CRASH2 – A GLOBAL SUMMARY: #1 The United States.

Why fiscally, financially and economically, America is an accident waiting to happen.

The American ‘recovery’ that seems always to be round the corner just disappeared around another corner as 2015 Q1 draws to and end. Estimates for GDP growth have been halved (from 0.6% to 0.3%) and investment in new business premises cut by a third…from -13.3% to -19.6%. Or put another way, growth is stalling again, and 50% more ‘not expanding’ has occurred than initially thought.

So yet again, we see a ‘result’ – the soaring value of the $US – that bears no relationship at all to a very sick US economy. And still jobless numbers come in to suggest that the unemployment rate is down again at 5.5%. That doesn’t compute either….especially with the country still edging down towards deflation. The Fed’s view now is, on balance, that unemployment will stop falling “pretty soon”. My simpler view is that the figures disguise the real situation.

Janet Yellen is bit by bit dampening expectations of significant rate rises, but she’s kicking at an open door: the market bets on rate futures show that investors don’t believe the Fed can pull it off either. But the optimistic “sometime between June and September” timing remains in place. Carefully chosen euphemisms abound: “the central bank will have a tougher time nudging longer-term rates up. That would complicate efforts to return the economy to a normal footing.”

A huge proportion of the ageing, privately investing sector in the States has now been staring down the barrel of Zirp for six years. With uncertain or zero returns on commodities, bonds and gold – and near nought per cent deposit rates – the more lunatic banking firms and funds are already including dodgy “investments” in packaged portfolios: these include African currencies (always a favourite), third world stock markets, and speculative south American mining gambles. Already, regulators are calling for enhanced monitoring of Totally Madcap Syndrome in financial firms operating outside of the traditional safety net available to deposit-taking banks.

But it is inevitable that – when all income forms have been manipulated away for the Silvers – their investment managers will take on more risk in their frantic search for some level of worthwhile return.

“We are wandering into uncharted territory that’s subject to uncertainty and mistakes,” said Erik Weisman, a Boston-based money manager at MFS Investment Management, which oversees $430 billion globally.

Uncle Ben the former central banker, however, seems relaxed. Or sedated, you can never tell with Bernanke. He reassured everyone before last weekend that new regulations may act to make the next crisis much more containable than the last. The rest of us are left wondering exactly what these new regulations are, and why a stronger verb than “may” isn’t available.

Behind the words are the real meanings: without QE, the US economy splutters, and South American economies remain likely to tank. With rate rises looking less of a cert, risk is on the increase. The investment numbers and growth data show that the current US bourse levels are completely without foundation. Strong Dollar or not, the deficit is still going up. Fiscally, financially and economically, America is an accident waiting to happen.

Last night at The Slog: The Nowcast and other nonsense

19 thoughts on “CRASH2 – A GLOBAL SUMMARY: #1 The United States.

  1. The dollar is rising in anticipation that the Euro will collapse, it hasn’t turned into flight yet but when it does the US$ will rise to very high levels and will wipe out emerging markets and you will start to see sovereign defaults. You can also see the move into safety within the Euro zone with the DAX reaching new highs. These investors think that if they have German Equities when the Euro collapses they will end up with DM. We have to crash and burn to discover the truth. Like in 2008 we discovered that AAA really equal junk bond grade.

    European banks are hiding some huge loses and we will not find out until it’s too late. The bond market is ripe for an explosion.


  2. When the USA blows do we feel a slight breeze or will we be in a tornado well before America blows?Yes America has problem which no one in government wishes to face,but we in the UK,Europe and Asia are in deep trouble,well below the water line-or is this just fantasy?


  3. The Bond market has been ‘ripe’ for an explosion for close on 5yrs now? The bubble will only burst when there is too much pressure inside that which seeks to containing it. What they have learnt is, how to quickly ease the pressure to avoid the bubble bursting. All a rigged game.


  4. It seems Bernanke accepts that there will be a next crisis since a debt based financial system, on which the interest is calculated as a percentage, can only be sustained by infinite growth until. like other bubbles, it will inevitably pop and, as we are powerless to prevent this happening, all our efforts are limited to contain the damage.


  5. Imagine a calm sea where US treasuries were worth buying! Investors would be lapping them up rather than chasing fast profits by pressuring the Eurozone periphery.

    The US is printing money so that it can avoid the problems that you are aware of – and in doing so, denies the financial markets a safe place to put their money. (That doing this would actually demonstrate the US as something of a basket case today is part of the problem!) Avoiding problems of the kind that the US has avoided means the repercussions are now rather more daunting.

    It is Germany in particular (for one reason, on account of their strict banking laws) that will feel the pressure grow. Being the paymaster for the debts across the Eurozone will steadily drain its finances into its own central bank and the ECB.

    Thus are the problems in the US externalized.

    When the US does implode – as is now the only possibility; Japan and China have hoovered up the better parts of US manufacturing, leaving the US with only hot air and banking to keep up the illusion of it being an AAA rated economy. The result of this implosion will not be very nice. All those derivatives stacked up on Wall St? Sure they have counterparties – try finding two billion of ’em in a hurry!


  6. It wouldn’t have been so bad if the US had used those debts to invest in worthwhile investments – as did the Germans with their Stadtsanierung. The small amount invested (through debt) was used to improve the housing stock. It did cost money, but improvements of this kind feeds money back into the economy – so improving them directly.

    What one might call “trickle up” rather than “trickle down”.


  7. Pingback: John Ward – Crash2 – A Global Summary : #1 The United States – 25 March 2015 | Lucas 2012 Infos

  8. Remember that the toxic assets peddled by US bankers and spin-marketers were genuinely rubbish. Good money backed against housing that was in a terrible state. It was fraud from the start. The US Banks said “Oh, did we tell you they were AAA rated? Oh, diddums! Do you think a AAA rated security from an American bank would be secured? What world are you living in? When we make a profit, we grab it. When we make a loss, we make sure you take the hit. Have you never heard of snake-oil salesmen? It’s what the US does best.”


  9. hmm…interesting reading……
    I’ve made special notes, with questions to put to one of my old chumps and senior adviser, Rt. Hon. Gemma-lambasting in preparation for when I meet heragain in Frankfurt next friday at 12.00 CET. She usually has all the answers, and knows all the best restaurants. Strangely, I never get an account from her. I think that she likes my charming company too much, and , well, I know she likes my tenderness when the sun goes down.


  10. If the previous functiuon for fiat money creation was f(x) then the new one with future guidance is f(x) + QE to obtain growth.

    The big issue for nations is the rest of the world is as the dollar is the global reserve currency are they going to be happy as the FED has to continue in some form its liquidity creation.


  11. Pingback: John Ward – Crash2 – A Global Summary #2: The Eurozone….It’s Still Running, But Nobody Knows How To Stitch The Head Back On – 25 March 2015 | Lucas 2012 Infos

  12. I agree. The US economy is heading over a precipice. It’s only still afloat because the dollar is the world’s reserve currency and enough Americans have chosen to believe the fake figures.


  13. The best real time gauge of the US economy. the labor and household part of it anyway, is the Federal Tax withholding’s which are reported weekly by the Treasury. For those who don’t know the income tax is Americas dominant tax and it gets taken out of paychecks and goes directly to the Treasury. Later at tax filing time any over or under withholding’s are settled up. Anyway the withholdings last week were 5.1% above the same week last year. They were 8.7% higher year over year in the last week of February. Tax receipts were in an uptrend in the 5% YOY range all of last year.

    It should go without saying but I will say it anyway, the rising tax receipts have been reducing the deficit big time and has slowed the issuance of Treasury paper which has allowed the money to flow elsewhere.

    This is not the picture of a moribund economy. I am not saying it’s a great one or even a good one. What I am saying is the US economy is better off than most of the rest of the worlds.


  14. Pingback: Accidents Waiting to Happen | Doomstead Diner

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