Thursday , 15 November 2018


U.S. Economy Like Humpty Dumpty – Big, Fat & Unlikely To Recover From the Coming Fall

The U.S. economy is just like Humpty Dumpty – big, fat and unlikely to recover from the coming fall for a very long time.  Looking at the facts, the beginning of the end is here. The signs are clear…

  • for the last 27 years the U.S. has doubled debt every eight years and the trend continues uninhibited…
  • for decades the U.S has been living above its means by borrowing unlimited amounts.
This version of the original article, by Egon von Greyerz, has been edited* here by munKNEE.com for length (…) and clarity ([ ]) to provide a fast & easy read. Visit our Facebook page for all the latest – and best – financial articles!

The road to perdition normally takes many turns but not in the case of the US. This has been a straight road to what will be the most spectacular fall in economic history. Since 1960 U.S. debt has increased every single year without fail.

Since Reagan became president in 1981, U.S. debt has on average doubled every 8 years so, when Trump was elected in late 2016, the most obvious forecast was to extrapolate the historical trend. Thus I made the forecast below in December 2016:

The image above is disturbing not only due to the galloping debt level but also because tax revenues are growing at a snail’s pace. Debt is up 23 times…since 1981…[but] tax revenues are up only 6 times (Illustration above shows debt forecast to 2021).

  • How does anyone believe that the stagnant or falling tax revenues will ever be sufficient to reduce the debt. History is telling us differently.
  • The U.S. economy is heading towards bankruptcy in no uncertain terms.
  • The Fed’s only remedy will be to print unlimited amounts of money until the dollar has become totally worthless.

…Whether or not the debt will reach $28 billion at the half way stage in 2021, as I have forecasted in the graph above, we will soon know. That would mean an average deficit of $230 billion per month in the next 28 months. Since the August US deficit was $214 billion, the $28 billion doesn’t seem too unrealistic. What we know is that debt is already at $21.5 trillion or $1.5 trillion above the level when Trump took over 19 months ago, and remember, this is with a booming economy.

In August…50% of the budget Outlays were financed by debt – a very disturbing trend if it continues.

 

The biggest factors that will send the debt soaring will be higher interest rates and higher deficits. Interest expense on the U.S. debt in Fiscal 2017-18 was $365 billion…[Were debt to actually] reach $28 trillion and interest rates rise to 10%…[and] tax revenue decline by 15% then, at that point, all tax revenue would be absorbed by the interest expense.

I realise that the above assumptions might not sound realistic today but, in my view, they are probably too optimistic.

  • All the problems that caused the 2007-9 crisis were only deferred…[and] are still there but the cost of deferral has been massive since global debt has doubled from $125 trillion in 2006 to $250 trillion today.
  • Adding unfunded liabilities and derivatives, the world is sitting on the cusp of a crisis that is exponentially greater than in 2007.
  • Thus, the likelihood is that the Fed will need to print not just $10s of trillions but $100s of trillions to save the financial system, and prop up most areas of the economy including pensions and social security benefits.
  • At that point bonds will crash and interest rates [will] reach at least 25% like in Turkey today or more likely 60% as in Argentina. The U.S. will then have reached the hyperinflationary stage with a collapsing dollar and a failing economy. The social implications will be horrendous and there is likely to be civil unrest as poverty and famine grip the country.

The U.S. will, of course, not be the only economy that will fail, but as the biggest it will have the hardest fall just like Humpty

  • Stocks in many markets are now giving clear signs that the coming global downturn has started (stocks in Hong Kong, Brazil as well as the Emerging Market Index are all down 20% in 2018 and China is down 25%) and, 
  • with 19 Hindenburg Omens since August (a very bearish technical signal), the U.S. market looks extremely vulnerable…[as] do most major markets around the globe after one of the longest and steepest bull markets in history.

Whether or not we will see a final exhaustive up move or not is irrelevant. Risk is at a maximum and we are very near the start of one of the biggest secular bear markets in history. Now is the time to be safe rather than sorry [and that means owning some gold].

…[Those] who hold physical precious metals… have the best insurance that paper money can buy…Once the metals move to much higher levels, [however,] the world we now live in will look and feel very different so enjoy the good times, quality of life and peace we have today because much higher gold and silver prices will sadly be connected with a very different world.

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(*The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.)

 

 

 

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