The Middle Class Sure Isn’t What It Used to Be

This report was originally published by Daisy Luther at The Organic Prepper

If you’ve noticed that it takes a lot more money to live the middle-class American Dream than it used to, you aren’t alone. Buying a house, saving for retirement, and putting your kids through college while living comfortably is a whole lot harder than it once was. Being part of the middle class sure isn’t what it used to be.

Despite the rosy outlook on employment numbers, things have become incredibly difficult for many families. They’re deeply in debt, living paycheck to paycheck, and without an emergency fund. Let’s take a look at what the media is saying about the middle class.

First of all, what IS “middle class”?

There are many different definitions of middle class, and a lot of it depends on where you live. “Easy,” you may be thinking. “Just live somewhere with a lower cost of living.” Unfortunately, it isn’t that easy, because when you move to an area with a lower cost of living, you’re likely to get paid less for your occupation.

Once upon a time, the middle class was the largest group of Americans. Now, according to the Pew Research Group, it is closely matched by people in the low-income class and the high-income class. The image below shows the stats for 2014.

Photo Credit: Pew Research Group

According to Quentin Fottrell, the personal finance editor for MarketWatch, “middle class” is tough to define:

There is no universal definition of the middle class. The Pew Research Center often uses the middle wealth quintile, the middle 20% of Americans’ income and wealth. Other economists have said it’s defined as making 50% above or below the median annual income. Most Americans regard a college education as a critical component to becoming middle class. Some 71% of people with a college degree consider themselves middle class versus just 58% of people with a high school diploma or less, according to a 2012 survey by Gallup. And yet college graduates in 2017 are shouldering $1.3 trillion in student debt.

Previous studies suggest those who identify as middle class as higher than 50%, but also indicates that the middle class is shrinking. Those who identify as middle class has fallen to 59% in 2010 from 62% in 1991, according to a separate report by the Pew Research Center, a nonprofit think tank in Washington, D.C.  (source)

Other sources cite variables like savings, net worth, debt, and spending to determine whether a family is “middle class.”

These two calculators will help you compare your income to others in your area:

• The Pew Research Group Income Calculator


• The CNN Money Middle-Class Calculator

For the purposes of this article, we’re going to go with Pew’s definition of the middle wealth quintile.

The middle class is shrinking

The middle class is getting smaller. According to an article on Quartz:

Pew defines middle earners as anyone who earns between two-thirds and twice the median household income in a given year. In 2014, this included a three-person household earning between $42,000 to $126,000 per year. In 1971, 61% of households were middle earners by this standard. By 2015, only 50% were. (source)

The Pew Group said:

After more than four decades of serving as the nation’s economic majority, the American middle class is now matched in number by those in the economic tiers above and below it. In early 2015, 120.8 million adults were in middle-income households, compared with 121.3 million in lower- and upper-income households combined, a demographic shift that could signal a tipping point, according to a new Pew Research Center analysis of government data. (source)

Both of the above articles state that more people are getting pushed into the higher income class than are sliding into the lower income class, which sounds great, initially. But when you look at it more closely, those in the middle class are far less wealthy than they used to be:

…middle-income Americans have fallen further behind financially in the new century. In 2014, the median income of these households was 4% less than in 2000. Moreover, because of the housing market crisis and the Great Recession of 2007-09, their median wealth (assets minus debts) fell by 28% from 2001 to 2013…

…The gaps in income and wealth between middle- and upper-income households widened substantially in the past three to four decades. As noted, one result is that the share of U.S. aggregate household income held by upper-income households climbed sharply, from 29% in 1970 to 49% in 2014. More recently, upper-income families, which had three times as much wealth as middle-income families in 1983, more than doubled the wealth gap; by 2013, they had seven times as much wealth as middle-income families. (source)

It’s getting harder and harder to thrive on a middle-class income

The middle class isn’t what it used to be. Once the “American Dream,”middle-class families are struggling for several reasons. Despite their incomes, they owe more and have saved less than ever before. If you can dig through the politically charged introduction and get to the statistics in this NY Mag article, you’ll find the following:

The percentage of families with more debt than savings is higher now than at any point since 1962, while the median American family’s net worth is lower than it’s been in nearly a quarter-century…

…So, this is what a “good” economy now looks like in the United States: shrinking household wealth; soaring middle-class debt; wage growth that can’t keep pace with the rising costs of housing, healthcare, and higher education; job growth concentrated in part-time positions; widespread retirement insecurity; and more wealth-less households than America has seen for 56 years. (source)

Having more debt than savings is called “negative wealth.” One-fifth of American households fall into this category. Of course, $1 trillion in credit-card debt and $1.4 trillion in student loan debt has to take a toll eventually, right?

Then there’s the ridiculous cost of healthcare in our country. (I recently had my own bad experience with healthcare costs.) Those who are on the upper end of the middle class are hit with premiums well into the thousands of dollars per month for far less coverage than they had previously.

“Health-care spending is growing at an unsustainable rate. Insurance and medical costs are draining the incomes of the middle class—tens of millions of people who earn too much to qualify for government-subsidized coverage, but not so much that they don’t feel the bite of medical bills…Health premiums and out-of-pocket costs wiped out most of the real income gains for a median family from 1999 to 2011, according to an analysis published on the blog of the journal Health Affairs in 2013.” (source)

Finally, Americans don’t have much in the way of an emergency fund. A recent study found that a whopping 47% of us would be unable to cover an unexpected bill of only $400. The middle class – and often even the upper middle class – are living paycheck to paycheck, and not always through poor handling of money.

Where the great jobs are, folks want to make $300,000-400,000 to live a middle-class lifestyle.

Lots of young people go deeply into debt for an education that will (hopefully) land them a job in Silicon Valley, New York City, or some other metropolitan area. After all, that’s where the jobs that start you off at $80,000 a year are, right?

Unfortunately, these are also the places in which the cost of living is completely out of reach for those with middle-class incomes, making it so that to be “middle class,” people feel as though they need to earn anywhere from $300,000-400,000 per year. This article pinpoints the actual amount of money you’d need to make in 25 different metropolitan areas to live a middle-class lifestyle.

While there’s a big difference between these amounts and the amounts that statistics show are needed, the stats aren’t showing everything. Sam Dogen wrote an article about why you need to earn more:

Let me tell you a sad story: In order to comfortably raise a family in an expensive coastal city like San Francisco or New York, you’ve got to make at least $300,000 a year. You can certainly raise a family earning less as many do, but it won’t be easy if your goal is to save for retirement, save for your child’s education, own your own home instead of rent and actually retire by a reasonable age. (source)

Here’s the budget he put together. If you read the article and look at his review of the expenses, they aren’t as out of whack as they might sound to those of us who live outside of the major metro areas.

While I can’t actually imagine making that kind of money every year, neither can I imagine facing those kinds of expenses. When your base costs are that high, even hardcore frugality can’t save you.

What’s a middle-class family to do?

It’s essential to watch the trends and be ready if things come tumbling down. Here are the things on which you should focus:

• Building an emergency fund – you don’t want to be one of those people who can’t handle a $400 emergency, right?


• Reducing your fixed expenses – this will help you through the rough times


• Building a stockpile – this will cut your costs to the bare minimum during bad times


• Paying off debt – this will help you live within your means

It’s essential to pay attention to what is going on in the economy. Jose, our writer from Venezuela, wrote of numerous warning signs that should have told him that a financial crisis was drawing near. If you want to keep up to date with what is happening, subscribe to my newsletter here.

Finally, maybe it’s time to take a look at the lifestyle for which you yearn. Maybe you need to focus on simplicity. Maybe you don’t need to keep up with the Joneses. Maybe, after some adjustment, you’ll find that you are happier without the stress of competing for that middle-class lifestyle.

Figure out your priorities. Would you rather have a big house or travel the world? Would you prefer to put your kids through school debt-free or have a new car every other year? Most of us can’t do both.

The only way to be different from those families who are struggling to pay their $24,650 in monthly expenses is to live differently than they do. Being part of the middle class isn’t what it used to be. It doesn’t take a financial expert to see that the US economy, despite the optimism from the White House, is going to continue to hit most of us hard. Now is the time to make the changes before they’re forced on you.

Bill Gates warns of another financial crash as bad as the 2008 Great Recession

Microsoft founder Bill Gates has warned the US will face another financial collapse on the same scale as the 2008 recession

Bill Gates has warned the United States is headed for another financial meltdown on the scale of the 2008 recession.

The billionaire Microsoft founder, 62, gave the stark prediction during an ‘Ask Me Anything’ Q&A on Reddit last week.

When asked if he thought the US would be hit by another major financial crisis he replied: “Yes. It is hard to say when but this is a certainty.”

The 2008 financial crisis was triggered in the US over problems in the country’s subprime property market and then grew into a devastating global recession.

Via The Sun

Featured Image: Masaru Kamikura/Flickr

The post Bill Gates warns of another financial crash as bad as the 2008 Great Recession appeared first on Intellihub.

China Declares Trade War Victory: Gloats At US “Suffering” After “Crushing Counterattack”

This report was originally published by Tyler Durden at Zero Hedge

Barely a day after China dropped the hammer on US stock markets by unveiling retaliatory tariffs on $50 billion in US imports that – unlike US measures that mostly targeted obscure industrial products – actually struck at key industries like soybean farmers, automobiles and airplanes, the Communist Party crowed about what it already sees as its “victory” in the nascent trade war in an editorial published by the Global Times, China’s state-owned, English-language tabloid and extremely hawkish party mouthpiece.

In the editorial, China swatted away US claims – repeated most recently by Larry Kudlow during this morning’s interview with Fox Business’s Maria Bartiromo – that China has somehow victimized the US via its trade agreements while gloating about the leadership’s decision to strike at a “massive weak spot” for the US economy.

While the tit-for-tat tariffs could hurt both economies, the damage to China’s economy caused by the US’s Section 301 tariffs will “pale in comparison to the damage done to the US economy via China’s retaliations.”

And just to illustrate that point, literally, a Chinese cartoonist showed that another way Beijing will hurt the US is by a “stockmarket squeeze.”

Furthermore, in standing up to America’s “bullying tactics”, China warns that the pleasure the US had derived from its sanctions in the past “will now cause them suffering as their financial and political gains diminish to zero.”

This is Beijing’s clear show of retaliation toward the proposed tariff list on Chinese products from the US. Beijing showed an impressive response time for its retaliation efforts, taking less than 12 hours to announce its trade countermeasures. Chinese officials agree that its country’s countermeasures match those imposed by the US and that they showcase China’s determination to win this trade war.

It is worth noting that China strikes the US side by targeting its most valuable imports, such as soybeans, automobiles and chemical products. These aspects were targeted because they represent key pillars in the US imports and can create a massive weak spot for the US economy if their profitability is at risk.

Although China will sustain financial losses thanks to the US’ Section 301 investigation tariffs,they will pale in comparison to the damage done to the US economy via China’s retaliations.

China’s counter tariffs are a spectacular way of standing up to America’s bullying tactics, not only for itself, but for other countries threatened by the US’s new trade policies.

And with China digging in for a long, protracted trade conflict, one from which it will never surrender, if it is indeed Kudlow’s – and the Administration’s – hope that China will concede to US trade demands, then there will be much disappointment all around.

Underscoring China’s preparation for a “scorched earth”, and tit-for-tat escalating war, the Chinese government has told its citizens it is prepared to go toe-to-toe in its fight with Washington. In fact, more and more Chinese citizens think that an “epic trade war” is inevitable, which would knock some common sense into the US government so that it will change its way of dealing with China.

Hawkish politicians in Washington have obviously overestimated the capability and endurance of the US economy in a trade war, since they believe they can do whatever they like. China has shown a great deal of restraint for now, but if the US persists in this trade war, China is ready to fight to the end.

Washington will eventually see what they have lost, thanks to their actions, and it will only serve to embarrass the US. This trade war will serve as a good example to the US that it cannot use intimidating trade tariffs as a form of diplomacy.

Before China announced its recent retaliatory tariffs on US products, Washington enjoyed crushing and threatening other countries on trade sanctions. Now, as China deploys its counterattack, the pleasure that the US achieved from those tariffs will now cause them suffering as their financial and political gains diminish to zero.

If a trade war does happen, China has contingency plans to help its economy avoid a slump.

And, in a dramatic break with precedent, China warned it could even take steps to weaken the US dollar, something that, if history is any guide, should be a concern to the Treasury market as it would suggest that China may be thinking of liquidating its Treasurys .

Many believe that the Trump administration’s $50 billion tariff on Chinese products is meant to pressure China to submit to the US demands. If that is the case, the US will undoubtedly lose. This is because the Chinese government has rallied its citizens and is prepared to go toe-to-toe in its fight with Washington. In fact, more and more Chinese citizens think that an “epic trade war’ is inevitable, and could knock some common sense into the US government, so that it will change its way of dealing with China.

If the trade war happens, China will show that it has just as many reserve plans as the US, if not more. Chinese experts suggest that China could even take actions to weaken the strength of its currency. Since China is the world’s largest trading economy and the largest buyer of commodities like oil products, China could use its influence to push its own currency, RMB, in global markets to reduce the dominance of the US dollar. That would be a heavy blow to Washington.

If this trade war comes to pass, it will be an evenly matched total war between China and the US economies, and not some small scuffle. It would be delusional for the US to think it will be victorious at the end of this trade war. China comes up with the conclusion in confidence, and will not shy away from letting Washington know in this situation.

And while taking overt steps to weaken a currency would violate a G-20 communique agreeing to avoid currency wars through competitive devaluations, we doubt that would stop Beijing should Trump push it too far.

Meanwhile, a greater – and more likely – risk than a Treasury dump by Beijing is another devaluation: after all the Yuan is already back to where it was in the days just before the Yuan’s 2016 deval. Fears about an impending yuan devaluation akin to the drop that unleashed turbulence across global markets back in August 2015 have historically had a negative impact. Traders will remember 2016, when markets got off to one of their worst early performances in decades as continued daily, if less acute, Yuan devaluations hurt stocks.

While this warning appears to have been largely overlooked by markets, it’s definitely something to keep in mind.

Financial Strategist: Trade War Could Usher In Dire Financial Crisis MUCH SOONER

According to a Societe Generale strategist Albert Edwards, a trade war would bring about a financial crisis a lot sooner than anyone expected. Edwards has warned in the past that currency devaluation could spark an economic recession worse than 2008, and now he’s sounding the alarm about Donald Trump’s trade policies.

Edwards now points to the Trump administration’s trade policy as yet another catalyst that could hasten the next crisis. Recent tariffs the US imposed on steel and aluminum imports threaten a full-scale trade war, he claimed.  While tariffs and taxes always get passed onto the American consumer in the form of higher costs for goods, it is unfortunate that the tariff talk is ongoing.

The US could also turn on other trading partners as Trump continues to advance his “America First” agenda, reported the Financial Tribune. “Boiling away in the background is Germany’s, and now also the eurozone’s, outsized trade surpluses” with the US, Edwards said. He added, “Expect Trump to soon turn his protectionist fire on both Germany and the EU. That will be messy.”But there is some good news many in the mainstream media continue to ignore:

While much of what Trump is announcing today has already been leaked, here are the details of the import tariffs Donald Trump formally adopted on steel and aluminium imports which allow US allies to negotiate and apply for exemptions, a sign of the growing concern that the president was alienating America’s closest international partners, and that 2 of the 4 largest foreign suppliers of steel will be exempt. –Zerohedge

“A trade war and competitive currency devaluation was always going to be the end game in our Ice Age thesis as a global deflationary bust destroyed wealth, profits, and jobs,” Edwards said in a note on Thursday. “But it looks as if it might be arriving sooner than we had anticipated.”

China exports just 1.1% of its steel to the United States, therefore, the tariffs are considered unlikely to do any serious damage to Chinese businesses. The more immediate fuel for a trade war, Edwards said, is retaliatory action against China by the US for alleged intellectual property theft. The Nikkei Asian Review reported Wednesday that the US was set to impose tariffs on $60 billion worth of Chinese products as punishment. Yet remember, a tariff isn’t going to punish the Chinese; it will punish the American consumer as prices go up to cover the cost of the new tax.

A White House official says there will be no significant downstream price effects, and thus no significant downstream job effects, according to Zerohedge. But that expectation counters multiple statements and prognostications from several companies and industry groups that use steel and aluminum, as well as lawmakers representing them, who have warned the tariffs will harm their businesses or industries.

The Fed Has Its Finger On The Button Of A Nuclear Debt Bomb

This article was originally published by Brandon Smith at Alt-Market.com

I hear a lot of talk lately in the alternative media (and even the mainstream media) of the potential for World War III. The general assumption when one hears that term is that “nuclear conflict” is imminent. But a world war does not necessarily have to be fought with nukes. For example, we are perhaps already witnessing the first shots fired in a global economic war as the Trump administration gets ready to implement far-reaching trade tariffs. This action might provide cover (or justification) for destructive attacks on the U.S. fiscal system by China, Japan, Russia, the EU, OPEC nations, etc. The ultimate attack being a dumping of their U.S. debt holdings and the death of the dollar’s world reserve status.

Of course, an economic “world war” between nations would in itself be a smokescreen for and an even more insidious internal war being waged against the global economy by central banks.

There is a longstanding misconception that central banks always manipulate economic conditions to make them appear “healthy” and that the main concern of central bankers is to “defend the golden goose.” This is false. According to the evidence at hand as well as open admissions by central bankers, these private institutions have throughout history also deliberately created financial crises and collapses.

The question I always get from people new to the field of alternative economics is — “Why would central bankers crash a system they benefit from?” This question is drawn from a flawed understanding of the situation.

First, there is the assumption that economic systems are static rather than fluid. In reality, vast sums of wealth can be transferred into and out of any notion on a whim and at the speed of light. The collapse of one economy or multiple economies does not necessarily include the destruction of banker wealth. Even if wealth was their top goal (which it is not), global banks and central banks do not see any particular economy as a “cash cow” or a “golden goose.” From their behavior and tactics in the past, it is more likely that they see national economies as mere storage containers.

Banks can pour their wealth, which they create from thin air, into one or more of these many available containers. They can circulate that wealth within the container for a time and then pour all their wealth out at a moment’s notice. One container is no more valuable to them than any other container, and sometimes sacrificing a container can be beneficial.

The perceived destruction of a national economy can often be exploited as a means to a greater end. Usually this “greater end” means exploiting the crisis to justify centralization of power or the transfer of power from the public into the hands of an elitist class.

I have outlined the history of such transfers on numerous occasions, including the liquidity crisis of 1914 (just after the establishment of the Federal Reserve) leading into World War I and the subsequent hoarding of financial power by banks as well as the creation of the League of Nations.

Or how about the artificial bubble in multiple asset classes created by the Federal Reserve in the 1920s through low interest rates? A bubble which was then burst through the aggressive raising of interest rates at the onset of the Great Depression. This crash coincided with other fabricated economic disasters in Europe and Asia, leading to social despair, the rise of communism and fascism and World War II. This crisis benefited the banking establishment greatly as thousands of smaller independent banks were crushed and a handful of major banks devoured all assets. And, let’s not forget that WWII led to the creation of globalist edifices like the United Nations, the IMF, World Bank, the beginning roots of the European Union, etc.

Every new economic calamity seems to consolidate property and bureaucratic control into the hands of the same class of technocrats. And each calamity is linked to a very important economic factor — massive debt dependency.

So, let’s fast forward to today’s era of burgeoning crisis and how central banks like the Fed are feeding the fire of disaster. I would like to focus most of all on our debt situation to illustrate how the Fed can and will trigger an explosion, a controlled demolition of our financial system. What is our debt situation in the U.S. today?

The Consumer Debt Bomb

Total American household debt skyrocketed beyond $13 trillion at the end of 2017, well beyond historic highs. This is the fifth consecutive year of household debt increases, including credit cards, auto loans, mortgages, student loans, etc. This trend suggests that the “economic recovery” so far has not actually been based on any legitimate wealth creation or resurgence, but an even greater dependence on the same debt that helped cause the crash of 2008. The Fed’s money printing did NOT trickle down to consumers as was originally promised.

While these sectors of consumer debt did not necessarily enjoy the same near-zero rates as banks and corporations did after the crash and the bailout bonanza, their rates are now rising along with the Fed’s rate increases. This is affecting numerous asset classes including housing markets and auto loans.

The cold hard reality is that as the Fed raises interest rates all other areas of the economy come under pressure. The average citizen, with his/her record debt levels, is now subject to the machinations of the central bank through the arbitrary shifting of a single data point like “inflation”.

The Corporate Debt Bomb

This debt bomb is possibly the most subversive and the least understood. I have been warning about how corporate debt and rising interest rates could cause a stock market crash for quite some time, but only recently have mainstream analysts caught up to this realization.

Today, institutions like S&P Global Ratings are showing that at least 37% of 13,000 corporations examined have a debt to earnings ratio of five times, making them “highly leveraged.” This debt level is also even higher than it was in 2007 just before the collapse of Lehman and the beginning of the credit crisis.

The concern goes beyond debt holdings, though. Consider the fact that corporations have been exploiting low interest rates to borrow incredible sums of cash for the sole purpose of purchasing their OWN stocks. Stock buybacks are basically a legal form of market manipulation in which companies buy stocks back from the public and greatly reduce the number of existing stocks circulating in the market, thereby artificially increasing the value of each stock overall and keeping the Dow in the green.

Stock buybacks have been the primary fuel for the longest bull market in history, a bull market so fake that even the mainstream media has been questioning its validity lately. Stock buybacks are completely dependent on cheap debt, and cheap debt is disappearing as the Fed continues raising interest rates. The natural reaction by stock markets will be a crash.

Some people may question whether or not the Fed is actually doing this “deliberately,” or if they are simply ignorant. I would refer them to the recently released Fed minutes from 2012, in which Jerome Powell, now the chairman of the Federal Reserve, talked repeatedly of the negative reaction that would occur within markets once the Fed began cutting its balance sheet holdings and raising interest rates after addicting equities markets to the drug of easy profits.

Jerome Powell himself is recorded as knowing exactly what will happen as interest rates rise, and he is continuing to raise them anyway, while also cutting the Fed balance sheet far faster than was originally telegraphed to the public. How can anyone in their right mind argue that the Fed is not bringing the U.S. economy down deliberately?

The National Debt Bomb

This debt bomb has a much longer fuse that the other two, but in the wake of a potential global trade war (World War III), the question arises as to how long it will take before major U.S. treasury bond holders like China dump their holdings in retaliation.

With Trump refusing to take a stand against the continued raising of the national debt ceiling, and the addition of his $1.5 Trillion infrastructure spending plan, there is little doubt that our national debt will continue to rise. Therefore, foreign investment is essential.

It is important to remember that the Federal Reserve used to be the largest purchaser of U.S. debt or the “buyer of last resort.” Now, the Fed has ended quantitative easing and is cutting its balance sheet swiftly. So, the only buyers left are foreign central banks and investors. My prediction is that the Fed will not step in if a trade war escalates to a treasury bond dump. Or, that they will not step in until it is far too late to stall the resulting crisis.

In Barack Obama’s eight years as president the national debt was essentially doubled. This is a unsustainable rate of debt issuance, even for a nation with the world reserve currency. If we lose foreign investment and the world reserve currency then that debt accumulation will come back to haunt us.

It is important to remember that whatever happens within our economy and the global economy, central banks like the Fed have fully facilitated the bubbles produced as well as the inversions that result. The Fed knows exactly what it is doing. And all other factors, from the Trump trade wars to foreign dumping of U.S. treasuries and the dollar, will be a distraction from the banking elites truly culpable.

Economic warfare can in some cases be just as devastating as nuclear warfare.  It can wipe out entire populations, give rise to tyrants and enslave the minds of individuals through the weaponization of resource scarcity.  Such wars, though less psychologically immediate as our cinematic fears of atomic doom, should be taken very seriously, and the culprits behind them have to be dealt with harshly.

***

If you would like to support the publishing of articles like the one you have just read, visit our donations page here. We greatly appreciate your patronage.

You can contact Brandon Smith at: brandon@alt-market.com

After 8 long years of ultra-loose monetary policy from the Federal Reserve, it’s no secret that inflation is primed to soar. If your IRA or 401(k) is exposed to this threat, it’s critical to act now! That’s why thousands of Americans are moving their retirement into a Gold IRA. Learn how you can too with a free info kit on gold from Birch Gold Group. It reveals the little-known IRS Tax Law to move your IRA or 401(k) into gold. Click here to get your free Info Kit on Gold.

How Will Gold Prices Behave During The Next Economic Crisis?

This report was originally published by Brandon Smith at Alt-Market.com

It is generally well known in economic circles and in the general public that precious metals, including gold, tend to be the go-to investment during times of fiscal uncertainty. There is a good reason for this. Precious metals have foundation qualities that provide trade stability; these include inherent rarity (rather than artificially engineered rarity such as that associated with cryptocurrencies), tangibility (you can hold gold in your hand, and it is relatively difficult to destroy accidentally), and precious metals are easy to trade. Unless you are attempting to make transactions overseas, or in denominations of billions of dollars, precious metals are the most versatile, tangible trading platform in existence.

There are some limitations to metals, but the most commonly parroted criticisms of gold are in most cases incorrect. For example, consider the argument that the limited quantities of gold and silver stifle liquidity and create a trade environment where almost no one has currency to trade because so few people can get their hands on precious metals. This is a naive notion built upon a logical fallacy.

Gold backed paper currencies existed for centuries in tandem with the metals trade. Liquidity was rarely an issue, and when such events did occur, they were short lived. In fact, the last great liquidity crisis occurred in 1914, the same year the Federal Reserve began operations and the same year that WWI started. This crisis was, as always, practically fabricated by central banks around the globe. Benjamin Strong, the head of the New York Fed in 1914 and an agent of the JP Morgan syndicate, had interfered with the normal operations of gold flows into the U.S. and thus sabotaged the natural functions of the gold standard.

Central banks in Germany, France and England also applied influence to disrupt currency and gold flows, causing a global panic. This engineered disruption seemed to take place through conscious co-operation between central banks. Does any of this sound familiar?

For those who are interested, the history of the 1914 liquidity crisis is outlined in detail in the book ‘Lords Of Finance: The Bankers Who Broke The World’, by Liaquat Ahamed.

When gold and currency are tied together, gold prices tend to remain rather stable, as they are often set by the national treasury. In 1914, the price of gold was $20 per ounce and had maintained that approximate value for decades. To give some perspective on value, in 1914 the average house cost $3,500, or 175 ounces of gold.

But what happens when gold and national currencies become disjointed from each other? Take a look at the hyperinflationary crisis in Weimar Germany. The price of gold per ounce went from 170 marks to 87 trillion marks within five years! Over that same five year period, gold value in Germany had increased at almost TWICE the rate of inflation, indicating that gold not only kept up with the devaluing mark, but made anyone holding gold rather rich in the process.

This is a very important fact. The common argument against gold is that the metal is not really a wealth creating investment, but merely protects your buying power. As the Weimar crisis shows, this is not always the case. In some circumstances, often during times of economic disaster, precious metals can in fact generate more wealth than what you put into them.

Then there is the issue of government interference in gold markets and trade during crisis. As the Great Depression in the U.S. began to take hold, investors turned aggressively to gold and silver as a means to offset the crashing values of most other assets. In a highly controversial move in 1933, President Roosevelt outlawed the private ownership of gold bullion and set the price of gold at $35 per ounce.

Keynesian economists like Ben Bernanke often try to assert that the gold standard was the reason why interest rates had to be hiked as the depression was escalating, and that this was the cause of a greater crash. They are only half correct. Increased rates did indeed cause a larger and more prolonged crisis, but this had little to do with the gold standard.

Clearly, in 2008 the U.S. and most of the world was NOT on a gold standard, yet we suffered a very similar collapse in credit and equities as happened in the Great Depression. Also, there is no gold standard forcing the Federal Reserve to raise interest rates today, yet they are doing so despite escalating negative indicators in the real economy.

Whether or not this will cause an even more violent economic catastrophe remains to be seen, but Jerome Powell, the new Fed Chairman himself, warned in 2012 that this is exactly what could happen. Jerome Powell has stated in no uncertain terms that rate hikes will continue under his watch in 2018.

Central banks were the core institutions to blame for the Great Depression, not the gold standard, considering the fact that central banks did NOT follow a true classical gold standard exchange internationally, and instead tried to establish a global basket exchange system of multiple currencies and gold in what they called the “gold exchange standard”.

Add to this the unnecessary interest rate hikes as deflation was pummeling assets, and you have a perfect recipe for calamity. Even Ben Bernanke, in a 2002 speech to honor Milton Friedman, openly admitted that the Fed was the root cause of the prolonged economic carnage during the Great Depression:

“In short, according to Friedman and Schwartz, because of institutional changes and misguided doctrines, the banking panics of the Great Contraction were much more severe and widespread than would have normally occurred during a downturn.

Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.”

The use of gold prohibition had mixed results. Obviously, it did not stop the freight train of the Great Depression. In fact it probably exacerbated difficulties in trade and savings. Black markets took over and precious metals were still highly sought after.

As far as the crash of 2008 is concerned (a crash which is still ongoing today), we all know what happened with gold markets. In the lead up to the crash, from 2004 to 2008, gold doubled in value. Then, after the initial crash from 2008 to 2012, it doubled again.

Despite predictions by mainstream economic naysayers, gold has not collapsed back down to pre-crash levels. In fact, gold has remained one of the most effective investment performers for years.

The question is, what happens next? Setting aside gold confiscation as a factor (a factor which I believe would be impossible to enforce in today’s markets), we can see that massive fiat stimulus as a means to artificially support a deflationary fiscal system, as well as central bank intervention in general, leads to collapse and a flight to hard assets like gold. Even with rising interest rates and the potential for a spike in the dollar index, if the rest of the economy is in steep decline, investors and others will still turn towards precious metals.

As I have mentioned in previous articles, the initial reaction of gold prices to faster interest rate hikes may be negative. That said, I do not believe gold will drop as dramatically as mainstream economists expect. Once higher interest rates kill the stock market bubble as well as the renewed housing and credit bubble, gold will skyrocket as one of the only asset classes with tangible real world value.

 

If you would like to support the publishing of articles like the one you have just read, visit our donations page here. We greatly appreciate your patronage.

You can contact Brandon Smith at: brandon@alt-market.com

After 8 long years of ultra-loose monetary policy from the Federal Reserve, it’s no secret that inflation is primed to soar. If your IRA or 401(k) is exposed to this threat, it’s critical to act now! That’s why thousands of Americans are moving their retirement into a Gold IRA. Learn how you can too with a free info kit on gold from Birch Gold Group. It reveals the little-known IRS Tax Law to move your IRA or 401(k) into gold. Click here to get your free Info Kit on Gold.

Make Your Choice: Change By Pain Or Insight

This report was originally published by Chris Martenson at PeakProsperity.com

Most experienced investors know the four most dangerous words are: This time is different.

It never is.

And yet one of my key predictions here at Peak Prosperity is that The next twenty years will be completely unlike the last twenty years.

So am I saying that things really will be different this time?

Yes, I am. But to understand why, you have to look closely at the unprecedented moment in history in which we live, as well as how the Three E’s – the Economy, Energy and Environment – all tie together now in a way they never have before.

For those who prefer their conclusions right up front, the simplest summary I can provide is that everything we think we know about “how things work” is just plain wrong.

This explains why, among many other grotesque distortions, the stock and bond markets are spectacularly overpriced and overvalued right now.

This danger is important to be aware of because when things correct, as they inevitably must, the next crash will be incredibly damaging. It could be as profound as that which dethroned Spain as a world power, permanently.

Peak Prosperity user Gyurash put this risk in context within his comment to our recent podcast on Economics for Independent Thinkers:

The mention of Paul Volker was interesting. I remember listening to a lecture given by Mr. Volker played on public radio in the mid 80s. He talked about the Spanish empire in the 16th century and the easy money train they had coming from South American gold and silver. He said that although it seemed to create great wealth it also made for a false economy in Spain. In addition to creating price bubbles, the Spanish did not use it to build much of anything other than big villas, built by itinerant foreign labor by the way, so when the gold and silver flow slowed when the biggest mines were effectively depleted, their economy crashed so hard that it never recovered, even up to today.

(Source)

Delusional Thinking

What’s worse than wishful thinking? Delusional thinking.

The sort of ideas that harm rather than help those who hold them.

Of the many current policy delusions I could rail about, perhaps the greatest of them all is the quite-impossible belief that we can have infinite growth on a finite planet.

I know, I know, refuting this is so brain-dead easy to debunk that it seems pedestrian, if not childishly so, to raise it here again. It’s quite an impossible proposition.

Even the most cursory of reviews of mining data (just one of many possible examples), show that many critical ores and minerals are vastly more difficult and expensive to extract and bring to market than they were just a few decades ago. And the trendlines keep getting worse.

But let’s go through this once again, because it’s such an important point. For those of you already on my side of the boat, please bear with me. Perhaps something new will emerge for you on this next go around.

The Harsh Math

Exponential expansion requires not just some new minerals coming to market, but exponentially more.

It works out like this. Suppose that 100 units of copper were produced in year 1, and output (as demanded by economic growth) was expanding at a 3% rate. How long would it take for production to double? The answer is that after 24 years we’d find that 203 units were being produced. So a 3% growth rate means that it takes only 24 years to fully double production.

However, the more interesting fact is that over that same 24-year stretch, if we add up each year’s production into a cumulative total we discover that 3,546 units of copper had been produced. How much copper would you guess was produced over the prior 24-year stretch (the one that got us to 100 units in the first place)?

The answer is just 1775 units. In other words, half the amount produced during the next doubling. Going back further and adding up all of the doublings of copper production throughout all of history  we’d discover that each new doubling produced (and consumed) as much as the sum total of all the prior doubling periods combined.

You can prove this to yourself by looking at a doubling sequence such as 0.25, 0.5, 1, 2, 4, 8, 16, 32 etc. Note that 4 is larger than (0.25 + 0.5 + 1 + 2) and that 8 is larger than (0.25 + 0.5 + 1 + 2 + 4) and that 16 is larger than (0.25 + 0.5 + 1 + 2 + 4 + 8) and so on — into infinity.

Again, each new doubling involves an increase that is larger than the combined values of all the prior doublings in history.

For the visually-minded, here’s that same idea expressed in an image:

How Many More Doublings Can We Possibly Have From Here?

Only the most delusional would argue that we can dependably double our extraction of key natural resources forever.

Every two decades (or so), will we always be able to use twice as much farmland, twice as much fish in the sea, twice as much oil in the ground, as has been used before throughout all of human history?

Of course not. Planet Earth is a finite system.

This is why I claim that everything we think we know about “how things work” is wrong. Our entire economic and financial systems, their associated monetary models and their current financial asset prices, are predicated on the principle of continuous growth. And not just any sort of growth: Exponential growth. Predictable doubling — forever.

Look, it’s ridiculously easy to prove that there won’t always be twice as much copper (or nearly any other key natural resource) as has been extracted throughout all of prior human history. Things run out. They deplete. They become more dilute as the high grades are exploited first.

At some point, doubling becomes impossible. That’s when you’re past the point where half has been extracted and half still remains in the ground.  After that, there are exactly zero doubling periods remaining! That’s just elementary math.

Why care?

Because once the doubling periods are over, every single economic model and financial asset that is predicated on continuous expansion breaks. Our systems stop  steadily growing; and instead start increasingly shrinking.

This not a hard concept to grasp, intellectually, for most people with an open mind. But in practice, because it challenges our comfortable understanding of the world, because it collides with an entire Disney World of incompatible social belief systems, it’s pretty much impossible for the many people to even begin to wrestle with. Forget about a mainstream economist or central banker, whose salary requires them to adhere to the status quo.

The warning here is that we our deluding ourselves as a society. We are herding ourselves, lemming-like, straight towards the cliff ledge.

Think Critically!

Our mission here at PeakProsperity.com is to Create a World Worth Inheriting. While we help people make informed decisions to imbue their lives with greater abundance and satisfaction today, it’s our dedication to the long-term picture that shapes everything we do.

Very few voices are standing about waving their arms in the air like we are, warning of the approaching cliff. We’re aware that the point of no return might still be several decades out into the future, but we also realize that it could already be behind us. It’s nearly impossible to know right now given the complex system that is our planet — but given the existential risks involved, our opinion is that everyone should be mobilizing in response to this arriving (arrived?) crisis.

We often get labeled as narrow-minded “Malthusians”. Or accused of failing to account for human ingenuity. (Neither is accurate, we think.)

But in reality, we’re simply data driven. The facts are what they are. Logic is what it is.

And we get it. It’s both a factual and a logical nightmare for the infinite growth crowd that the earth is finite.

But as Einstein famously quipped:

And as you wrap your brain around the limits to growth, remember that you’re subject to the same comprehensive programming that envelops us all. The messaging that constantly reinforces the idea that endless growth is what we need, and what we can expect.

This programming is subtle, reassuring and ubiquitous; which makes it hard to resist. Here’s a prime example:

(Source)

To an economist like Bernanke, there are only virtuous expansions. Of course, the sort of expansion he refers to is exponential growth. Which is absolutely destined to fail in the long run (and now, maybe, the short).

And when that happens, the fallout will be spectacular and highly destructive to the hopes and dreams of literally billions of people.

Make Your Choice: Change By Pain Or Insight

What’s unclear to me is if there can be any meaningful recovery from this next crash, whenever it happens and however long it takes.

To return to the opening piece of this article, while I know that this time is different are dangerous words for investors to believe, the impending collision between delusional infinite growth thinking and resource limits and other realities will appear to the average observer like a gigantic change. But, in fact, it simply will mean that humans are subject to the same limits as any other life form on earth.

In other words, it really won’t be different this time.

In boy-meets-girl story form, the plot line of the natural process for all forms of life is:

1. organism finds tasty energy source


2. organism expands exponentially into that energy source


3. energy source dwindles even as organism continues into population overshoot, and then


4. happy times turn into tough times, and organism population plummets

Given that literally everything we hold dear and take for granted, such as well-stocked supermarkets, 24/7 electricity, and an appreciating retirement portfolio are all themselves dependent on an economic model that requires perpetual exponential expansion, several questions emerge.

How can I protect myself, my family and those I care about? How can I secure a prosperous future? What do I need to do to develop the right mental models and belief system to deal effectively with the coming challenges?

You can either address these questions head-on now, while the world still works the way we’re accustomed to. Or later, under crisis conditions.

We’ve learned that there are two ways that people change their beliefs and then their actions: by pain or by insight.

Most people go the pain route. And in the process, they waste a lot of valuable time that could have been spent constructively. It’s only after the heart attack, the divorce, the backing over the family dog while drunk—moments of extreme pain—that most people will begin to actively face the idea that they need to make different decisions in life.

But it doesn’t have to be that way. Part of the beauty of being human is that we can learn from observation, reflection and experience, and can adapt. Critical thinkers have this ability to change by insight. They use new information to put new behaviors into practice until those practices become new habits. And with better habits, we achieve better destinies.

So which route will you choose? Pain or insight?

The story told by the Three Es is loaded with the potential for plenty of painful moments over the next few decades. Sadly, a lot of people will not take precautionary steps far enough in advance to matter. They’re just not focusing on the risks right now. As a result, much of the world will be forced to change its behavior via the pain route.

Use this awareness as a sense of urgency to prepare now. To secure your future prosperity, as well as to help those regretting that they didn’t follow your lead.

In Part 2: Steps For Changing By Insight, we lay out our prescriptive guidance what what to do now, in a world saddled with record debts, and a debt-based system of money that itself is utterly and completely dependent on infinite expansion, where something’s got to give.

If you believe in eternal infinite growth, then sure, stay invested in stocks and bonds and go ahead and buy the dips.

But if you don’t, take steps today to change your life by insight, secure your future prosperity, and serve as a model for others.

Click here to read Part 2 of this report (free executive summary, enrollment required for full access)

New Fed Chairman Will Trigger A Historic Stock Market Crash In 2018

This report was originally published by Brandon Smith at Alt-Market.com

Ever since the credit and equities crash of 2008, Americans have been bombarded relentlessly with the narrative that our economy is “in recovery”. For some people, simply hearing this ad nauseam is enough to stave off any concerns they may have for the economy. For some of us, however, it’s just not enough. We need concrete data that actually supports the notion, and for years, we have seen none.

In fact, we have heard from officials at the Federal Reserve that the exact opposite is true. They have admitted that the so-called recovery has been fiat driven, and that there is a danger that when the Fed finally stops artificially propping up the economy with constant stimulus and near zero interest rates, the whole farce might come tumbling down.

For example, Richard Fisher, former head of the Dallas Federal Reserve, admitted a few years ago that the U.S. central bank has made its business the manipulation of the stock market to the upside:

What the Fed did — and I was part of that group — is we front-loaded a tremendous market rally, starting in 2009.

It’s sort of what I call the “reverse Whimpy factor” — give me two hamburgers today for one tomorrow.

I’m not surprised that almost every index you can look at … was down significantly.

Fisher went on to hint at the impending danger (though his predicted drop is overly conservative in my view), saying, “I was warning my colleagues, don’t go wobbly if we have a 10-20% correction at some point…. Everybody you talk to … has been warning that these markets are heavily priced.”

One might claim that this is simply one Fed member’s point of view. But it was recently revealed that in 2012, Jerome Powell made the same point in a Fed meeting, the minutes of which have only just now been released (emphasis ours).

I have concerns about more purchases. As others have pointed out, the dealer community is now assuming close to a $4 trillion balance sheet and purchases through the first quarter of 2014. I admit that is a much stronger reaction than I anticipated, and I am uncomfortable with it for a couple of reasons.

First, the question, why stop at $4 trillion? The market in most cases will cheer us for doing more. It will never be enough for the market. Our models will always tell us that we are helping the economy, and I will probably always feel that those benefits are overestimated. And we will be able to tell ourselves that market function is not impaired and that inflation expectations are under control. What is to stop us, other than much faster economic growth, which it is probably not in our power to produce?

When it is time for us to sell, or even to stop buying, the response could be quite strong; there is every reason to expect a strong response. So there are a couple of ways to look at it. It is about $1.2 trillion in sales; you take 60 months, you get about $20 billion a month. That is a very doable thing, it sounds like, in a market where the norm by the middle of next year is $80 billion a month. Another way to look at it, though, is that it’s not so much the sale, the duration; it’s also unloading our short volatility position.

Keep in mind, that Jerome Powell is now the CHAIRMAN of the Federal Reserve. In 2012, he was well aware of the exact effects that the removal of stimulus (which includes low interest rates) would have on the false recovery in stock markets. He continues…

My third concern — and others have touched on it as well — is the problems of exiting from a near $4 trillion balance sheet. We’ve got a set of principles from June 2011 and have done some work since then, but it just seems to me that we seem to be way too confident that exit can be managed smoothly. Markets can be much more dynamic than we appear to think.

When you turn and say to the market, “I’ve got $1.2 trillion of these things,” it’s not just $20 billion a month — it’s the sight of the whole thing coming. And I think there is a pretty good chance that you could have quite a dynamic response in the market.

I think we are actually at a point of encouraging risk-taking, and that should give us pause.

Investors really do understand now that we will be there to prevent serious losses. It is not that it is easy for them to make money but that they have every incentive to take more risk, and they are doing so. Meanwhile, we look like we are blowing a fixed-income duration bubble right across the credit spectrum that will result in big losses when rates come up down the road. You can almost say that that is our strategy.

If Powell was fully conscious in 2012 of what would happen in markets due to the Fed’s balance sheet reductions, the question is, will he be honest about it now? My suspicion is that he will not, given that his very first interaction with the American public after becoming head of the Fed was to regurgitate the same nonsensical talking points that we heard from Janet Yellen for years. The mainstream media is desperately attempting to suggest that Powell may “surprise investors” with a change in rate hike policies and the reduction of balance sheet, but so far the markets are not buying this.

Powell’s first day as Chairman was greeted with the sharpest drop in U.S. equities in years. Yellen’s parting gift to investors in January was an $18 billion reduction in the Fed balance sheet, $6 billion more than the Fed originally claimed would occur. It is clear to me that just as stocks climbed in direct correlation to the Fed balance sheet, so too will they fall in direct correlation to the Fed balance sheet. Only a week after the balance sheet was cut more than expected, stocks fell by nearly 10%.

So, the question now is, will Powell continue this trend of rate hikes and balance sheet reductions, being that he is recorded as knowing what the results will be? I believe that this is exactly what he will do. Why? Because the Fed’s goal is the deliberate controlled demolition not only of U.S. markets but also U.S. debt instruments and the dollar.

If I am wrong, then Powell, knowing the threat, will reverse rate hike policies and stop dumping the balance sheet in an effort to prop up the system. If I am right, then we will see Powell continue these policies over the course of 2018 and allow the system to implode.

How will this influence the price of gold? Well, in the near term we could see a measured decline or a stagnant metals market as we have seen so far this month. That said, when the real equities crisis kicks in, expect metals to skyrocket as investors rush to safety. The psychology of the markets will come into play far more than fundamentals for a time. One must account for willful ignorance and how long it can be maintained before facts take over.

There are a few major factors that come into play in terms of interest rate hikes and the balance sheet, including the fact that corporate debt is now at levels far beyond that held just before the crash of 2008. We are also witnessing the highest consumer debt levels in history, while personal savings have plunged.

Treasury yields are also spiking to 10 year highs, decoupling from stocks and suggesting that balance sheet reductions might be contributing to a flight from equities.

Stock buybacks, fueled by low interest rates, have helped pump up stocks for years. However, most companies are prohibited from buybacks right before they report their earnings. Without buybacks this past week, we have seen what happens – complete market mayhem. If this is what takes place in a month of reduced buybacks, what will happen when interest rates are raised high enough to make borrowing capital from the Fed prohibitive (ie, too expensive)?

What does all this translate into? The reality that there is NO MECHANISM within our economy that is buoyant enough to keep markets afloat when the Fed backs away. Nearly everyone is in massive debt, there is no one left to buy at the level needed except the Fed.

We are only standing at the beginning of this apparent new trend in equities, but it will be interesting to see what the reaction will be within the system as the Fed continues hiking rates and reducing the balance sheet. Will the beginning of every month in 2018 be met with a brand new storm of selling and panic? It’s hard to say. However, the math certainly does not support a bull market through the rest of this year.

In the meantime, it is likely that blind faith in positive returns will spark intermittent buying events in the short term, and unaware investors (and algorithms) will see this as vindication that buying will always be the answer. But, these buying events so far seem to be met with even more severe downturns. It will not take very many Fed meetings to discern whether or not the central bank will continue to back up stocks. To me, it appears that the decision to pull the plug has already been made.

***

If you would like to support the publishing of articles like the one you have just read, visit our donations page here. We greatly appreciate your patronage.

You can contact Brandon Smith at: brandon@alt-market.com

After 8 long years of ultra-loose monetary policy from the Federal Reserve, it’s no secret that inflation is primed to soar. If your IRA or 401(k) is exposed to this threat, it’s critical to act now! That’s why thousands of Americans are moving their retirement into a Gold IRA. Learn how you can too with a free info kit on gold from Birch Gold Group. It reveals the little-known IRS Tax Law to move your IRA or 401(k) into gold. Click here to get your free Info Kit on Gold.

Deutsche: “Nobody Can Understand What’s Going On With The Dollar… The Answer Is Simple”

This report was originally published by Tyler Durden at Zero Hedge

Earlier this week, the bizarre, unexplainable, ongoing plunge in the dollar and US bond prices in the aftermath of the stronger than expected CPI print which also sent equities surging, prompted at least one trader at Citi to explode: “Wake Up Folks, It’s Not Risk Positive”

Then again, maybe it is not all that unexplainable.

As Deutsche’s FX strategist, George Saravelos, writes, he has been getting numerous inquiries as to how can it be that US yields are rising sharply, yet the dollar is so weak at the same time?

He believes the answer is simple: the dollar is not going down despite higher yields but because of them. Higher yields mean lower bond prices and US bonds are lower because investors don’t want to buy them, or as he puts it “this is an entirely different regime to previous years.”

Below we repost his simple explanation, while highlighting that maybe…

… just maybe, the bottom for the dollar is now in?

From Deutsche Bank:

Blame the dollar on yields

We are well into 2018 and our feedback from recently attending the TradeTech FX conference in Miami is that the market is still struggling to understand or embrace dollar weakness. How can it be that US yields are rising sharply, yet the dollar is so weak at the same time? The answer is simple: the dollar is not going down despite higher yields but because of them. Higher yields mean lower bond prices and US bonds are lower because investors don’t want to buy them. This is an entirely different regime to previous years.

Dollar weakness ultimately goes back to two major problems for the greenback this year. First, US asset valuations are extremely stretched. As we argued in our 2018 FX outlook a combined measure of P/E ratios for equities and term premia for bonds is at its highest levels since the 1960s. Simply put, US bond and equity prices cannot continue going up at the same time. This correlation breakdown is structurally bearish for the dollar because it inhibits sustained inflows into US bond and equity markets.

The second dollar problem is that irrespective of asset valuations the US twin deficit (the sum of the current account and fiscal balance) is set to deteriorate dramatically in coming years. Not only does the additional fiscal stimulus recently agreed by Congress push the fair value of bonds even lower via higher issuance and inflation risk premia effects, but the current account that also needs to be financed will widen via import multiplier effects. When an economy is stimulated at full employment the only way to absorb domestic demand is higher imports. Under conservative assumptions the US twin deficit is set to deteriorate by well over 3% of GDP over the next two years.

The mirror image to all of this is that the flow picture into both Europe and Japan has been improving dramatically anyway. We have previously written about the positive flow dynamics in Europe as the flow distortions caused by extremely unconventional ECB policy are starting to adjust. But the Japanese basic balance has also shot up to a 4% surplus in recent years helped by a big improvement in the services balance (Chinese tourists) and a collapse of Japanese inflows into the US: treasuries simply do not provide enough duration compensation any more. To conclude, embrace dollar weakness, it has more to run.

$1.2 Trillion Asset Manager: Forget Volatility, The Real Financial Timebomb Is Public Pensions

This report was originally published by Tyler Durden at Zero Hedge

As we have reported over and over and over (and over, and over), public pensions are in deep, deep trouble.

In addition critical funding shortfalls (U.S. public pensions had just 71.8% of assets required to meet obligations as of June 2016), many of the country’s largest pensions have completely unrealistic target rates-of-return of 7% on average.

(Millman 2017 Public Pension Funding Study)

And while interest rates and therefore the cost of leverage has been at historic lows, and markets at historic highs (until they underwent a brief Vol-fib cardiac arrest last week), the question is what happens when the music stops, liquidity dries up, and economic contraction besets (or catch up to) the markets?

David Hunt, CEO of $1.2 trillion asset manager PGIM, is asking this exact question.

“If you were going to look for what’s the possible real crack in the financial architecture for the next crisis, rather than looking in the rearview mirror, pension funds would be on our list,” Hunt said in a Friday interview with Bloomberg, discussing what municipalities and states will do when local tax revenues decline and unemployment worsens. “So we’re worried about those pension obligations.”

PGIM, owned by New Jersey-based Prudential Financial, advises 147 of the 300 largest pension funds around the world. Hunt joined Prudential in 2011 after leaving McKinsey & Co., where he doubled assets under management, renamed the business PGIM, and bought a Deutsche Bank AG unit to expand in India.

In other words, he knows the business like the back of his hand.

Hunt said that corporate retirement funds typically outperform their public counterparts. To that end, one of the most difficult aspects of managing money for public plans, says Hunt, is the fact that lawmakers are promising unrealistic goals to retirees. As such, he has advised public-pension clients to stop seeking the highest returns, and “start doing what the corporate folks have long been doing, which is to find ways to minimize the deficit and to take risk gradually off the table.”

Of course, that will never happen, and instead pensions will soon be begging Credit Suisse to recreate the XIV just so they can go long.

The PGIM CEO also sees a shift in equities markets as fewer firms pursue IPO funding – instead opting for private equity. as Bloomberg notes, the number of publicly traded U.S. companies shrank from over 8,000 in 1996 to around 4,300 in 2016, according to Ernst & Young.

“More than any other period in our history we’re going to have companies that are owned by private equity rather than the public equity markets,” Hunt said. “The dynamism and growth of the economy is now more and more being captured privately and by institutions rather than actually available for you to own in your 401(k) account or for other public markets.”

One could almost say that as central banks nationalize the markets, leading to idiotic valuations, it is a handful of private capital holders who end up with all the gains. As for everyone else… well, you have all those “fully-funded”, non-timebomby pensions to look forward to.

Is Washington Nuts? Increasing Spending AND Cutting Taxes Will EXPLODE The Size Of The National Debt

This article was originally published by Michael Snyder at The Economic Collapse

Our national debt is rapidly approaching 21 trillion dollars, and yet Congress wants to follow up a large tax cut bill with a massive increase in federal spending. This is absolute madness, and it is going to make our long-term financial problems as a nation far worse. After passing the tax bill, the appropriate thing to do would have been to cut federal spending. Yes, that would have not been a positive thing for the economy in the short-term, but we must start addressing our long-term priorities. If we do not do something about this exploding national debt, it could potentially destroy our republic all by itself.

Earlier today, I was absolutely horrified when I learned of a budget deal in the Senate that would increase federal spending by about 200 billion dollars in each of the next two years…

The Senate’s Republican and Democratic leaders unveiled a sweeping two-year budget agreement on Wednesday that would increase federal spending by hundreds of billions of dollars on domestic and defense programs alike.

That deal would eliminate strict budget caps, set in 2011 to reduce the federal deficit, and would allow Congress to spend about $200 billion more in the current fiscal year and in fiscal year 2019.

Seriously?

Our federal debt is going to hit 21 trillion dollars some time this year, and they want to throw hundreds of billions of dollars more spending on top of what we are already doing?

This alone is why we need true conservatives all over the nation to run for Congress. Our endless greed is literally destroying the bright future that our children and our grandchildren were supposed to have.

I don’t know if I even have the words to describe how foolish our leaders are being. If interest rates on government debt were to return to their long-term averages, the game would already be over. We should be desperately attempting to get our financial house in order, but instead we are spending money as if tomorrow will never come.

But tomorrow always arrives, and a day of reckoning is fast approaching.

Fortunately, there are some members of Congress that seem to understand that we cannot keep spending money that we do not have. The following comes from USA Today…

Rep.  Mark Meadows, R-N.C., who chairs the hard-line House Freedom Caucus, wants to see what comes back from the Senate, said his spokesman Ben Williamson.

“But if the numbers are as high as we’re hearing, Rep. Meadows does not support the budget deal,” Williamson said.

Rep. Mo Brooks, R-Ala., said “this spending bill is a debt junkie’s dream… I’m not only a ‘no.’ I’m a ‘hell no.’”

As a member of Congress, I would always be a resounding “no” vote on these sorts of absurd budget deals.

Whatever happened to all of the strong fiscal conservatives that we sent to Congress during the days of the Tea Party movement? So many of them seem to have been enveloped by the swamp and are now doing whatever party leadership tells them to do.

Sadly, most Americans don’t even seem to understand that we have been adding more than a trillion dollars a year to the national debt since Barack Obama first entered the White House. The following is an extended excerpt from one of my previous articles…

When Barack Obama entered the White House, the U.S. national debt was just over 10.6 trillion dollars, and when he left the White House 8 years later it was sitting just shy of 20 trillion dollars.

So during those 8 years more than 9 trillion dollars was added to the national debt. But for purposes of this example we will round down to an even 9 trillion dollars.

When you divide 9 trillion dollars by 8, you get an average of 1.125 trillion dollars that was added to the national debt per year during the Obama era.

Dividing that figure by 365, you find that an average of $3,082,191,780 was added to the national debt every single day during the Obama administration.

And since there are 24 hours in a day, that means that an average of $128,424,657 was stolen from our children and our grandchildren every single hour of every single day while Barack Obama was president.

Under President Trump, we should be dramatically reducing federal spending and the size of the federal government.

Yes, this would hurt the economy in the short-term, but if we continue down the road we are currently on it is a recipe for national suicide.

As interest rates rise, it won’t be too long before we are paying more than a trillion dollars a year just in interest on the national debt. And when America plunges into a debt nightmare, there won’t be anyone in the entire world big enough to bail us out.

America cannot be great again if we are drowning in debt. What is happening in Washington is utter madness, and it should greatly anger all of us that our irresponsible politicians are systematically destroying the greatest republic that the world has ever seen.

Michael Snyder is a pro-Trump candidate for Congress in Idaho’s First Congressional District, and you can learn how you can get involved in the campaign on his official website. His new book entitled “Living A Life That Really Matters” is available in paperback and for the Kindle on Amazon.com.

Michael T. Snyder is a graduate of the University of Florida law school and he worked as an attorney in the heart of Washington D.C. for a number of years.Today, Michael is best known for his work as the publisher of The Economic Collapse Blog and The American Dream. 

If you want to know what is coming and what you can do to prepare, read his latest book Get Prepared Now!: Why A Great Crisis Is Coming.