It’s time to get real. This grand economy everybody keeps telling us about is actually a house of cards built out of cheap money and debt. And it won’t take much to blow it over.
A recent article by Reuters reveals just how precarious the so-called economic recovery really is. According to the report, the bottom 60% of American income-earners accounted for most of the rise in spending over the past two years even as their finances worsened. The data shows that the rise in median expenditures has outpaced before-tax income for the lower 40% of earners in the five years to mid-2017. In other words, poor and middle-class Americans are driving the US economy by spending more than they earn.
Last month, we reported on troubling signs in the corporate bond market. According to Moody’s, the majority of US companies have a “speculative” credit rating. They are considered high risk. As a result, their debt is “high yield” or “junk. When you combine leveraged loans and junk bonds, the total level of “junk” debt in the US marketplace comes in at around 37%.
In a recent article, investment guru and economic analyst Jim Rickards said we may soon face a devastating wave of junk bond defaults.
The next financial collapse, already on our radar screen, will quite possibly come from junk bonds.”
Total household debt climbed to a record $13 trillion in 2017. One factor driving overall American indebtedness higher is the ever-increasing burden of student loans.
A recent article in the New York Times focused on three charts that illustrate the ever-increasing toll of the student loan bubble – and it’s not just impacting students. Parents are increasingly feeling the squeeze.
At the current trajectory, the cost of paying the annual interest on the US debt will equal the annual cost of Social Security within 30 years, according to a recent report released by the Congressional Budget Office.
By 2048, as interest rates rise from their currently low levels and as debt accumulates, the federal government’s net interest costs are projected to more than double as a percentage of GDP and to reach record levels. Those costs would equal spending for Social Security, currently the largest federal program, by 2048.”
We’ve written a lot about government debt and warning signs in the Treasuries market. The US government needs to sell over a trillion dollars in bonds a year over the next few years to finance its skyrocketing deficit. Who exactly will buy all of these government bonds remains unclear and the impact on interest rates could send shockwaves through the entire US economy.
Equally troubling, but less often discussed, are the risks piling up in the corporate bond market.
Jerome Powell is like a kid playing with matches and he’s dangerously close to starting a fire he isn’t going to be able to control.
The Federal Reserve nudged interest rates up again last week. It was the seventh hike since the Fed launched the current tightening cycle in December 2015. The Fed Funds Rate (FFR) currently sits at around 2%. Although this remains historically low, it may already be near the cycle peak. That means we may be close to a major economic downturn, as indicated by analysis by GoldMoney’s Alasdair MacLeod recently published at the Mises Wire.
The US debt continues to skyrocket and it’s costing Uncle Sam more and more money just to make the interest payments.
The US public debt hit a record high of $21.145 trillion on the last day of May. Meanwhile, the cost of servicing all that debt also spiked, increasing by $26 billion through the first seven months of the fiscal year (October-April) compared with the same period last year.
A lot of seemingly positive economic data came out last week, but in his most recent podcast, Peter Schiff said it is just feeding into a delusional economic narrative that ignores the most fundamental storyline – debt. Everybody is talking about a new era of prosperity, but Peter said it’s a phony prosperity and it isn’t going to last.
Up until 1964, silver was literally money in the United States. Dimes, quarters and half-dollars were made from 90% silver. Looking at the value of these silver coins today reveals just how much the US government and Federal Reserve have devalued American money.
Gold tends to get more attention than silver, but the white metal still shines and some analysts believe it is poised to out-perform its big brother. Based on the historical silver/gold ratio, silver is currently significantly undervalued compared to gold.
So, could silver outshine gold in the wake of the next economic crisis? Analyst Dan Kurz thinks it might, and he builds the case in his latest in-dept analysis at DK Analytics.