Bigger Than the Subprime Crisis of ’08

More protests in Greece. Athens shut down for a day last Wednesday. Unemployment at 27% and rising.

Spanish real estate prices sink further, years after their peak in 2007. Unemployment recently as high as 27% as well. Youth unemployment up to 57%.

Portugal’s struggling with 17.7% unemployment.

In short, Europe’s a mess.

To the east, China’s facing its own demons…

A shadow banking system that’s driving the greatest real estate bubble in China, and perhaps world history.

Collapsing commodity prices that are taking the wind out of emerging markets’ import and export sails.

And the implementation of the boldest – and most idiotic – move to date: The forced movement of rural farmers into urban environments in China, to replace flagging exports with new, local consumers.

Then there’s the U.S…

We appear to be the one bright spot in the world right now. Our economy appears to be accelerating and the housing market appears to be coming back to life.

I say “appears” because there’s something very wrong with the picture…

I call it delusional sheep shearing. Delusional because there’s no basis for the claims of any recovery. Sheep shearing because all the poor sheep who fall for the B.S. face a skinning.

First, the housing recovery isn’t sustainable. It’s based on speculation, not on the growing trend of young families buying their first homes. Today’s young people can’t do that because they’re hanging by their toes, strung up with unprecedented student loan debt and facing tougher lending standards.

Second, our economy is accelerating a bit, but mostly on the positive trends in housing. Unemployment is still high and consumer confidence has dropped sharply again (now at negative 12 on the Economic Confidence Index).

And third, this so-called recovery is being entirely driven by unprecedented monetary and fiscal stimulus that has averaged about $2 trillion a year (that’s $1 trillion in monetary stimulus and $1 trillion in fiscal deficits).

“Recovery” my left nut!

There are all types of problems with endless quantitative easing, but the core one is simple: It perverts the economy and misallocates resources. Money is not lent and invested in real future growth. Instead, banks, investment banks, and brokerage firms use it for speculation, often at very high leverage. And recently money has been flowing into housing speculation – surprise, surprise!

The reality is that we still have a debilitating debt bubble, an 800-pound gorilla in the room… and rather than deal with the gorilla, we throw a stimulus sheet over it and pretend there’s nothing there. This enables financial assets to join the bubble party along with some other unsavory guests… and when the music stops, the Fed turns up the printing presses.

There’s just one problem…

Bubbles ALWAYS burst! Regardless of the Federal Reserve, the European Central Bank, the People’s Bank of China, or the Bank of Japan and their delusions of power and control, the bubbles distorting the global economy today WILL burst.

The tech bubble burst in ’99, the housing bubble burst from 2006 forward, the emerging markets bubble (and China) burst in 2008, the oil bubble burst in 2008, the commodity bubble has been bursting since mid-2008, gold has been bursting since late 2011, and the bond bubble is finally beginning to burst. This third major stock bubble will burst too. It’s already seen greater gains in less time than the bubble from late 2002 to late 2007.

Naturally, this has led to most analysts on CNBC saying we’re in the early stages of a long bull market.

Really?!?

Do they know how long the average bull market lasts?

3.6 years.

This stock market bubble is already 4.3 years old. Very few make it past five years.

Mark my words: This bubble will burst, most likely between late 2013 and early 2015. And when that happens, our economy and markets will very likely be harder hit than those in the euro zone… because of our stronger QE efforts since mid-2012. Europe has at least turned to some degree of austerity and rebalancing but the Fed just keeps the bubble party going. There are consequences for severe denial of economic reality.

We will pay them in short order!


Harry

 

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Categories: Economy

About Author

Harry studied economics in college in the ’70s, but found it vague and inconclusive. He became so disillusioned by the state of the profession that he turned his back on it. Instead, he threw himself into the burgeoning New Science of Finance, which married economic research and market research and encompassed identifying and studying demographic trends, business cycles, consumers’ purchasing power and many, many other trends that empowered him to forecast economic and market changes.