Last week I published two articles dealing with our economic decline, which appears to be growing more precipitous by the day.
Yesterday came the news that the revised figures for US Gross Domestic Product during the first quarter of 2014 fell by a massive 2.9% (after being initially announced as much better than that). Make no mistake - this is an economic disaster. The pundits are already trying to claim that it's the result of bad winter weather, and that things will be better next quarter - but any improvement will probably be the result of deliberate data massaging.
I can't predict when the next crash will come. There are all sorts of factors - not least among them being increasingly desperate politicians - that can and will influence events in the short term. However, in the absence of massive inflation to eat away the present value of our indebtedness so that it can be paid off with increasingly worthless dollars, it's now a mathematical certainty that we're facing a crash sooner rather than later. The cycle of debt and credit has gone about as far as it can go. It's downhill all the way from here.
In particular, note Charles Hugh Smith's take on 'The Coming Global Generational Adjustment'. Bold, underlined text is my emphasis.
The Grand Narrative of the U.S. economy is a global petro-dollar empire that has substituted financialization for authentic, sustainable economic expansion.
. . .
Large cohorts generate their own self-referential feedback loops. A large cohort of home buyers drives up real estate as demand exceeds supply, and those who get in early are handsomely rewarded. Those seeking similar returns provide the fuel for further advances. This is the basic story of housing from 1974 to 2006 and the stock market from 1981-2014, as the Baby Boom cohort bought houses and saved for retirement via stock and bond mutual funds.
As the Boomer cohort sells its homes, bonds and stocks, supply will exceed demand and prices will decline, especially if household capital and access to credit are also declining. This selling cycle will also be self-reinforcing.
Central banks have masked this generational selling by becoming buyers of last resort. The Fed has purchased trillions of dollars of Treasury bonds and home mortgages, to push interest rates to zero and prop up a generationally unsustainable housing bubble. But central bank buying of assets to prop up valuations also generates unanticipated blowback: To quote songwriter Jackson Browne: Don't think it won't happen just because it hasn't happened yet.
Mainstream financial pundits were crowing that household assets recently topped $80 trillion in the U.S. Inflate bubbles in real estate, bonds and stocks, and it's not surprising that nominal net worth goes through the roof.
As a back-of-the-envelope calculation, I reckon $40 trillion or half of this sum is phantom, meaning that it will vanish into thin air when these enormous asset bubbles deflate.
These bubbles are all based on one-off conditions that cannot be repeated: the global boom fueled by a now-maturing China, the central banks pushing interest rates to zero and "solving" a credit crisis of phantom collateral by issuing an unprecedented flood of new credit and buying trillions of dollars of assets at bubble valuations, and a surge of new fossil fuels from Africa and North America.
The reality is that promises made two generations ago were made in circumstances that were not as sustainable as those making the promises believed. Extending linear projections in a non-linear world inevitably generates wrong conclusions. Promises made in one set of rosy circumstances are no longer valid in an entirely different and much less rosy set of circumstances. The citizenry will have to adjust to these systemic realities, and demanding we wuz promised is guaranteed to lead directly to failure.
All sorts of promises, explicit and implicit, were issued to win votes. All the promises are now empty, and we might as deal with this reality head-on--if we can muster up the almost-lost ability to deal with reality rather than rely on fantasy/wishful thinking.
There's more at the link. Highly recommended reading.
If you are depending on the value 'locked into' your home, or investments, or other assets to fund your retirement (or future lifestyle), you're in trouble. I've said before that if I had property, I'd sell it now for the best price I could get, not holding out for top dollar, because I expect the housing market to collapse again in the near future - probably worse than it did in 2007-08. I've seen nothing to make me change that prognostication. Furthermore, if you expect Social Security to fund your retirement and Medicare to look after your health costs, you're living in cloud cuckoo land. There simply isn't enough money available for that to happen. Everything you contributed over the past few decades to those programs has been wasted on other things by a spendthrift government. You've got very little hope of getting much of it back. See Charles Hugh Smith's take on this subject if you're not convinced - it's worth reading.
Folks, I think this is the calm before the storm. Make sure you've got a hole to crawl into when it hits.