My IDW Tells Me the Global Economy Is Going Down Hard!

IDW-2015-08-28

The Fundamentals Agree

From a fundamental perspective, no one makes more sense to me than former Reagan Budget Director David Stockman, whom I have had on my show from time to time in the past. And the description he gave of why our economic fundamentals are so weak makes perfect sense to me and I think explains why my IDW is now not only rolling over but also plunging dramatically through both the three-year moving average as well as the five-year moving average.

Trillions upon trillions of dollars have not brought about any real results in terms of real economic growth. Sure the government trots out selective statistics, most of which are falsified with various gimmicks, as John Williams explains. But if by economic recovery, you mean a revival of the economy for anyone other than the top 1%, what we are given is all smoke and mirrors. The Fed exists only for the rich and powerful interests that own the Fed, even though they have done a masterful job of conning the masses into believing they have our best interests at heart. But in effect the middle class is being destroyed and with it so is our economy. The parasites from both major parties in Washington along with Wall Street can continue to rob and pillage the middle class, but when the middle class has been wiped out, what will the rich folks do then?

Back on June 10, in an interview I did with the Cambridge House Conference folks cambridge-house.com/video/596/wall-street-and-the-fed-in-collusion-to-prop-up-the-us-dollar, I insisted that the Fed cannot raise interest rates. How many times now since even before Bernanke left the Fed have we heard policymakers talk about how good the economy was and that since the economy was getting better, a rate rise was right around the corner? “Prosperity is right around the corner” was the same language used during the Great Depression, but as we know, it took a decade for that to happen. What kind of prosperity do we really have? I am more convinced than ever that the Fed can never raise interest rates. If it tries to raise rates even by miniscule ¼%, it will lead a massively addicted carry trade not only to with drawl but very possibly to the market’s deathbed. The Fed is filled with lies and hubris. But as the work of John Williams illustrates, real GDP if it exists at all is a far cry from what the Wall St. and Washington believe it to be. Thus the world is becoming increasingly insolvent even with ZIRP. A rise in rates could send the carry trade dominoes falling faster than the Dow at the open this past week.

Of course! Dudley wants Goldman Sachs and other shareholders of the Fed to continue to walk into The Wall Street Casino with gambling money handed to them rather than putting their own capital at risk. Their zero interest carry trade is the game the middle class is blind to. But it is a game that is absolutely decimating everyone except the very richest people in our land. Where oh where is the social conscience of our churches and synogogs? Where oh where is the concern of the Left, who supposedly cares about average folks? Donald Trump and Hillary Clinton are both spouting rhetoric about the middle class, but they say nothing about the monetary system that is the mechanism by which both of them have in fact been guilty of robbing the middle class.

Anyway, here are some of the points made by David Stockman in his August 27 essay titled, “Central Bankers’ Malodorous War on Savers”:

• “Artificial suppression of free market interest rates by the central bank is designed to cause households to borrow more money than they otherwise would in order to spend more than they earn, pure and simple. But the whole enterprise is a crock. The consumer spending pump can’t be primed anymore because households reached a condition of “peak debt” at the time of the financial crisis. Any fool can see that obvious fact in the graph below.

credit markets“On the eve of the financial crisis in Q1 2008, total household debt outstanding, including mortgages, credit cards, auto loans, student loans and the rest, was $13.957 trillion. That compares to $13.568 trillion outstanding at the end of Q1 2015.

“That’s right. After 80 months of ZIRP and an unprecedented incentive to borrow and spend, households have actually liquidated nearly $400 billion or 3% of their pre-crisis debt. Yes, there has been a change in the mix—–with mortgages and credit card balances down and auto and student loan balances significantly higher. But debt is fungible—–so the truth about the aggregate of all household debt is stunning. Namely, not a single dime of the Fed’s $3.5 trillion QE bond buying spree left the canyons of Wall Street.

“Stated differently, the entirety of private debt growth since the financial crisis and the inception of “extraordinary” monetary measures in the fall of 2008 has been in the business sector; and on a net basis the modest growth of business debt during the last 7 years has been entirely recycled via stock buybacks, M&A deals and LBOs back into the speculative pools of Wall Street.

Stockman then goes on to talk about how the criminal Federal Reserve through their Bernaysian propaganda and statistical manipulation are hiding a number of facts from the public.

Lie #1. We have to keep rates low so the household will borrow and create demand in the economy. But it is obvious that household credit has hit the wall. In the aggregate, consumers cannot borrow more. But of course they pretend that easy money is good for the household. But with real wages in decline not to mention the lowest labor participation rate since the late 1970s, then if you buy this lie, I have a bridge in Brooklyn to sell you.

Lie #2. Growth of money and low rates did not fuel economic output. Money created was not used to buy plant and equipment, thereby spurring measured GDP growth today and economic productivity and efficiency over the longer run. It went into financial engineering for the boys who give us “flash crashes” to chase what’s left of middle class folks out of the market while the boys with the computer models pick our pockets.

Lie #3. We can’t raise interest rates because it will hurt the economy. Such idiocy! If ZIRP has not stimulated the real economy but only provided free casino chips for Wall St., Washington, and the Military Industrial Complex then why would a miniscule ¼% rate rise do anything to hurt it? In fact it might actually help the middle class with a bit more income to spend or repay debt.

Lie #4. It will be in our best interest if the Fed gets rid of cash, allowing us only digital money. Why so? We must get rid of cash so the Fed can usher in NEGATIVE INTERST RATES. The criminals in charge of our country, out of their hubris, fail to even consider that rate manipulation is destructive. They always simply decide that they just were not aggressive enough in their rate declines. So now the Financial Times is spouting the idea from the ruling elite that we need to get rid of cash so that people can’t take their money out of banks in case the Fed needs to start charging us interest for leaving for leaving our money in the banks!

The definition of insanity is when you continue to do the same thing and expect different results. Insanity is ruling our nation now more than ever. In his article, Stockman provided only some of the fundamental reasons why stocks will have to decline. The parasites can eat away at the middle class carcass only so long. When the middle class dies, our nation will be a vast wasteland and the rich will eventually find themselves living as miserably as the rich in places like Zimbabwe.

About Jay Taylor

Jay Taylor is editor of J Taylor's Gold, Energy & Tech Stocks newsletter. His interest in the role gold has played in U.S. monetary history led him to research gold and into analyzing and investing in junior gold shares. Currently he also hosts his own one-hour weekly radio show Turning Hard Times Into Good Times,” which features high profile guests who discuss leading economic issues of our day. The show also discusses investment opportunities primarily in the precious metals mining sector. He has been a guest on CNBC, Fox, Bloomberg and BNN and many mining conferences.