaps shows how quickly the market has determined that DB’s financial risk of insolvency is quickly accelerating:
Currently DB has roughly $2 trillion assets supported by $68 billion of book value. The problem is that many of its assets are highly overstated in value and have yet to be written down. The financial world shuddered at the $7 billion of admitted write-offs DB took in 2015. The problem is that over 85% of the charges taken by DB were attributed to legal costs. We know its “on-balance-sheet” assets are being reported at a significantly overvalued stated level. DB has big loans to the energy sector, Glencore, Volkswagon/Audi and other sundry highly risky businesses. It would only take a 3.5% write-down of its asset base to wipe out its book value.
THEN there’s the derivatives. DB has $58 trillion of notional amount in OTC derivatives hidden off its balance sheet. The bank will claims most of that is hedged out and the “netted” amount is a sliver of the notional amount. But ask AIG and Goldman Sachs how hedging / netting works out in the long run. “Netting” is only relevant when counterparties are prevented by Central Banks from defaulting. Once the defaults start, “net” becomes “notional” in a hurry.
I did an analysis of several of the big banks in early 2008, including JP Morgan, Wash Mutual, and Lehman. I took their identifiable assets and wrote down the identifiable home equity loan exposure and some other risky asset classes to levels I thought were conservative. I had concluded that those banks were technically insolvent. Eight months later it turned out I my analysis was quite accurate. Wash Mutual and Lehman collapsed and JP Morgan would have collapsed if it had not been bailed out by the Taxpayers.
The current era’s first big bank casualty will likely be Deutsche Bank, unless the German Government and the EU and U.S. Central Banks determine that a DB collapse would collapse the west, which it likely would. To put this in perspective, DB’s stated assets are $2 trillion. Germany’s GDP is just under $4 trillion. Then there’s the derivatives…
The Global Economic System Is Crashing – The Stealth Gold Bull Is Alive
Well, this time is indeed very different. This is not Jan., 2015. The world is waking up to the fact that a brand new, multi-headed hydra solvency crisis is upon us. – Eric Dubin, The News Doctors (link below)
One of the idiots from Wall Street that CNBC likes to roll out was on scratching his head over the behavior of the stock market. He asserted that it was nothing more than panic because “the real economy is doing well.”
I’m wondering what data he’s using to draw that conclusion. Nearly every report that has been released for the last few months, other than the highly manipulated/fabricated Government employment report, is showing that economic activity is collapsing to levels last observed in 2008.
The Baltric Dry Index has collapsed to all-time lows. Freight and goods transportation indices area showing a collapse in demand in the wholesale and retail distribution system. This shows a collapse in consumer spending. Based on unadjusted, unannualized numbers, existing home sales plunged 20% from Q3 to Q4. Auto sales are quickly rolling over. Energy debt is blowing a hole in bank balance sheets across the country. Auto finance paper is next.
These are black swans. They’re black swans because no one seems to see them. If they the market sees them then it is not acknowledging them. The current sell-off in the stock market is not remotely close to an acknowledgement of these black swans.
The S&P 500 is at its most overvalued in history by several metrics. It’s dropped roughly 10% from its all-time high and a spectrum of people from money managers to Congressmen are calling on the Fed to “do something.” No one seemed to be bothered by the fact that the stock market never should have been enabled by the Fed to go parabolic over the last 5 years, becoming more dislocated from the underlying fundamentals than at any time in history.
Then there’s gold. Gold has been pushed inexorably lower by western Central Banks in order to facilitate bad monetary policy decisions. But gold is the ultimate hedge against corrupt Central Banks and Governments. Physical gold inventories at the bullion bank controlled gold exchanges in the west are quickly disappearing, as is silver now too. GLD does not count because it’s always been a roach motel largely of paper gold.
This disappearance of physical gold is another black swan that is neither recognized nor acknowledged by the market, except by a few “conspiracy theory riddled” gold bugs. But the third leg of the gold bull market that began in 2000/2001 is stealthily taking off. Eric “The News Doctors” Dubin has written a worthwhile analysis of what is unfolding: Stealth Gold Bull Market Continues; Real-Time Analysis.
Someone from Australia emailed me a report showing that the Perth Mint had temporarily suspended gold sales last night/yesterday. Physical gold is indeed disappearing. Soon it will be harder to get at the retail level unless the buyer is willing to pay a hefty premium over spot. I’m going to start converting as much paper currency as I can into silver – the original and first monetary metal – because it will soon become hard to get as well.
Latest Short Seller’s Journal Has Been Published
The featured stock is being dumped by insiders at an alarming rate. What do they know about the Company that is being ignored or overlooked by the market? In the last three months, insiders have sold 7.2 million shares vs. “buying” 535k shares. The buying has largely consisted of the conversion of restricted stock units granted as compensation into tradeable shares which will be then be sold.
Jim Cramer has a table-pounding buy on this stock. That’s usually the kiss of death. Cramer calls this company on of the best stories for 2016. For those of you who are unaware, Cramer is one of the best contrarian stock indicators possibly in history. More often than not, a table-pounding buy issued by Cramer is the kiss of death for a stock. Perhaps the best example of this was his strong endorsement of Bear Stearns shortly before Bear Stearns completely collapsed. This company won’t collapse but it is extremely overvalued, especially in the face of a economy headed into a deep recession.
I also have revisted to ideas from earlier issues, one of which is now down 17% vs. 10% for the S&P 500 in the same time period. Finally, I have a quick-hit short sell idea on a company that is highly overvalued and reports earnings next week. I also had detailed ideas for using puts and calls to replicated shorting the stocks, with specific put/call suggestions.
You can subscribe to the Short Seller’s Journal by clicking on this link: SSJ or on the image below:
Global. Economic. Collapse. And The “Bernanke Moment”
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.