During his podcast earlier this week, Peter Schiff said “the party is over” in the stock market. As if on cue, the Dow Jones is off to the worst start in a quarter since the 2008 financial crisis.
The Dow plunged 494.4 points on Wednesday, a 1.86% decline. Combined with Tuesday’s 343.7 point drop, the Dow is down more than 3% in two days. The 800-plus point slide is the worst start to a quarter since the last three months of 2008. In the fourth quarter of that year, the Dow fell 19.4%.
The Federal Reserve isn’t the only central bank cutting interest rates. In fact, the world is awash in easy money.
The Fed met market expectations during the September FOMC meeting and lowered interest rates another 25 basis points. It was the second cut of the year and pushed the interest rate down to the range of 1.75 – 2%. Meanwhile, the European Central Bank took a decidedly dovish turn over the summer. It has even hinted at another round of “shock and awe” stimulus.
And it’s not just the big central banks slashing rates.
The percentage of US dollars held as currency reserves globally dropped to the lowest level in nearly six years in the second quarter of 2019 according to the latest IMF data. Meanwhile, Chinese yuan made up the biggest percentage of reserves ever.
The dollar’s shrinking share of global reserves comes as countries like Russia and China move toward de-dollarization in an effort to undermine the ability of the US to weaponize the dollar as a foreign policy tool. The global gold rush on the part of central banks is part of this movement.
The Fed did exactly what markets expected during the September FOMC meeting and lowered interest rates another 25 basis points. It was the second cut of the year and pushed the interest rate down to the range of 1.75 – 2%.
And yet we’re told that this is the economy is “great.”
What gives? Economist Robert Murphy said things might not be so great. In fact, it appears the central bank has basically put the economy on life support.
The federal government continues to pile up debt at a staggering rate. In August alone, the US government added $450 billion to the national debt. But Uncle Sam isn’t the only one who doesn’t have enough money to pay his bills. Forty state governments are also drowning in red ink.
Total state government debt now stands at $1.49 trillion with 40 states lacking sufficient funds to pay their bills according to Truth in Accounting’s (TIA) Financial State of the States report.
The fiscal year budget deficit surged passed $1 trillion last month. Spending deficits necessarily mean more government borrowing and we’re seeing that in the numbers as well. Uncle Sam’s outstanding public debt grew by $450 billion in August alone.
The national debt stood at $22.02 trillion on Aug. 1 and surged to $22.47 trillion as of Aug. 27.
With debt up to his eyeball, the US consumer seems to be losing confidence in the US economy.
Last month, Spencer Schiff wrote an article warning about declining consumer confidence, writing, “any shift in consumer psychology/behavior could knock a critical support out from under our economy.”
The Federal Reserve upped the ante in its efforts to hold short-term interest rates down this week, injecting longer-term cash into the financial system.
In a move “Bond King” Jeffrey Gundlach said could be a prelude to the next round of quantitative easing, the New York Fed conducted a repurchase operation involving about $53 billion in debt instruments on Tuesday. The move to designed to unplug the financial system’s “plumbing” with an injection of cash was the first such move since the financial crisis a decade ago.
The purchases involved about $40.8 billion of Treasurys, $11.7 billion in mortgage-backed securities and $600 million in agency debt, according to a CNBC report. The move was prompted by the recent surge in interest rates that drove the overnight repo rate Monday to as high as 8.5%.
The New York Fed was expected to repeat the operation on Wednesday.
Americans continue to drive the economy along spending money they don’t have. Consumer debt increased yet again in July, setting another record, according to the latest data released by the Federal Reserve.
Total consumer debt surged $23.4 billion in July, driven by a huge jump in credit card balances. The big rise in consumer indebtedness took analysts by surprise. Bloomberg said the increase “exceeded all estimates” in a survey of economists. Overall, consumer debt increased by an annual rate of 6.8% after a 4% increase the previous month.