January 14, 2014. New York. The news for Wall Street isn’t pretty. The national jobs report yesterday was a mix of shock and horror, suggesting there is no economic recovery and possibly never was one. Over the past five years, the markets have skyrocketed to record highs, making the wealthy richer than ever in history. But the signs all point to another crash and it looks like it’s already started.
The internet bubble, the housing bubble, and the coming monetary bubble. Image courtesy of The Motley Fool.
We wanted to write this article two weeks ago. And if we did, we would have been shown to be right, at least so far. Following a record bull market for the past few years, 2014 has already been a down year for investors. Our suspicion is that we haven’t seen anything yet. Today’s monetary bubble is set to burst, and in doing so, crash the markets harder than both the 2007 housing bubble or the 1999 internet bubble did. And with taxpayers on the hook for trillions of dollars in Wall Street welfare that was supposed to create jobs, the markets have joined the American people in wondering what exactly is going on in this country.
Yesterday, the Dow Jones Industrial Average fell 179 points, or 1.09%. It was the fourth down day in a row for US stock markets and the worst one-day performance in three months. Some investors are simply shrugging it off as the expected pull-back after the annual ‘Santa Clause Rally’. In typical years, stocks soar over the Christmas holiday, only to drop back down over the first few weeks of the new year. The difference this time is that this year there was no Santa Clause Rally but the markets are dropping anyway.
A report from CNN Money gives us another indication the markets will drop substantially. They write, ‘There has been an unusually high number of companies warning in advance that earnings will be below expectations. As of Friday, 88 companies in the S&P 500 had issued negative earnings guidance.’ Another factor is the announcement by the Federal Reserve that it will cut back its free loans to Wall Street banks from $85 billion to $75 billion per month. That free money has been driving the markets higher for more than two years.
Democrats’ disastrous economic policy
So far, the American people have loaned a handful of Wall Street banks $4 trillion dollars under the Obama administration’s program known as ‘quantitative easing’. That money was supposed to be lent back to the American people in an attempt to jump-start the US economy and create jobs. Nobody was surprised however when the banks used that windfall of free loans to make themselves and their corporate partners obscenely wealthy while stiffing the American people. Loans are down, jobs are down, and the US economy is about to crash again because of the failed policy.
Imagine for a second if President Obama would have taken this publication’s advice during the ongoing Wall Street bailout and bailed out the American people instead. They in turn would have paid their debts, bills, mortgages and other loans, thus creating a flood of profits and stimulus for corporations, Wall Street and the banks. It would have also freed up trillions in consumer credit, now paid off and once again available to be used to make purchases and grow the economy.
Instead, just as with the Bush/Obama housing and insurance bailouts, the government skipped over the American people and gave the money directly to the banks, leaving the whole of the American people still on the hook for their own loans, but now on the hook for trillions in Wall Street welfare. So far, the Obama administration has loaned the banking sector $4 trillion at near-0% interest. Imagine if the ruling Democrats would have given that $13,333 to every man, woman and child in America and said, “Here’s a no-interest loan. Use it to fix your life and get back on your feet. Take as long as you need to pay it back, your whole life if necessary.”
That was the choice President Obama faced - loan $4 trillion to the American people and get the whole country back on its feet, excited and energized by not being suffocated or homeless from debt for the first time in years. Or give that money to a half dozen multi-national banks. The American people would have spent every penny of that $4 trillion, creating jobs and what might have been record GDP growth. But in typical Democratic and Republican fashion, President Obama gave those trillions to Wall Street instead. And as the December jobs report shows, little or none of it went to help America.
Market numbers warn of crash
The predicted economic collapse isn’t forecast for next year or sometime down the road. It’s already begun and should intensify into a panic before the current month is over. One warning from Forbes begins, ‘The world’s central bankers have fought desperately to prop up economies for the past five years, after the worst downturn since the 1930s. Undoubtedly, their massive doses of stimulus combined with interest rates near zero prevented an even greater downturn. Whether they also prevented a faster recovery will be debated for years to come.’
The amount of US currency in circulation is at astronomical levels. But the amount of money actually being transacted in America is at a 60-year low. Where could all the money be? Image courtesy of Incrementum.
The chart from Forbes illustrates the fact that the government has printed four-times the country’s entire monetary supply out of thin air just during President Obama’s administration alone. Yet, the American people barely received any of it. Almost every bit of that money is sitting in bank vaults or the accounts of wealthy corporations.
Imagine if you were playing the board game Monopoly and you began losing. You go to the store and buy three more games, take all the money from them and instead of keeping it for yourself and continuing to play the game, you hand it over to the richest player in the game. That’s what the policy of Quantitative Easing, aka printing money out of thin air, is to the average American. And it did little or nothing to stimulate the US economy.
The Forbes article reiterates the above fact, albeit in financial-speak, ‘The Fed has bought bonds off commercial banks in the hope that these banks would lend the said money to the public. Unfortunately, bank loan growth has been tepid, and trending down of late. That’s indicative of weak demand for debt from consumers.’ In reality, “demand for debt” isn’t weak. The American people would love to go further into debt. Wall Street simply knows we’re not credit worthy. Our nation’s personal debt is still maxed out because the American people were the only ones who didn’t get bailed out.
Another frightening statistic from the Forbes report is that even with four-times the amount of money in circulation right now, the amount of money changing hands and being transacted in the US is at a 60-year low today. Critics insist that’s because all of America’s money is sitting in the off-shore accounts of a few hundred millionaires, billionaires and multi-national corporations.
The chart that predicts economic doom
While the above statistics and charts are interesting and worrisome, it’s the chart and warning from the Motley Fool that is the catalyst for this article (see below). The chart details where all that Wall Street welfare money went. Apparently, it was used to gamble on the stock market. That could also be the reason the markets are at their highest levels in history even though there is no actual economic activity to back it up.
Even a novice investor would be concerned about this chart. Each time the markets reach this point, the bubble bursts and the economy crashes. Chart courtesy of the Motley Fool.
‘The New York Stock Exchange recently updated its stock market margin-debt data, showing that Main Street and Wall Street are continuing to dump billions in borrowed dollars into the stock market,’ the report warns, ‘Borrowed money in the stock market, known as margin debt, hit an all-time high of $423.7 billion in November.’
Of course, the reality is that ‘Main Street’ isn’t part of the scenario as the Motley Fool says. A full 50% of Americans have zero money or below. And the statistics show that 1% of investors own 50% of stocks. Going from memory, it’s something like 15% of the wealthiest investors that own 95% of the stock market. So to say it’s ‘Main Street’, is a bit misleading. Main Street can’t even pay their rent and utility bills, much less invest in the markets.
If you look at the chart from the Motley Fool, it clearly shows that as investors borrow from the banks that are borrowing from the Federal Reserve, they’re putting much of that money in the stock market and creating a bubble. On top of that, those same investors are also borrowing more money from the market itself, gambling money they don’t even have. When those margin calls come in, if the markets are still down and falling, the investors won’t be able to cover their bets because the market is down and their investments will have lost money. That’s the exact scenario that launched the economic collapse of 2007-2008.
And for one reason or another, when the bubble reaches a certain point, like the internet and housing bubbles before it, the bubble bursts and the American economy collapses. Millions lose their jobs and banks stop loaning money. Sound familiar? According to the charts, it’s about to start all over again any day now.
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