Saturday, February 9, 2013

More economic warning signs

Last Monday I warned that an economic tsunami is heading our way.  Several recent articles confirm points I made there, and offer new warning signs.

  • Paul Krugman, in true Keynesian tradition, wants us to keep kicking the economic can down the road, rather than deal with it now.  Hasn't it yet occurred to him (and to others of his ilk) that we got into this mess precisely because that's what we've been doing for decades?  And how, pray tell, will continuing to do it prevent our past economic sins from catching up with us?  I'm afraid it's too late for his recipe to do anything but prolong our agony.  Whether we like it or not, our time is just about up.  Nevertheless, in making his (threadbare) case for ongoing economic stimulus, he's forced to acknowledge the problems we currently face.
  • The currency wars about which I wrote earlier are getting worse and worse - and developing faster than ever.  Zero Hedge links to over a dozen articles and indicators showing just how messy things are getting.  Think they won't affect us here in the USA?  Dream on . . .
  • Jamil Baz warns that we should brace for what he calls a stock market 'accident'.  He points out that "Because leverage stands at unsustainably high levels in advanced economies, it should fall substantially over the long term, affecting profits negatively.  It can be assumed conservatively that the total-debt-to-GDP ratio needs to fall by 100 per cent before the debt position becomes sustainable in advanced economies. This would bring the US back to 1995, when the profit-to-GDP ratio was 45 per cent lower."  What such deleveraging will do to our economy is obvious - it'll force a very severe contraction, probably exceeding the effects of the Great Depression.

Perhaps most disturbing of all - and very much in line with what I said earlier - Brandon Smith points out that the US economy is now 'dangerously detached from reality'.

An “Event Horizon” in physics is a moment or singularity in spacetime at which a gravitational pull becomes so great that there is no way to escape it.  It is a point of no return.  I believe America’s economy has reached its own Event Horizon.  Our system is now entirely fiat driven, with very little or no true economy left.  Without constant injections from the Fed, and perpetually low interest rates, the country would implode tomorrow.  This is not recovery.  Actually, I’m not sure what to call it.

Today, independent economic analysts cannot look to the numbers to determine future trends.  Most are fake, and the rest are ugly, and I’m not sure much else can be said in their regard.  Instead, we must now look to events, rather than statistics, because our country has been maneuvered into a position of utmost frailty.  Like an avalanche shelf waiting for that perfectly timed disturbance to trigger its roaring collapse.  All that is needed is a macro-crisis, and it is no great feat for such a thing to be created in our tension filled global environment.

War in Syria and Iran leading to a tripling of energy prices.  Sanctions and strife with North Korea leading to Chinese economic retribution.  Conflict between China and Japan, again leading to Chinese economic warfare and perhaps real warfare.  An opportune “cyber attack” which could be used as an excuse for a market crash and even an internet shutdown.  A “political impasse” between Reps and Dems which leads to a default of U.S. credit.  Any one of these catastrophes could easily occur (with a little nudge from some well placed people) and feed a wider global tragedy.  The important thing to remember is that while this event will be blamed for the breakdown, it was international banks, the Federal Reserve, and elements of our own government that made the domino effect possible.  They put the pieces in place.  The act that knocks them over is secondary.

I have spent the past seven years writing about “potential” threats to our overall system, but these dangers were always just beyond our sight.  Just around the corner.  Today, it is as if the journey is over, and all those threats have materialized right before my eyes as real, and imminent.  I am watching that which I warned of come to fruition, and this is certainly not a pleasant thing.

There's more at the link.  Go read the whole thing.  It's worth it.

Folks, the storm is bearing down upon us.  Make what preparations you can in the time still available.



Matt said...

Hugo Chavez just devalued his country's currency, that could start a domino effect in the world.

Mikael said...


perlhaqr said...

Well, the technical name for a stroke is "cerebrovascular accident", so...