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U.S. Economy Crashes

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Yet once again, I feel like the fictional little girl who journeyed “through the Looking Glass”. I see all these pieces of disastrous U.S. economic data being announced – with only the mildest concern being expressed by market “experts”.

 

Let's review what has emerged on the U.S. economy in just the past few weeks. First we had the lowest reading for U.S. housing starts in history. That horrific announcement came along-side news that U.S. foreclosures had just hit (yet) another “all-time record” in May. Now today we hear that mortgage applications have fallen to their lowest level in 14 years – going all the way back to when the bubble-blowing began in the U.S. housing market back in 1996.

 

However, the total collapse in the U.S. construction industry will do nothing to heal the U.S. real estate market: the most-oversupplied market in history. Somewhere around 20 million homes stand empty or abandoned. On top of that, retiring U.S. baby-boomers will need to dump $1 to $2 trillion more in real estate – just to top-up their grossly underfunded retirements. A CNN article released today reports that 47% of baby-boomers aged 56 – 62 are destined to “run out of money”. With 75% of the assets of these individuals being real estate, there is no mystery in what these “boomers” will do to raise money.

 

Meanwhile, the news is even worse in the retail sector: the “backbone” of the U.S. consumer-economy. May retail sales plummeted by 1.1%, and now that horrific number was followed-up by news that June retail sales fell by an additional 0.5%. Since the U.S. propaganda-machine never puts these numbers in context for readers, let me do so. First of all, since these are monthly numbers, we must multiply them by twelve to get the annual rate of decline. Doing that we see that the May number worked out to an annual rate of decline of 13.2%, while June was a less-extreme 6%. Since these are annual rates, they have to be averaged-out: to slightly above 9.5%.

 

That doesn't sound too bad, you say? Keep in mind that the U.S. propaganda-machine doesn't adjust these numbers for inflation. As John Williams of Shadowstats.com can tell you, U.S. inflation has been averaging well over 9% all year. Since we must subtract the effects of inflation to get a real year-over-year change in U.S. retail sales, let's do that. When we add the May/June average of more than a 9% annual drop in retail sales with the (real) rate of inflation, which is also above 9%, we find that U.S. retail sales have crashed by over 18.5% over the last year.

 

For those who want to distrust my numbers and believe the pie-in-the-sky, fantasy-numbers of the propaganda-machine, these numbers do nothing more than confirm the observations I just made five days ago in “U.S. Mall-Vacancy Nightmare”. Readers will recall in that piece that I pointed to yet more, dire U.S. economic news: U.S. mall-vacancies are once again approaching a new, all-time record – and only a year after a wave of shopping mall bankruptcies already swept across the U.S.

 

What the combination of the terrible mall-vacancy numbers and the even more-horrific numbers for U.S. retail sales indicate is that the U.S. retail sector is about to suffer another savage round of store-closures, mass lay-offs, and bankruptcies. Forty percent of all employed Americans work in low-wage service-sector jobs – with the vast majority of those jobs being clerical, retail sector positions.

 

For readers who require yet more corroboration, here's another shocking number. During the (supposed) U.S. “summer driving season”, in almost every year there are huge draw-downs in U.S. gasoline inventories – as even going flat-out, U.S. refiners are unable to produce gasoline as fast as American drivers consume it in the summer months. What have we seen recently in U.S. gasoline inventories?

 

During the week which includes the Fourth-of-July holiday weekend, U.S. gasoline inventories grew by an unbelievable total of more than 1 million barrels. Proving that number was no one-week anomaly, gasoline inventories grew again by more than 1 million barrels the week after that, as well.

 

The vast majority of driving in the “summer driving season” is Americans going on vacation, and Americans descending upon shopping-malls. What the crash in gasoline consumption (versus previous years) indicates is that Americans are not driving significant distances for holidays, and have dramatically cut-back on mall-visits.

 

The vast majority of all new job-creation in the U.S. over the past decade has been government jobs. How do things look on that front? The Obama “stimulus dollars” are gone – meaning the federal government has no money for hiring, and the small “blip” of census-hiring is now over.

 

At the state and local levels, all that politicians are talking about are “budget-gaps” (and bankruptcy). Forty-six U.S. states have “budget-gaps”. Given the legendary American phobia about paying taxes (U.S. tax-rates are much lower than almost all other Western economies), spineless politicians prefer to allow their governments to go bankrupt, or to inflict devastating hardship on the poor, sick, children, and the elderly – rather than raise taxes to a rate where these governments could actually be solvent.

 

As bad as these short-term numbers appear, they look much, much worse when placed in the context of the long-term, catastrophic collapse in the U.S. economy. Regular readers will already be familiar with the graph below: showing that (in real dollars) the Average American now earns what their great-grandparents earned – during the heart of the (first) Great Depression.


http://nowandfutures.com

Not surprisingly, 40 years of steadily-falling (real) wages has taken its toll on the net-worth of individual Americans. The graph below shows (also in real dollars) that the net-worth of the Average American has plummeted to levels last seen in the 1960's and early '70's.


http://nowandfutures.com

As a result of the collapse in the earning-power of the Average American worker, U.S. retail sales (in real dollars) have also fallen all the way back to levels (again) last seen in the 1960's and early 1970's. Does this imply that all new retail outlets added since 1970 are destined to go bankrupt? Actually, we should expect total U.S. “retail space” (i.e. total square-footage of all U.S. retailers) to go below what it was back in 1970.


http://nowandfutures.com

The big difference between today and 1970 is that “on-line shopping” didn't exist back in 1970. Given that U.S. retailers are all committing to ramping-up on-line sales (and slashing their number of retail outlets – and retailing jobs), we should expect the collapse of the U.S. retail sector to ultimately result in less total retailing space today than what existed in 1970.

 

By coincidence(?), in another recent commentary I predicted that U.S. home prices would have to fall all the way down to 1970-levels – in order to once again be affordable for Americans making Great Depression wages today. That would translate into an average decline in U.S. house prices (from today's prices) of 75% - across the board. With regional disparities in prices having been nearly eliminated by the first leg down for the U.S. market, now that the “second bubble” has burst, we will see this next collapse in the U.S. housing market devastate all regions.


http://nowandfutures.com

None of these previous numbers can be properly understood until we add the final, most-important variable: massive, mountains of U.S. debt – which exceed all the debts and liabilities of all other nations throughout all of history, combined. The U.S. economy carries roughly $60 trillion in total public/private debt – which doesn't include one penny of the additional $70 trillion in the “unfunded liabilities” of the federal government.

 

To provide American readers with some context as to the relative size of this unfathomable mountain of “unfunded liabilities”, there was a tremendous alarm sounded in the UK this week – after it was announced that their own “unfunded liabilities”, which was referred to as a “black hole in the public accounts” totals the equivalent of 'only' $3 trillion.

 

We have Americans earning 1930's wages, with their 1970's net-worth trying to support a mountain of debt more than 10 times larger than in those earlier eras. And if this situation isn't bad enough, the deliberate creation of massive, structural unemployment (across the Western world) means that we have a much smaller portion of employable people working that at any other time in history – just as the baby-boomers retire, and create the largest demand for government entitlement programs in history.

 

What happens when we have an economy with the fewest number of workers in history (making Great Depression wages) trying to support the largest number of non-working individuals in history, while at the same time trying to service a mountain of debt which exceeds the debts and liabilities of all other nations, combined? That economy collapses. Period.

 

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Jeff Nielson
...
written by Jeff Nielson, July 17, 2010
Apberusdisvet, one of the biggest shocks to me is that you won't see ANYONE in the Canadian mining community with a single "bad word" to say about bankers, whether of Canadian or American stripes. This is true even after the (manufactured) "Crash of 08" - where Canadian banks cut ALL credit off to ALL miners, and then the same banks are rumored to have ruthlessly shorted those companies.

As for the Canadian government, I like to recite what I call "the Conservative equation": Conservative Prime Minister = American lap-dog. In other words, as long as we have a Conservative Prime Minister, the U.S. can kick Canada in the ass, and all Stephen Harper would say is "please, can I have another?"
apberusdisvet
...
written by apberusdisvet, July 16, 2010
Jeff: slightly off topic but still germane. A provision in the FINREG bill specifically exempts the TBTFs from any regulation on their manipulation of gold and silver. Of course no one in the MSM in the states or in Canada has discovered this or has the balls to expose it. It would seem to little old me that the Canadian investment community, with high amounts of wealth tied up in mining stocks would be, as a class, among the most severely affected by said manipulation. If you have any political access in Canada, an "outraged" statement by a Canadian politician of note, or an open letter signed by TPTB in Canada would go far. Yes, I know, this is wishful naivete, but one could hope. I often wonder why GATA has never taken out a full page ad in the NYT or WSJ. That would shake things up a bit, dontcha think?
Jeff Nielson
...
written by Jeff Nielson, July 15, 2010
Thanks for the comments! Navderek, it's very difficult to know how Canada will be affected, since we don't know the precise path which will be taken in the U.S.

I will remind readers of a military "deal" which (as usual) was totally ignored by the Canadian and American media. Our 'beloved' Prime Minister, Stephen Harper has pre-authorized the U.S. military to conduct "military operations" ON CANADIAN SOIL.

The only POSSIBLE "need" I can see for such a deal is that the U.S. military wanted to be able to "hunt" the members of U.S. militia groups - should they choose to flee across the Canadian border.

Indeed, I have believed all along the the (phony) "War on Terror" was a pretext to put in place the machinery of a fascist state - to combat what the U.S. government sees as a REAL "threat": it's own large number of home-grown (heavily-armed) militia groups.

I also firmly believe that the explosion of "private prisons" across the U.S. was to ensure there would be places to "warehouse" the poor and "trouble-makers" - once things get REALLY ugly from an economic standpoint.

Those thoughts will hopefully give you some idea of the potential "ripples" which will occur in Canada as the U.S. sinks into chaos and riots, or some rigid, police-state.
navderek
...
written by navderek, July 14, 2010
If/when the US economy completely crashes...how would this affect us up here in Canada? I've been concerned but now I'm starting to panic after watching "The Accent of Money"!!!smilies/cry.gif
Grumley
...
written by Grumley, July 14, 2010
Britain's public debt just doubled overnight from £2 Trillion to £4 Trillion! Jeff's numbers are scary enough using the public information available. Just wait until the REAL numbers for the US begin seeping out.

http://www.zerohedge.com/article/guest-post-britains-public-debt-doubled-again-overnight-now-£4-trillion
ecliving
...
written by Jeff, July 14, 2010
Here's another statistic... Today's "recession" is worse than the depression of 1929...

http://www.businessinsider.com/you-cant-fully-appreciate-how-badly-our-stock-market-is-doing-until-you-look-at-these-charts-2010-7

Just another nail (hey, wouldn't that make a great domain name?).

Jeff (the other one)

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