Saturday, January 16, 2016

"A Devastating Depression"

by JASmius

Bear in mind as you read through this quote that (1) it isn't I who is saying it or choosing these words, just reporting them, and (2) all of this is in the context of the masked Obama-inflicted economic depression that has afflicted the U.S. economy for the past seven years - which means that as bad as things sound in the quote, they're even worse in reality:

The United States is far overdue for a recession and the coming economic downturn will be “much worse” than average, warns Michael Pento, the president and founder of Pento Portfolio Strategies....

“Most importantly, the average market drop during the peak to trough of the last six recessions has been 37%. That would take the S&P 500 down to 1,300; if this next recession were to be just of the average variety,” Pento explained. “But this one will be worse.”

Highlighting his list of reasons why:

“A major contributor for this imminent recession is the fallout from a faltering Chi[Comm] economy,” he says. He said the renminbi (or yuan) currency's plunging value, tumbling stock prices (down 40% since June 2014) and tumbling rail freight volumes (down 10.5% year over year), “all clearly illustrate that [Red] China is not growing at the promulgated 7%, but rather isn't growing at all.”

Expect more stress on multinational corporate earnings as global growth continues to slow because [Red] China accounted for 34% of global growth. American equity prices and real estate values can no longer be supported by incomes and GDP. "Because the Federal Reserve's quantitative easing and zero interest-rate policy have ended, these asset prices are succumbing to the gravitational forces of deflation. The median home price to income ratio is currently 4.1; whereas the average ratio is just 2.6," he said.

The long-term average of the market cap-to-GDP ratio is around 75, but it is currently 110. "The rebound in GDP coming out of the Great Recession [which, in reality, never ended] was artificially engendered by the Fed's wealth effect. Now, the re-engineered bubble in stocks and real estate is reversing and should cause a severe contraction in consumer spending," he said.

Businesses, the federal government and the Federal Reserve have taken on a humongous amount of additional debt since 2007. "Business debt during that time frame has grown from $10.1 trillion, to $12.6 trillion; the total national debt boomed from $9.2 trillion, to $18.9 trillion; and the Fed's balance sheet has exploded from $880 billion to $4.5 trillion," he said.

The federal government's debt has now soared to nearly 600% of total revenue. "And the Fed has spent the last eight years leveraging up its balance sheet 77-to-1 in its goal to peg short-term interest rates at zero percent."

“This inevitable, and by all accounts brutal upcoming recession, will coincide with two unprecedented and extremely dangerous conditions that should make the next downturn worse than 2008,” he predicts.

“First, the best the Fed can do now is to take away its 0.25% rate hike made in December,” he said.

“Second, the federal government increased the amount of publicly-traded debt by $8.5 trillion (an increase of 170%), and ran $1.5 trillion deficits to try to boost consumption through transfer payments [shifting existing wealth around instead of allowing the creation of new wealth]," he warns. "Another such ramp up in deficits and debt, which are a normal function of recessions after revenue collapses, would cause an interest-rate spike that would turn this next recession into a devastating depression,” he said.

“It is my belief that, in order to avoid the surging cost of debt-service payments on both the public and private-sector level, the Fed will feel compelled to launch a massive and unlimited round of bond purchases,” he said.

But it all could be a classic case of “too little, too late.” [emphases added]

There's nothing there that I haven't said before, at various times and in various posts.  Not all in one, like this one.  But it does focus the old attention, doesn't it?  I've said for years that the "Great Recession" never really ended, that we have remained in a permanent, artificially engineered economic depression ever since, and that the serial rounds of "quantitative easing" (monetizing of skyrocketing U.S. debt by having the Federal Reserve print trillions of increasingly worthless dollars to "buy it" because there aren't any real suckers lining up to invest in stupidly high-risk Treasury securities with a zero rate of return) have been for the lone purpose of masking the economy's true dire condition and to keep the bread & circuses "business as usual" gravy train rolling.  I've also said that when the time was most politically opportune and advantageous, Barack Obama will pull the plug on this meticulously constructed house of cards and blow it all down, creating the bookend "Final Crisis" for him to exploit, establishing his presidency-for-life without anybody even realizing that it's happening,

All those pieces are now in place, awaiting the plug-pulling.  Indeed, one could argue, as I suggested a month ago, that the Fed's move to start raising interest rates has already set the process into motion.  Michael Pento is simply the first "expert" I've seen to take notice of what I prophesied long ago.

I hope y'all have stocked up on mattresses for your life savings.  When I said recently that this year will be the most cataclysmic in American history, I was as serious as a heart attack.  And it's only just begun.

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