The parlous state of the US and world economies

 

I'd like to start by making clear that I'm not blaming President Trump for the current state of the economy.  He inherited it from the Biden administration, which left us - and him - with an economy that's basically broken in almost every important aspect.  Inflation, debt, production . . . every one of those areas is very seriously damaged and very unhealthy.  The President's "tariff wars" are an attempt to return to a level playing field, giving us the opportunity to realign and "reset" our economy . . . but they may be too late to have the desired effect, at least in full.  As we've said in these pages many times before, when things are this bad, they take on a life, a momentum, of their own.  A slide down the slippery slope can get out of control all too easily.

Quoth The Raven, a source we've also referenced in these pages before, is not very positive about the future.  Here's an excerpt from his recent article, "It Really Feels Like We're Out Of Time".

The question becomes: what kind of economic foundation does the country have to fall back on? Or put differently — if people want out of the US dollar, what will serve as the bottom for investors selling dollar-denominated assets?

First, people need to realize this is a decades-long trade now beginning to unwind, as Larry McDonald explained perfectly on a podcast a day or two ago. This kind of dollar-denominated unwind hasn’t happened often, precisely because of the US’s reserve currency status. Economic commentators have noted that this kind of behavior is usually seen in emerging markets — so why is it happening here? Could it be the beginning of a prolonged global shift away from the dollar and the U.S.?

And, if so, we have to start looking inward. I’ve been arguing for years that the US is on an unsustainable fiscal trajectory — $37 trillion in debt, and debt-to-GDP over 120%. That used to be a fringe concern. But now, just a year or two after the Biden administration redlined the spending machine with zero care for the nation’s fiscal trajectory, it’s something the rest of the world is starting to focus on. DOGE is making progress with government cuts with the March deficit tumbling, but will it be enough?

And the more people dig into the U.S. economic data, the worse things may look. Economists I follow have long argued that the US has exported dollars and lived a higher-than-earned quality of life thanks to the privilege of printing the world’s reserve currency. To me, when I see people using “buy now, pay later” services for fast food, I get the message loud and clear: we’ve passed peak decadence — and we’re on the downhill side of the bell curve. Said another way, we’re ****ing broke.

While housing may not tank the global economy this time, I do think it’s going to fall significantly. A realtor friend recently forwarded a note from their CEO saying the market is turning into a “buyer’s market.” This is code for “shit is going to hit the fan soon”.

Even Zillow is now predicting a housing bear market. Zillow now expects home values to fall by 1.9% in 2025, reversing its earlier prediction of a slight gain. Despite the market’s unpredictability, mortgage rates are projected to settle around 6.5% by year-end, assuming no major disruptions. The forecast also anticipates a rise in existing home sales, driven by more listings and motivated sellers. As inventory increases and borrowing remains costly, buyers are gaining leverage, and sellers are slashing prices at record levels to stay competitive.

Credit card debt and delinquencies are climbing toward Great Recession highs. Private credit in many industries hasn’t been marked down properly and is being questioned. Regional banks, touted on CNBC as high-yield dividend plays, are tied up in all sorts of illiquid, backward positions. And the auto market? Look into the subprime lenders and tell me this thing isn’t about to blow.

Wherever you look, the US economy looks shaky — not euphoric. And that’s the danger: once we’re on shaky ground, sentiment shifts. Investors move to cash and de-leverage at the first sign of trouble. Every full-blown panic in the last hundred years started with a spark. I can’t help but think that trying to recalibrate global trade — especially while running the largest trade deficits in our history — could be that spark.

It feels like we’ve run out of runway ... Just like one plus one will always equal two, these economic truths will bear out. And while I’ve been wrong on timing, I no longer feel these outcomes are far off in the future.

There's more at the link.

QTR also recommends watching this video from Peter Schiff, and endorses what he has to say.  Mr. Schiff is, of course, a "gold bug" - that's his business - but he also addresses a great deal of what we see around us in national and world economies.

00:00 Introduction and Market Overview
01:00 Interview with Peter Schiff
04:41 Gold Market Analysis and Predictions
12:59 Impact of Tariffs and Stagflation Concerns
17:42 Fed's Dilemma: Rate Hikes and Market Reactions
18:19 Gold as an Economic Indicator
19:07 Impending Financial Crisis and Global Impact
20:06 US Sovereign Debt and Global Confidence
20:46 Global Economic Liberation from US Dependency
21:32 Long-term Shift to Gold
22:38 Historical Perspective on Gold and the Dollar
25:06 Repatriation of Gold Reserves
26:02 Investment Opportunities Beyond Gold
29:43 Bitcoin vs. Gold
31:10 Future Economic Outlook: Stagflation and Beyond
33:07 Conclusion

Nobody knows what to expect in the short to medium term, because so much depends on the actions and reactions of many players in the market.  Nevertheless, the potential for serious, severe disruption appears greater than at any time in the recent past.  I can only suggest to my readers that they take that into account when making financial decisions, and keep as much in reserve as possible against a "rainy day".  After all, when Warren Buffett, one of the savviest and most respected investors in American financial history, is holding on to a "cash buffer" of well north of $300 billion, he certainly has a reason for it - and reading the thoughts above, I daresay we can all figure out what that reason might be.

Peter