…Our debt today approaches $19 trillion dollars -[it was only 10 trillion dollars during the financial crisis of 2008] – yet, once again, main street has fallen into a stupor state incapable of comprehending another financial crisis… Totally ignored is the fact that our real debt is closer to a not-so-normal $166 trillion. Throw in a few hundred trillion of derivative debt, held by our largest financial institutions and the reality is so incomprehensible it has become deniable – despite all the signs another crisis approaches.
What are those signs? The time has come to open our eyes to reality and see the signs that clearly mark the path on which we travel to the end of the road.
Sign One – The Bail-In Cometh
In a recent Presidential debate, candidates were asked the point blank question. In the event of another financial crisis, like the one in 2008, would you bail out the banks?
Some candidates said “no.” Others danced around the topic and said they would put policies in place to prevent another crisis and at least one candidate said kinda yes but by saying kinda yes he really meant kinda no. Then a defining moment. One of the moderators, in response to a candidate’s answer of “no” reiterated . . .
Sir, I understand that. I just want to be clear, if you don’t mind, that millions of depositors would be on the line with that decision. And I just want to be clear. If it were to happen again, for whatever the reason, you would let it go, you would let a Bank of America go?
At this point the political jargon, offered in response, became irrelevant when the moderator identified who would be on the hook to bail out the bank if it were not bailed out by government. DEPOSITORS!
News Flash! When asked the question about whether or not government should once again bail out the banks if the need arises, no one, neither Democrat nor Republican, has answered by saying, “What are you talking about? The economy is recovering. The markets are back near record highs. There is no evidence another crisis is coming.”
Here are the harsh realities:
- If government bails out the banks again – taxpayers all pay the price.
- If government does not – DEPOSITORS pay the price.
- The entire line of questioning and the answers thereto all but PROVE – THERE WILL BE ANOTHER CRISIS!
As I listened with earnest, it occurred to me, why would anyone want their money in the bank at all? At least not all of it. It seems to me we are being told, it may be the worst place to store wealth. One candidate, in an attempt to set the masses at ease, said . . .
I would figure out how to separate those people who can afford it versus those people, or the hard-working folks who put those money in those institutions…
At this point he got booed. How comforting would that be to let some government or banking official decide whether or not you need your own money.
Sign Two – The Myth of FDIC Insurance
In his 2014 Letter to Shareholders, JPMorgan CEO, Jamie Dimon told shareholders, “There will be another crisis.” Whether or not you believe there will be another crisis is for you to decide butte facts paint a very dire picture of our debt and the health of our savings and retirement accounts.
Some say the very notion of FDIC Insurance is a myth. About $50 billion of reserves is insuring more than $13 trillion in assets. The problem is $13 trillion does not come close to quantifying the total of assets at risk. A 2013 infograph illustrates how measly FDIC Insurance coverage is as it relates to the derivative exposure of our banks.
“Derivatives are wild financial bets made by banks [in] order to speculate or hedge risk, ranging from stocks, bonds all the way to weather. In essence a casino style bet.” In 2013 it was estimated the top 25 holding companies in the U.S. held $297 trillion worth of derivatives.
To believe $50 billion in reserve insurance funds can cover this amount of financial exposure is to believe one grain of sand can build a sand castle.
When you pay attention, there are very few who believe there will not be another financial crisis. Post crisis 2008, the media warned us for two years that all the Fed was doing was kicking the can down the road. Warnings in the alternative media are now coming from a countless number of insiders to include former budget officials, Fed Presidents and even the Maestro himself. CEOs of huge banks are declaring the onset of another crisis and billionaires are bailing on the dollar.
Sign Three – Banks and Billionaires Take Action
Karl Icahn, David Einhorn and Stan Druckenmiller are among those billionaires who have begun to bail on the dollar and buy gold. And guess what, some of our largest banks are now building huge stockpiles of both gold and silver. JP Morgan has taken delivery of more than 2000 tonnes of physical silver. HSBC has stockpiled more than 5.9 tonnes of gold and Goldman Sachs, once a well-known critic of gold has taken delivery of 7.77 tonnes of physical gold from Comex inventories. There are others and all see something coming and are preparing. How are big banks and billionaires preparing for another financial crisis? There are two strategies.
Strategy one is to build huge stockpiles of physical gold and silver. They have learned the lesson of crises past. You don’t have to be a genius to see what happens to the gold and silver price in the event of another financial crisis. The crash of 2001 saw stocks crater by August 2002. By that time, Gold had already moved 17% higher off its May 2001 low. By May 2006, gold rose 180%.
The crash of 2008 saw stocks bottom in March 2009, sending gold to a record nominal high above $1900 an ounce by September 2011. The silver moves were even more dramatic. This is what big banks and billionaires are preparing to take advantage of right now.
Strategy two is to legally ready the banks for another banking crisis. Every major bank in the world has adopted a bail-in strategy in order to survive the next crisis. A bail-in is simply an adjustment to bankruptcy law which now allows banks to legally take depositor money to fund its own bailout.
The recent Republican Presidential Debate brought this issue to the fore. It was not met with denial of its imminent arrival, rather it was met with acknowledgement and an inability to offer a solution that does not take money out of our pockets. It was said Cyprus was a one-off. Now the world is prepared to follow the Cyprus example.
Sign Four – Bye Bye Stock Investor
Since 2009, our stock markets have been rising on lower and lower participation rates. This is clearly evidenced by a decline in trading volume. Let’s use the Dow to illustrate. In March 2009 the Dow bottomed near the 6500 mark. By the end of the month, trading nearly 8 billion shares, the Dow closed up at 8168.
By May 2015, the Dow reached a record high of 18,319 on trade volume of just 2.2 billion shares. In all of 2015 the monthly average volume on the Dow was 2.4 billion shares compared to a 2009 monthly average of 5.7 billion shares. The volume chart, per Yahoo Finance, clearly shows a steady decline between 2009 and 2015, with the highest volume months being down months with stocks rising on decreasing volume.
When the market rises on lower volume than it falls, that portends weakness ahead. And, when $1 trillion of that declining volume can be attributed to corporate buybacks, that spells D-I-S-A-S-T-E-R.
In 2015, corporate buybacks reached a reported record high of $1 trillion dollars – an amount near equal to any round of QE offered up by the Fed. As is the case with QE, credit limits and cell phone demand, corporate buybacks cannot go on forever. Where once corporations bought back their own stock to put a floor under falling prices, corporate buybacks, of late, have been used to create the illusion of earnings in the wake of declining revenues.
2015 saw the Dow finish in the negative. How bad could it have been without these buybacks? Perhaps we will find out in 2016. All markets are off to their worst start ever. In hindsight, corporations bought back their own shares at the highest prices ever with many borrowing money to do so. Now, as interest rates rise, the cost of buying back those shares is also rising. This added expense, combined with falling revenues will make it increasingly difficult for companies to show a profit in the quarters ahead.
Sign Five – The “New Normal” Deception
When good becomes evil and evil becomes good, that is a sign our markets and our economy are reaching the end of the road. This is exactly what we are seeing today – there’s a “new normal.” To buy into this line of new normal reasoning, abandoning your old beliefs of what normal used to be, may bring demise to the value of all you have saved, earned and built.
Not long ago, we all heard it, the markets were zooming higher because U.S. markets and the economy remained the strongest in the world. While other markets and economies were failing we were growing – Barely! Investors were flocking to our stocks, our bonds and real estate because America was the best place to have your money. That was then! Today, when the markets have a bad day, experts line up to blame our weakness on the weakness of global markets and economies. There’s only one real conclusion to draw here. Our market strength and weakness has less to do with global strengths and weaknesses than it does our own.
Low oil is also quick to be branded the scapegoat for recent market turmoil. Where once lower oil prices were cheered by both main street and Wall Street, now low oil prices are being blamed for hundreds of points lost in our markets. In April 2011, oil prices were $116 per barrel. This is the highest price in the last five years. At that time, the Dow traded at 12,569. By May 2015, the Dow reached an all-time high at 18,312 as oil prices were cut in half to just $60 per barrel. These low oil prices were given much credit for strengthening the American consumer with the markets and the economy in tow.
Now oil prices, once again cut in half, are said to be killing the markets and forcing the consumer to trade short term financial relief for the shrinking value of long term savings, IRAs and 401ks. Is low oil really now the tail wagging the market dog?
Interest rates may be the best illustration of the dangers of new normal thinking. Historically, interest rates have been raised and lowered by the Fed to regulate economic growth. Let’s here examine some of the conditions under which rates have normally been adjusted.
- When the economy is booming and both wages and the cost of goods and services are soaring, inflation fears set in and rates are raised to slow growth.
- When rates get so high as to stifle economic activity, a la the early ‘80s, rates are lowered to spur borrowing and grow the economy.
- Dollar strength bears heavy on the profitability of exported goods and services. When the dollar is strong profits are lower so interest rates are lowered to weaken the dollar and help balance trade.
Considering what used to be normal calls into question the Fed’s recent interest rate increase. Did they raise rates to fight inflation? What inflation? . . . at least in the eyes of the Fed. Did they raise rates to strengthen the dollar? The dollar is already the strongest currency in the world. Was the economy growing so fast they had to slow it down? The economy is barely growing at all.
Here’s the fact. If the Fed were really moving to normalize rates, housing would collapse; profitability of international companies would vanish, the stock market would collapse, and bond portfolios would be wiped out. Who would want to own your bond, yielding little to nothing, in favor of new bonds paying normalized rates?
Sign 6 – The Vanishing Work Force
If there is one sign that so positively indicates another crisis approaches it is the blatant masking of the true employment data. We are told unemployment has normalized near 5%. So obvious it is, however, that these numbers are more fictitious than a Harry Potter movie – it defies logic. Do you really think people trade on the reported strength of our labor force?
I have mentioned the following in my reports numerous times.
- The labor force is shrinking – not growing.
- Middle class wages are not rising.
- The median Income today is actually less than it was in year 2000.
- 18% of our work force is part-time.
- There are 37% fewer manufacturing jobs today than in year 2000
Can you imagine a Yellen speech wherein she might say, “we have reached our unemployment goals and the economy is strong except for these five things . . .”
The markets would go into a tailspin so fast your stock broker’s phone would go straight to voice mail for a month. Herein lies a sure sign the markets are extremely vulnerable. I like to believe that truth, at some point, carries the day. And, when this truth becomes widely known and accepted – look out below.
Sign 7 – It’s Official
Just months ago, our markets reached record highs. Since then the Dow has lost as much as 3000 points. The swings are wild and obviously more to the downside than up. And as each tumultuous day unfolds, blame is cast in many directions.
One day it is China the next it is all of Asia. Another day it is oil and yet another day it is global economies. War, inevitably makes its way into the story as the entire world, it seems, cannot escape participation. All these villainous events receive their fair share of blame for our massive yet unacknowledged plunge into more market chaos. I have already illustrated within this writing that such attribution of cause is folly.
What then is behind the vast market swings and growing number of troubling days of trading? It’s simple. DEBT! For months I have been warning the can is about to be kicked to the end of the road. And, when so kicked, we will either be plunged into economic chaos so severe our way of life could vanish. Or, should it not be the quick death of lost wealth, the alternative will be inflation so great our kingdoms, our homes may have to be traded for just food and life’s basic necessities.
Our debt story has grown so troubling, someone has to say something. The subject remains obscure in Presidential debates and when was the last time you heard comment from the Fed? The media presents the issue by proxy using experts known for their doom and gloom reports, then mocks them, as though they are tellers of false prophecy. Yet, debt is, and will remain our most pressing issue. I fear it will be addressed too late for many but not so for a few who see the signs and know the future. A day of reckoning is coming.
Perhaps upon staring some facts in the face you will be prompted to heed the warnings they bring and take action to save your fortunes and your family. Regardless of your current level of wealth, it is sure to appear great should it all be taken or rendered worthless when yet another crisis arrives.
Did you know, at the time of this writing . . .
- Medicare/Medicaid payments, now exceeding $1 trillion annually, are near equal in amount to total annual payroll tax revenues?
- Social Security payments alone equal an additional 83% of all payroll tax revenue?
- Our total U.S. Debt, including personal debt, state, local and Federal government, but excluding unfunded liabilities, is growing at a rate of $8.2 billion per day?
- The total value of our national assets is currently falling at a rate of $3 trillion per year?
- Our total U.S. Debt translates to $792,000 of debt per family?
- Total unfunded liabilities is now reported at $101 trillion?
As 10,000 people per day reach retirement age, our debt burden grows exponentially. Fewer and fewer are paying in while more people are taking out. Over all, the work force is shrinking despite 1% annual growth in our population. That means fewer people are bearing the expense of increasing numbers.
This is what insiders see. This is why our markets are failing. It is not the daily whims of oil traders who dictate the great exodus out of stocks. It is not the absence of Chinese growth from one day to the next, that causes violent swings in our markets. These are but excuses afforded those who wish to escape the markets under cover of blame on some other event – some other evil influence.
Insiders always know when crisis is about to come knocking. Insiders know, it is unpayable, unmanageable debt that is sneaking up on the unwary! Banks and billionaires would not be building huge stockpiles of gold and silver if we were truly insulated from the ravages of debt. It’s official! The can has been kicked to the end of the road. Are you prepared?
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