Deficits used to draw down the nation’s savings. That’s because the feds had to borrow to fill in the hole. And when you borrowed, you borrowed what someone else had saved. No more. The new dollar and the Fed’s low interest rates made real savings irrelevant. The Fed dropped interest rates to make saving unattractive…and covered the deficits with fake savings — credit it invented ‘out of thin air’; it bought US Treasury bonds itself.
Even with all of this innovation, our economic growth is slowing. The reason for this, Vern argues, is that we have failed to be adaptive in our economic model. And now we are drowning in debt and are struggling to keep our economy stable. Although we are accustomed to our GDP always rising, and our living conditions becoming ever-better, it’s an expectation that we need to rethink.
The housing market is very different from a few months ago. Back then, buyers were getting into frenzied auctions, spending more than what they had budgeted for and properties were going above the reserve. In other words, we could be seeing the switch from a seller’s to a buyer’s market.
Blockchain is definitely allowing people to think about the future of money and how we use that money. And the rise of parallel currencies could increase competition for central banks. That is, if the central bank printed too much money and devalued the currency, people could flock to a more stable private currency.
Guggenheim investment fund’s global chief investment officer Scott Minerd predicts a 40% decline for the Dow…mostly in 2019. He says the US economy is on a ‘collision course with disaster’. He’s right — at least about the ‘collision course’.
Meanwhile, wage growth has been plummeting. It is now just above 2%. So it’s not surprising that in recent years households have been getting into larger mortgages to get into the frenzy...and consequently, higher debt. And we are starting to see an increase in mortgage stress.
The truth is that we place more value on those pieces of paper than when we see them as a number on the screen. The great thing about cash is also that it gives you some financial freedom. Holding cash gives you control over how and when you spend it but pushing to digital transfers some of that control to the authorities.
‘Strong as an ox’ sounds like a good thing. But it does not accurately describe the U.S. economy we see. A strong economy is one in which people earn more money, save it, and invest it in new businesses and new capacity so they can earn even more. None of that is happening. The savings rate recently fell to 2.5%, about as low as it has ever been.
The Dow Jones Industrial Average dropped a total of 500 points the first trading day of April — closing at 23,644.52 points. There are a few reasons driving the market lower, including fears of a trade war and of regulation in the tech industry.
To prevent the system from going into ‘cardiac arrest’, more and more debt is required each and every year. History clearly tells us this is not sustainable. Within the debt supercycle, there are long-term market cycles. These are called ‘secular markets’. If you haven’t heard this term before, you’re not alone. However, you need to know how secular markets can create or destroy wealth.
Have you heard the latest news? Twitter banned advertisements on cryptocurrency initial coin offerings (ICOs). Bitcoin fell 7% on the news. It's currently trading below US$8,000 at the time of writing. Weeks of regulatory uncertainty has weighed on the digital currency.
Households are borrowing 90 cents for every incremental dollar they spend, up from 40 cents four years ago. Household debt service costs are expected to increase by $75 billion this year — almost completely offsetting any gains from the tax cut.
The global economies may be growing in sync for the first time in 10 years, but it may not last long. Gold is used as a hedge in times of turbulence and uncertainty. And as a hedge against inflation and risk. Moreover, gold could rally if trade tensions between the US and China keep up.
Ever since June 1991 — our last official recession — the textbook approach to generating GDP growth has been to encourage households to borrow to ‘get the economy moving’. Our economic ‘success’ has really been a massive failure…setting households up for an extended period of financial pain and in some cases, ruin.
Yesterday, we described how the US government has changed over the last three decades. Now, neither party is worried about deficits…or the US federal debt, which hit a new milestone last week at $21 trillion. Instead, they are all onboard the Bankruptcy Express, running wide open and stopping only to pile on more debt.