Our Deteriorating Economic Outlook: Serious Inflation On the Horizon

Editor's Note

​Have you noticed that prices seem to be rising faster than the official inflation numbers?

Independent of increasing prices, with food price increases are hidden two additional ways:  (1) reducing quantity or weight yet offering it with a similar price; and (2) reformulating the ingredients of a processed food with cheaper, and often unhealthier ingredients.

Please read and pay attention to this article by Dr Paul Craig Roberts, Guest Columnist, with Dave Kranzler and John Williams of www. shadowstats.com​.

The Deteriorating Economic Outlook

By Paul Craig Roberts, Guest Columnist (former Assistant Secretary of the U.S. Treasury), Dave Kranzler (www.investmentresearchdynamics.com) and John Williams (www.shadowstats.com)

July 8, 2014​

The third and final estimate (until the annual GDP revisions) of first quarter 2014 real GDP growth released June 25 by the US Bureau of Economic Analysis was a 2.9% contraction in GDP growth, a 5.5 percentage point difference from the January forecast of 2.6% growth. Apparently, the first quarter contraction was dismissed by those speculating in equities as weather related, as stock averages rose with the bad news.

Stock market participants might be in for a second quarter surprise. The result of many years of changes made to the official inflation measures is a substantially understated inflation rate. John Williams (www.shadowstats.com) provides inflation estimates based on previous official methodology when the Consumer Price Index still represented the cost of a constant standard of living. The 1.26% inflation measure used to deflate first quarter nominal GDP is unrealistic, as Americans who make purchases are aware.

A reasonable correction to the understated deflator gives a much higher first quarter contraction. The two main causes of inflation’s understatement are the substitution principle introduced during the Clinton regime and the hedonic adjustments ongoing since the 1980s that redefine price rises as quality improvements. Correcting for excessive hedonic adjustments gives a first quarter real GDP contraction of 5%. Correcting for hedonic and substitution adjustments gives a first quarter real GDP contraction of 8.5%.

Realistic economic analysis is a rarity. The financial press echoes Wall Street, and Wall Street economists are paid to help sell financial instruments. Gloomy analysis is frowned upon. Even negative quarters are given a positive spin.

Years of understatement of inflation has resulted in years of overstatement of GDP growth. Thinking about the many years of misstatement, we realized that the typical computation in nominal terms of the ratio of debt to GDP is seriously misleading.

Consider that debt is issued in nominal terms and repaid in nominal terms (except for a few Treasury bonds with inflation adjustments). However, nominal wealth or nominal GDP overstates real economic strength. The debt is growing, but both the nominal and real values of the output of goods and services are not keeping up with the rise in debt.

To understand how risky the rise of debt is, nominal debt must be compared to real GDP. Spin masters might dismiss this computation as comparing apples to oranges, but such a charge constitutes denial that the ratio of nominal debt to nominal GDP understates the wealth dilution caused by the government’s ability to issue and repay debt in nominal dollars. We know that inflation favors debtors, because debts can be repaid in inflated dollars.

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Is An Economic Crash Greater than the Great Depression Near?

Is An Economic Crash Greater than the Great Depression Near?

As many of you know I am engaged in the food and health war.  But if we have an economic crash, where there is greater job loss than 2008 and thereafter, then if we have less funds will our food quality and health suffer?

For many of us who have food allergies and sensitivities or want to buy higher quality foods, the traditional grocery store just is not a friendly place.  We will not fare well if we lose our income sources and have to go on food stamps.

So what suggestions do you have that everyone should consider to offset and prepare for a potential financial hurricane?   Think about it!  –No Name Attorney 

The Crisis Is Imminent: “When The Real Crash Comes It Will Be Worse Than the Great Depression”

by Mac Slavo

 

“The United States is like the Titanic, and I’m here with the lifeboat trying to get people to leave the ship… I see a real financial crisis coming for the United States.”
Peter Schiff August 2006

In 2006, when he faced off with many well known Titans of investing and warned of an impending financial disaster and economic collapse, Peter Schiff was laughed at by his colleagues. He urged Americans to exit financial markets and take steps to protect themselves before the wealth held in their savings accounts, retirement investments and real estate was wiped out.

Few listened.

We know what happened next.

Now, those same financial experts who publicly vilified Schiff for his predictions six years ago are at it again. Many, including our politicians, central bankers and leading economists, have unequivocally stated that the worst is behind us, and that a global recovery is on the horizon.

Once again, Peter Schiff disagrees:

“I think we are heading for a worse economic crisis than we had in 2007,” Schiff said.  “You’re going to have a collapse in the dollar…a huge spike in interest rates… and our whole economy, which is built on the foundation of cheap money, is going to topple when you pull the rug out from under it.”

Schiff says that, despite “phony” signs of an economic recovery, the cancer destroying America stems from a lethal concoction of our $16 trillion federal debt and the Fed’s never ending money printing.

According to Schiff, these numbers are unsustainable. And the Fed has no credible “exit strategy.”

Eventually interest rates will rise… and when they do, Schiff says, stocks will tank and bonds dip to nothing. Massive new tax hikes will be imposed and programs and entitlements will be cut to the bone.

“The crisis is imminent,” Schiff said.  ”I don’t think Obama is going to finish his second term without the bottom dropping out. And stock market investors are oblivious to the problems.”

“We’re broke, Schiff added.  ”We owe trillions. Look at our budget deficit; look at the debt to GDP ratio, the unfunded liabilities. If we were in the Eurozone, they would kick us out.”

“The Fed knows that the U.S. economy is not recovering,” he noted. “It simply is being kept from collapse by artificially low interest rates and quantitative easing. As that support goes, the economy will implode.”

A noted economist, Schiff has been a fierce critic of the Fed and its policies for years. And his warnings have proven to be prophetic.

His recent warnings, however, have been even more alarming.  Will they also prove to be true?

In his most recent book, “The Real Crash” How to Save Yourself and Your Country“, Schiff writes that when the “real crash” comes,” it will be worse than the Great Depression.

Unemployment will skyrocket, credit will dry up, and worse, the dollar will collapse completely, “wiping out all savings and sending consumer prices into the stratosphere.”

“All we can do now is prepare for the crash,” Schiff said. “If we brace ourselves properly and control the impact, we will survive it.”

Indeed.

We must understand that none of the fundamental problems leading up to the 2007/2008 financial crisis have been resolved.

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Is the World Economy Becoming One Economic Pyramid Scheme?

Is the World Economy Becoming One Economic Pyramid Scheme?

You’ll find this article very sobering to realize what a mess globalism has become.  It’s an excellent reason to question all the interconnections and centralizations between nations.  Has it become a de facto economic pyramid scheme?

Ask yourself how to we start to clean up this mess?  It has to be done.  What about getting each country to discount the debts of another?  What if all the debt was “flushed” and every country was reset to “0” balance? 

What ideas do you have?  Feel free to comment and post them below.   It’s going to take collective “think power” in resolving this.–No Name Attorney

The author of the article below, Michael Synder, has a B.S. in Commerce from the University of Virginia, a law degree (J.D.) and a Masters of Law in Taxation (LL.M.) from the University of Florida School of Law.

 

Why Is The World Economy Doomed? The Global Financial Pyramid Scheme By The Numbers

By Michael, on March 20th, 2013

Why Is The World Economy Doomed? The Global Financial Pyramid Scheme By The Numbers

Why is the global economy in so much trouble?  How can so many people be so absolutely certain that the world financial system is going to crash?  Well, the truth is that when you take a look at the cold, hard numbers it is not difficult to see why the global financial pyramid scheme is destined to fail.  In the United States today, there is approximately 56 trillion dollars of total debt in our financial system, but there is only about 9 trillion dollars in our bank accounts.  So you could take every single penny out of the banks, multiply it by six, and you still would not have enough money to pay off all of our debts.  Overall, there is about 190 trillion dollars of total debt on the planet.  But global GDP is only about 70 trillion dollars.  And the total notional value of all derivatives around the globe is somewhere between 600 trillion and 1500 trillion dollars.  So we have a gigantic problem on our hands.  The global financial system is a very shaky house of cards that has been constructed on a foundation of debt, leverage and incredibly risky derivatives.  We are living in the greatest financial bubble in world history, and it isn’t going to take much to topple the entire thing.  And when it falls, it is going to be the largest financial disaster in the history of the planet.

The global financial system is more interconnected today than ever before, and a crisis at one major bank or in one area of the world can spread at lightning speed.  As I wrote about yesterday, the entire European banking system is leveraged 26 to 1 at this point.  A decline in asset values of just 4 percent would totally wipe out the equity of many of those banks, and once a financial panic begins we could potentially see major financial institutions start to go down like dominoes.

We got a small taste of what that is like back in 2008, and it is inevitable that it will happen again.

Anyone that would tell you that the current global financial system is sustainable does not know what they are talking about.  Just look at the numbers that I have posted below.

The following is the global financial pyramid scheme by the numbers…

$9,283,000,000,000 – The total amount of all bank deposits in the United States.  The FDIC has just 25 billion dollars in the deposit insurance fund that is supposed to “guarantee” those deposits.  In other words, the ratio of total bank deposits to insurance fund money is more than 371 to 1.

$10,012,800,000,000 – The total amount of mortgage debt in the United States.  As you can see, you could take every penny out of every bank account in America and it still would not cover it.

$10,409,500,000,000 – The M2 money supply in the United States.  This is probably the most commonly used measure of the total amount of money in the U.S. economy.

$15,094,000,000,000 – U.S. GDP.  It is a measure of all economic activity in the United States for a single year.

$16,749,269,587,407.53 – The size of the U.S. national debt.  It has grown by more than 10 trillion dollars over the past ten years.

$32,000,000,000,000 – The total amount of money that the global elite have stashed in offshore banks (that we know about).

$50,230,844,000,000 – The total amount of government debt in the world.

$56,280,790,000,000 – The total amount of debt (government, corporate, consumer, etc.) in the U.S. financial system.

$61,000,000,000,000 – The combined total assets of the 50 largest banks in the world.

$70,000,000,000,000 – The approximate size of total world GDP.

$190,000,000,000,000 – The approximate size of the total amount of debt in the entire world.  It has nearly doubled in size over the past decade.

$212,525,587,000,000 – According to the U.S. government, this is the notional value of the derivatives that are being held by the top 25 banks in the United States.  But those banks only have total assets of about 8.9 trillion dollars combined.  In other words, the exposure of our largest banks to derivatives outweighs their total assets by a ratio of about 24 to 1.

$600,000,000,000,000 to $1,500,000,000,000,000 – The estimates of the total notional value of all global derivatives generally fall within this range.  At the high end of the range, the ratio of derivatives to global GDP is more than 21 to 1.

Are you starting to get the picture?

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