Things are progressing just as the model suggested and this includes economic indicators. Though, you probably wouldn’t know that by looking at the latest hype. Goldman Sachs economists have now said that the job market is doing better than they expected and that it is doing so well that it could “overshoot” full employment. They went as far as to say that their forecast for unemployment next year will be as low 3.8 percent, which is down from their previous estimate of 4.1 percent. That sound terrific!
We also have record highs in the stock market. Nine records in a row to be exact. In fact, it has been nothing but record high after record high since the election of Donald Trump. Great news for some! Between the jobs numbers and the records in the stock market, it seems everyone is doing great and things are getting back on track. I hate to say it, but the truth is that everyone is more than likely very distracted because the truth of the matter is that things are not looking so great once you dig even just a little.
I would like to remind everyone that the unemployment number that they are using is the U3 number which simply does not count everyone. I would also like to remind everyone that during his election campaign, President Donald Trump called the U3 unemployment number “one of the biggest hoaxes in American modern politics” and that the “real” unemployment rate probably exceeds 40 percent. In my opinion, the U3 number is simply not a reliable measure. That being said, 40 percent is probably a little high.
For clarification, understand that the U3 does not include people who have given up looking for work because they just can’t find anything; people who aren’t looking, but who have worked in the last year and could work again; and those who work part-time but would prefer to work full-time. It’s actually worse than that though. If you follow the methodology of how unemployment was tracked before 1994, you will find that the unemployment rate for July 2017 was probably closer to 22.1 percent – keeping in mind of course, that during the worst part of the Great Depression, unemployment was closer to about 25 percent.
I don’t want to be a Debbie Downer here, but we should look at the situation through reasoned eyes. Our problems have not magically gone away because the economy hired a couple hundred thousand people. Our economic problems have actually gotten much worse because everyone has refused to learn from the mistakes of our past and because everyone still buys into an economic model that is fundamentally flawed. Without getting into all of that, let’s just try to remember that we live in a nation with over 325 million people. A couple hundred thousand is merely a drop in the proverbial bucket.
Something that I have been trying to get my readers to prepare for is the inevitable tech boom which will ultimately result in substantial job loss. The LA Times reported that a recent analysis by accounting and consulting firm PricewaterhouseCooper suggested that more than a third of U.S. jobs could be at “high risk” of automation by the early 2030s (just over a decade away). Furthermore, MIT’s Daron Acemoglu and Boston University’s Pascual Restrepo, recently published data at the National Bureau of Economic Research that demonstrated that each additional robot in the US economy reduces employment by 5.6 workers, and every robot that is added to the workforce per 1,000 human workers causes wages to drop by as much as 0.25 to 0.5 percent. Understand that this is already happening. Furthermore, the pace is picking up and this WILL force a change. Whether this change is for the better or worse is for you to decide when we get there. I merely want to ensure that you are aware that this change is underway.
This is not to say that jobs will not be available down the road. Instead, it is that our “jobs” will be different – VERY different. In fact, CNBC reported today that as much as 65 percent of the jobs that the next generation of workers will have do not exist today. Think about that. Now imagine if that number is understated.
In the interim, there are going to be some growing pains. This happens with every industrial revolution. As you may or may not know, we are currently witnessing an economic upheaval and my interpretation of the data suggests that it is about to peak. This peak will not be over the course of days; it will occur over the course of years. Unfortunately, there are many things in play at the moment that may make this transition much tougher than what we have ever seen before. As usual, I share this not to depress you… but to prepare you. Let’s look at the facts.
It was reported this week that U.S. households collectively have more than $1 trillion in credit-card debt. According to a report Monday released by the Federal Reserve, Americans had $1.021 trillion in outstanding revolving credit in June 2017. I have written about the coming Credit Card Crisis and it is starting to show its ugly little face. What happens when the bulk of these folks can no longer pay?
It was also reported this week that Fannie Mae and Freddie Mac could need a taxpayer bailout of as much as $99.6 billion if a severe economic downturn gripped the United States. Now, I have written about the dangers of student loans and the practices of the industry that got us here. This little problem is starting to show its ugly little face as well. What happens when the bulk of these folks can no longer pay?
For those of you who have followed my work closely, you may recall when I warned about a coming subprime auto crisis. I’m afraid that one is just around the corner as well. In fact, new car loans with payment schedules lasting 73, 84, and sometimes even 96 months have exploded. This is insanity. Between 2009 and 2016, loans issued to people with bad credit jumped from $52.6 billion to $119 billion. That’s an increase of more than 126 percent. Clearly, few learned from the subprime mortgage crisis. Still, what happens when these people can no longer pay on their loans?
What I want you to understand is that personal debt is rising at an alarming rate. People are living on debt and buying things they cannot afford – on credit. We could speculate as to why or point fingers but the result of this doesn’t change. Never mind that people like UO economics professor Tim Duy has been able to point to data that suggests that the assumptions on unemployment may be wrong, what we really have here is a recipe for disaster because we are talking about the ability to pay; not only on debts, but for simple products and services as well. Know that unemployment is not as great as we would like to think and most of our jobs might be hanging in the balance in the very near future (if not already). The Labor Force Participation Rate still demonstrates that millions upon millions are without solid work. Not having solid work means that they do not have solid pay. These folks quickly become a liability for the government. Factor in the reality of inflation and low wages and it becomes rather evident that something is amiss. Now imagine what might happen if the businesses left standing after the recent tsunami of business closures came under some kind of economic stress.
Understand that the evidence is clear that the economy is still very much damaged and a substantial recovery has not yet been achieved. My analysis suggests that it is as fragile as ever. Also, understand that one bubble-burst could set off the domino effect of utter economic hell. This doesn’t even scratch the surface of the pending bond or interest rate issues that we will begin to see in the coming months. Unfortunately, the potential for economic hell may be closer than we would like to think.
Federal spending topped $400 billion for the first time in June. Debt and federal spending are simply skyrocketing. Know that this can’t last forever. In fact, Edward Kleinbard of the New York Times reported that sometime in October, the United States is likely to default on its obligation to pay its bills as they come due, having failed to raise the federal debt ceiling. This will cost the Treasury tens of billions of dollars every year for decades to come in higher interest charges and probably trigger a severe recession. This is backed up by the words of Paul Krugman, Professor of Economics at the Graduate Center of the City University of New York, who said that the odds of a self-inflicted US debt crisis now look pretty good and that it looks fairly likely that by October or so there will come a day when the U.S. government stops paying some of its bills, including interest on debt. If this happens, it will have strong economic consequences.
Of course, there are several things to look out for in the coming months as well. Bank of America Merrill Lynch chief investment strategist Michael Hartnett has recently said that the market could be heading to a significant correction this fall. He said that his firm’s Bull and Bear indicator is close to a euphoric level that would trigger a sell signal. He went on to say that such a correction would not be “your average correction. It’s going to be something a little more meaningful.“
No doubt. As I mentioned before, it’s been nothing but record high after record high in the market. Understand that what goes up, must come down. Are we now at the foot of the Economic Upheaval I wrote about in RELOADED: An American Warning? Time will surely tell. Either way, we know it’s close and that it’s not a matter of “IF”… it’s a matter of “when”.
If this is it, then we must also consider the possibility of what follows the upheaval. I want you to factor in what might happen if this nation gets involved in a really big war. There is no doubt that the potential is very real. Think about the Big Five: China, Russia, Iran, North Korea, and Venezuela – not to mention their proxies. Look at the allies of the United States and the issues that they are having with the Big Five – such as India, nations in the Baltic’s, South Korea, Japan, Taiwan, and so on. Look at tensions rising around the globe and the social strife here in the states – brought on by sheer and utter ignorance.
Folks, let me just say it again: I am not sharing this to scare you. I just want you to be prepared. Beware the Fall has two meanings. Considering the economic indicators, it is probably best to think worst-case scenario at this point – not best. Let me also tell you that these hard times will pass; there will be better times in the coming years, it seems that we are just going to have to endure some hard times before we get there.