Last week we looked at a chart showing new orders, inventories and personal consumption expenditures.
The significance as you can see is what results when all three series are contracting in unison, a recession. In the old days when things were “normal”, recessions were no big deal. They were inconvenient and yes, they did clean out some mal investment but they were deemed necessary. Recessions were even expected and considered a natural event even though induced by the credit cycle. This is no longer true and has not been since at least the year 2000, it can even be argued all the way back to the early 1990′s.
Why? Because recessions cannot be allowed to go full cycle to clean out mal investment and bad debt. Again, why? The answer is so simple and in our face, “debt saturation”. There is simply too much debt in every corner of the economy (and global economy). “Every corner” by the way includes the government itself and the fact that our national debt cannot nor will ever be paid back with current values. As it stands now, the next recession will be the final recession …for the current monetary system and a new one will by necessity be created. China is working on this, but a story for another day.
I want to show you another chart which is as scary as any I know of but would like to frame it first. From a broad perspective, “bubbles” don’t just happen on their own, they need “fuel”. The fuel of course is credit or an overabundance of credit and on easy terms. This is certainly not a new phenomenon, we can look back to the tulip mania, the French Revolution and John Law as early examples. In current day, we have become accustomed to bubbles because they seem to form every seven years or so as a result of Fed ease and Treasury largesse to abort the previous recession. Each time the U.S. has refused to accept the medicine of a recession going through to fruition was an act of creating the fuel for the next bubble.
After viewing the chart, do you see anything that it really is “different this time”? Yes, this time it is not just one sector in a bubble, we now have all sectors at once! This chart shows you real estate, the Russell 2000 and the hot biotech sector. We could of course overlay a chart of bonds (interest rates inverted) and even add in the dollar for a five bagger of bubbles. Globally it is the same story, real estate, stocks and bonds (with interest rates even negative) are all in bubbles. Needless to say, the falls from grace will be at least equal to if not far worse than previous falls. Why is this you ask? There is far more debt now than in 2007 entering recession. As for the U.S., there was no alternative to the dollar as a reserve currency, say what you will but the rest of the world has been working at break neck speed to change this monopoly.
The problem is, there are TOO MANY problems (bubbles) all at one time. We also have these bubbles at a very bad time so to speak. The Fed has already quintupled their balance sheet and the Treasury has now borrowed more than 100% of GDP …AND, interest rates are ZERO! What tool or tools exactly are available to temper the fall? I guess another obvious question would be “who?”. Who exactly has the ability to ride in on a white horse and use these nonexistent tools? You know the answers of course, there are no tools left, the white horse has died and the rider is broke.
Hopefully this last chart strikes a chord with you because of the ease to “see what it is saying”. The coming collapse and panic could not be more obvious to those who can look at numbers and truly understand them. Some people are more visual and need to see a “picture” to understand what is happening. The picture tells me that almost EVERYTHING we as “value” is in a bubble and will collapse with much of it actually “going away”. Our current situation has everything to do with credit. Too much of it and too easily obtained. The central bank(s) and Treasury(s) are to blame as they painted themselves into the corner where we can never again be allowed to have a recession. Mother Nature says we will have another recession, she also says the next one will be the biggest and most all engulfing ever … and at a time our policymakers have no options or tools left! Very scary indeed, even if you see it coming and have prepared to the best of your ability.
BILL HOLTER, Associate Writer, Miles Franklin Precious Metal Specialists
Address: 801 Twelve Oaks Center Drive, Suite #834, Wayzata, MN 55391;
Prior to joining Miles Franklin in 2012, Bill Holter Worked as a retail stockbroker for 23 years, including 12 as a branch manager at A.G. Edwards.Later, he left Wall Street to avoid potential liabilities related to management of paper assets.In 2006 he retired and moved to Costa Rica where he lived until 2011 when he moved back to the United States.Bill was a well-known contributor to the Gold Anti-Trust Action Committee (GATA) commentaries from 2007-2012.
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