From Brandon Smith
Several years ago I predicted that the U.S. would ultimately be confronted with the debilitating economic conundrum of stagflation, something which the nation had not seen since the 1970s. I suggested that stagflation would become a household word again and that the majority of American concerns would revolve around rising prices coupled with stagnant wages and falling production.
In 2018 in my article Stagflationary Crisis: U.S.A.’s Ongoing Collapse, Understanding the Cause, I noted:
Years ago there was a rather idiotic battle between financial analysts over what the end result of the Fed’s massive stimulus measures would be. One side argued that deflation would be the outcome and that no amount of Fed printing would overtake the vast black hole of debt conjured by the derivatives implosion. The other side argued that the Fed would continue to print perpetually, resorting to QE4 or possibly “QE infinity” and negative interest rates as a means to stave off a market crash for decades (like Japan) while at the same time initiating a Weimar-style inflationary bonanza.
Both sides were wrong because they refused to acknowledge the third option – stagflation.
Sleepwalking into stagflation
The process of stagflation is difficult to track because there are multiple paths that it can take, many of them largely dependent on the whims of the central bank and its policy decisions. All we can really do is look back at the limited number of historic examples simply and guess what will happen next. In the 1970s stagflation nearly crushed the country, with inflation rising by 7% to over 14% per year for a decade.
When I hear Zennials complain about being born into the “worst economy ever,” I have to laugh because they really have no clue. The 1970s was far worse in terms of erosion of buying power as well as overall poverty. If you look at film footage and photos of urban areas from Los Angeles to New York to Philadelphia during that time, many parts of these cities looked like bombed-out war zones.
The country was truly on the edge of disaster.
In the early 1980s, under Paul Volcker’s leadership the Federal Reserve jacked interest rates up to over 20%. This stopped the inflation crisis but triggered a deflationary plunge that would sit like a giant boulder on the chest of the American consumer and small business owners for years to come. My own grandfather lost millions in his trucking and freight company during the rate spike; many people lost their businesses and homes.
In other words, as bad as the situation is now, we haven’t seen anything yet. Of course, we are quickly moving towards similar conditions and there is one thing we have today that the 1970s didn’t: A massive (and growing) national debt.
Currently, the U.S. national debt is $33.8 trillion and has a 120% debt-to-GDP ratio. In a single month, October 2023, the federal government added over $600 billion to the debt. At the current pace the total debt will breach $41 trillion in one year.
The speed of this accumulation is frightening. To put this in perspective, the Obama administration and the Federal Reserve added around $9 trillion to the debt in eight years with the corporate bailout spree of the Great Financial Crisis. Compared to the Biden administration, Obama’s spending looks absolutely miserly.
How is this possible?
The swirling debt spiral
As I have noted in the past, the U.S. economy rests on a foundation of intrinsically worthless currency – and so much debt that the slightest rise in interest rates causes huge ripple effects.
The 20% interest rate level of the early 1980s? Yes, it was worrisome, and led to not one but two grueling recessions. After 200 years of existence, the U.S. ended the decade of the 80s with just under $3 trillion in debt.
Today? Well, for comparison purposes, the Biden administration’s 2021 budget added $2.77 trillion to the national debt. In ONE YEAR! For comparison purposes, from 1776-1989, the federal government accumulated about $2.77 trillion in debt.
It’s impossible to overstate this point: The Biden regime saddled the nation with over 200 years’ worth of debt in just one year.
With a debt over $33 trillion, barely-above-historical-average 5.25% interest rates are catastrophic. Because of “compounding interest,” what Einstein called “the most powerful force in the Universe.” He called it one of the greatest “miracles” known to mankind – if you’re a creditor. If you’re a debtor, though? That miracle becomes a disaster…
Today, the U.S. government regularly borrows money just to make interest payments. The Treasury department also writes new IOUs to fund old IOUs that come due. Finally, the government borrows still more to fund all spending which exceeds tax collection (this is “deficit spending,” which increases the national debt – sometimes the two are conflated).
At higher interest-rate levels, borrowing enters a destructive spiral. There’s interest payments on debt, which was itself borrowed to make interest payments on debt. To put it in simple terms, it’s a bit like a broke person taking on a stack of new credit cards to make the interest payments on a stack of old credit cards. It’s financial suicide.
SHOP HOLIDAY DEALS
Eventually the avalanche of debt will stall inflation but it will also wreak havoc across the economy and trigger a deflationary crisis.
We’re seeing the beginning already… The crash across manufacturing and industrial sectors. Frozen wages. Layoffs and bankruptcies piling up in the freight sector.
These are all clear indicators of impending recession. Meanwhile, U.S. home sales have plunged to a 13 year low as prices continue to rise.
These are all red flags of an impending deflation event that is certain to cause massive unemployment, likely within the next year. It would seem the magic of the Covid-era money-printing spree is finally fading away – and we’re seeing the real economy underneath.
The expectation among investors is that the Fed is poised to cut rates or return swiftly to QE. This is not going to happen, at least not anytime soon. The Fed, I believe, wants a crash. After addicting markets to easy money for over a decade, the central bankers know exactly what will happen as they continue to cut off the drug supply.
I suspect we are about to see a major change in the behavior of the economy going into 2024. The stagflation phase is nearly over. The discussion around dinner tables across America will turn to the exploding national debt, and debt in general. The big debate will once again turn to this: Will the Fed keep rates steady, risking deflationary implosion and debt default, or, will they cut rates, return to stimulus to pay the debt, and risk double digit inflation? These are the two choices in front of the U.S. government – and either way, we lose.
That’s why it’s more urgent than ever to own financial assets that aren’t based on debt, that aren’t IOUs but actual, tangible things you can see and touch. There are only a few left in this globally-financialized world – and of them, only physical precious metals are also private, safe haven stores of value. If you don’t own real physical gold and silver soon, your financial future will be tied to the U.S. government’s financial future.
The U.S. economy will fail. Those who don’t ensure their financial independence will sink with the ship. You can take steps now to protect yourself and your family, but the opportunity won’t last forever. Once it’s obvious that the ship is sinking, it’s too late – the lifeboats will already be full.
Don’t go down with the ship.
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Stopped at the second paragraph.
Anyone who believes that BLS’s CPI accurately reflects actual inflation doesn’t warrant further credence.
They knuckle under to the narrative so easily, these sheep people.
If I was inclined to worry about the coming demise of the U.S. economy, and then read this sentence in an article
My inclination to worry is gone. Sure my elders were talking about inflation and economic misery in the 70’s and beyond. But I didn’t let it affect me. I got married in 76 then bought a business in 78 as well as a house in the same year.
The only thing that might be working against me now is age.
We have reached the point where the Fed Reserve is creating dollars out of thin air to pay the interest on the debt create by the dollars the Fed Reserve has been creating out of thin air for decades. We are now past the point of no return. The collapse of the economy due to debt is now inevitable and unavoidable.
Once you realize that the U.S. debt cannot ever be repaid,
you can formulate what to do. We are the brokest nation
in the history of the world. No other comes close.
When it all falls apart, best be well armed.
They are left but with two choices…kill their debt holders, or swindle them in one fashion or another.
Either way there will be blood and tears aplenty.
China has a higher debt to GDP.
http://fingfx.thomsonreuters.com/gfx/rngs/CHINA-DEBT-HOUSEHOLD/010030H712Q/index.html
Subprime Comes Home to Roost for Specialized Auto Dealers, Lenders & Investors
Subprime is re-getting into trouble, after having somewhat gotten out of trouble during the free-money pandemic, when folks used some of the free money to catch up with past-dues.
In the auto industry, subprime is largely confined to older used vehicles. Less than 5% of new vehicle sales are financed with loans or leases to subprime-rated customers (more in a moment). The sweet-spot is 8-to-12-year-old vehicles, only a corner of the used vehicle business. But in that corner, several subprime-specialized dealer-chains – owned by PE firms – have already filed for bankruptcy this year, and we covered a couple of them here. Others are struggling…
Subprime hinges on auto-loan securitizations.
For subprime-specialized dealers, it all hinges on being able to securitize those loans and sell these Asset Backed Securities to investors, and slough off some of the risks. Dealers sell the vehicle, and make a ton of money on the sale, as Car-Mart has shown, and they provide the loan at a very high interest rate, as Car-Mart has also shown. And they gather those loans into big loan pools, and once or twice a year they securitize those loan pools and sell the resulting ABS to investors.
The 60-day delinquency rates of the subprime loans in the ABS that Fitch rates rose to an all-time high in September of 6.1%, having squeaked past the pre-pandemic high in August 2019. In October, it dipped a hair to 6.0%. A dip in October is seasonally typical.
But note that prime-rated loans are in pristine conditions (green line).
As ABS investors have started to take losses and get skittish, a bunch of subprime-auto-loan backed ABS deals got scuttled recently, and dealers got stuck with those loans. Other deals had to be renegotiated before they could be sold.
When these deals cannot be sold, the dealers get stuck with the loans and can run out of money. As mentioned a minute ago, several subprime dealer-chains have filed for bankruptcy this year.
Rates stay the same at least till March.
The Fed starts lowering rates 25 to 50, points at a time, stock markets rocket upward, just in time for election. Then……NO ELECTION !
Because … ( pick a reason ). One way or another, there is not going to be an election, get over it.
Stock markets and the public freak out, rioting ensues, the economy and stock markets tank, BAD.
The Fed shits their pants and starts dropping rates faster than they raised them, back towards zero. Foreign Sovereigns ( mainly China) see blood in the water and start dumping the Dollar and US Treasuries en masse and hyperinflation rages until nobody can afford ANYTHING and then demand destruction causes deflation and prices start to level off but it’s too late….the economy is past event horizon and officially becomes third world shithole status just like most of the world.
Hello Martial Law and compost toilets.
THE END
Did that excite you?
I found myself absolutely titillated….
Bokashi
The financial stranglehold on the global neck is slowly being loosened one finger at a time….
Another Country Adopts Russia’s Mir Payment Card System
Cuba had announced in March Russia’s alternative to Western payment cards would be launching in the Caribbean nation. In Havana, several banks now are hosting ATMs which display the MIR logo, and offer to allow customers to use the cards to withdraw pesos from the Russian bank cards.
The operator of Russia’s Mir payment card system notes it has enjoyed a steady increase in demand for new cards, since the beginning of last year. Currently there are roughly ten nations worldwide which make use of the system, and fifteen more have expressed interest in adopting the system in the future.
(https://www.thefinancialtrends.com/2023/12/07/another-country-adopts-russias-mir-payment-card-system/)
I think the country has changed unbelievably in my 80 years, from most people being workers producing stuff , to now half the people are living off government programs and handouts; half our food coming in on ships; etc. That will totally change how the next Recession “plays out” compared to past Recessions. All Foreigners were stung by the Democrat’s Sanctions and Confiscations against the Russians because it could be them; they understand our Economy and dollar are headed to third world status; and they see how our liberal government, society and military have become the laughing stock of the World. The BRICS+ are the World’s majority block now and they are going to pull the rug out from underneath the US, UK and Israel. Perhaps it will be an all out 1973 type Embargo; perhaps they will do to Israel what Israel has done to Gaza; perhaps they will put Sanctions on the US and Confiscate American’s possessions; perhaps this Grand Solar Minimum (The Eddy Minimum) will do it. In the 30s, half of Americans lived on farms and produced food; today 95% of Americans live in cities and produce garbage. Somethings gonna make the next Recession (esp in Blue cities) make the 30s Depression look like the Good Old Days.
Well said and democrat cities deserve everything they got comin to em !
History is always the best indicator of the future. Everything happens in a cycle. This is not the first time we have been in this situation. The 1920’s were basically the exact same situation we are in now.
After the Federal Reserve was created in 1913, it opened the flood gates for credit, and the good times started to roll.
The industrial revolution created all kinds of great new inventions that people were eager to go into debt to purchase.
The economy went into a mega bubble as people and government spent money decades in advance of actually earning it. In 1929 it all crashed.
Then like now, much of the money in the system was debt. Loans, bonds, mortgages, and stocks purchased on margin. Within days, much of that money simply disappeared. It is a process few people understand called money destruction. Most people understand that money can be created through credit, but they fail to understand that it can be destroyed by debt default, and falling asset values.
By 1933 the Federal Reserve was bankrupt, and could only be recapitalized by asset forfeitures by the US citizens.
The US government outlawed gold and confiscated all the gold compensating the citizens with federal reserve notes.
They then devalued the value of those notes by 60% by revaluing gold from $20 oz. to $35 oz.
This had little effect on the purchasing power of the federal reserve notes at the time due to the deflation that was occurring due to the massive money destruction.
The recapitalization of the Federal Reserve allowed it to continue to loan money to the Federal Government keeping it running and preventing a run on the dollar. Most assets lost the majority of their value, because despite the massive money printing by the Fed in the years leading up to the crash, the money destruction of the crash, literally destroyed most of the money in the system.
The generation that lived through that experience learned to avoid debt at all costs, and to always have savings and to live within their means. Of course their children did not understand that experience, and their grandchildren could not relate to such a scenario at all. So once again the cycle repeats, as debt becomes the largest part of the economy, and we await the next crash that will do to this generation what the last one did to their grandparents and great grandparents….
The author seems to have left out a debt contributor in between Obama and Biden.
https://www.thebalancemoney.com/trump-plans-to-reduce-national-debt-4114401
You cheeky wee monkey! lol!
I do agree that metals are a good thing to own. There are a lot of wild cards in the deck so I find it difficult to say exactly how things will play out. Intuitively, I feel we could see some very rough times coming up. Other than that I believe this is the best commentary I have ever read concerning the economic situation of the 70’s and 80’s as it applies to my personal experience. Times were tough.
My Commentary on It’s A Wonderful Life below:
https://ko-fi.com/Post/Its-A-Wonderful-Life-C0C7RYVFS
It will go up and up till, well, we don’t accept it anymore. That’s how it woiks.
Don’t kid yourself. Gold is not going to save people from the financial crash that is coming. Silver might help a little, if the government doesn’t outlaw that too. If you had a ton of gold in your backyard today, the crash tomorrow would still overwhelm you, not only because it would be illegal to use it as currency, but because it would have to be converted to a hyperinflated dollar currency before it could be used. Ok, so you might be able to use it in some other country, if you could figure out how to get it out of the United States without the government stealing it from you and confiscating it like they do your taxes each year. All governments that have the power to inflate their currency either by print or by adding electronic numbers in a computer will do exactly that as the nation begins to reach its final days of corruption.