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The Economy Is Starting to Roll Over

The Economy Is Starting to Roll Over
By Todd Strandberg

Even since the financial crisis of 2009, the U.S. economy has been is said to be in a period of “positive growth.” We are regularly reminded of our good fortune by the Dow Jones hitting a fresh new all-time high. In February, the Dow recorded its longest “winning streak” since 1987. It closed 2,000 points above its 200-day moving average for the first time ever.

The boom in financial assets on Wall Street is not a true reflection of what is happening on Main Street. The price of stocks and bonds has gone up because the Federal Reserve has promised Wall Street bankers an endless supply of money.

Record low rates have allowed Washington to ignore the consequences of deficit spending. Over the past eight years, our national debt has gone from $10 trillion to $20 trillion, and we have nothing to show for our indebtedness.

A credit driven boom has always ended in a crash. The Austrian economist, Ludwig von Mises said it best:

There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.

There is no way to tell when the cycle will come to an end. What makes this current boom particularly difficult to forecast—is the government’s willingness to do anything to avoid the bust. Since it’s not possible to live on credit forever, the day of reckoning will eventually come when the government can no longer hold back the flood waters. Here are six possible warning signs that the economy is starting to buckle:

Sears, once the monolith of American retail, said in a recent report that there is “substantial doubt” that it will be able to keep its doors open. Sears is selling off the last of its brand names to raise cash.

Payless Shoes is set to file for bankruptcy. The chain announced it will close 500 stores.

The huge electrical and nuclear energy giant Westinghouse has filed for Chapter 11 protection from creditors. The firm’s Japanese parent company Toshiba will issue a loss of $9.8 billion in relation to the bankruptcy.

The number of loans being created by banks has started to decline. Year over year loan growth by the 25 largest U.S. banks fell to around 3.35% in early March, down from 7.18% a year earlier. In New York city, commercial real estate lending was down 17% last year.

The default rate for auto loans has soared back to “Great Recession” levels. In 2009, they peaked out at 14.6% for the subprime market. That rate is now at 11.9%.

Global Art Sales Fall 11% to Lowest Point Since Recession. Sales of art and antiques dropped 11 percent to $56.6 billion, according to a report released by UBS Group AG and Art Basel.

We also have long-term problems that are about to overtake us. The biggest of these is the cost of health care. After it became clear that Congress would not be able to come up with a replacement for Obamacare, President Trump warned that the current system would soon implode. The nation’s health care tab is around $11,000 per person, and it’s growing at 9% per year. With the government on the hook for a large portion of this expense, there is simply no permanent fix that will not bankrupt the country.

Along with these unintended pressures on the economy, we now have planned efforts to hamper growth. Despite the GDP numbers declining with every new revision, the Federal Reserve has moved twice to raise interest rates. The only logical explanation for this move is that the Fed realizes the economy is headed for a recession, and they are raising rates to give themselves room to lower them once the economy starts to contract.

I can only point to divine intervention for how the U.S. economy has managed to avoid a crash. We currently have the third longest period of positive growth in American history. Because Jesus said he would come at a time of “peace and safety,” I think the Rapture is the explanation for why we have a Goldilocks economy. Since there is no room for a soft landing, the next few months may prove to be very interesting.

“For when they shall say, ‘Peace and safety; then sudden destruction cometh upon them, as travail upon a woman with child; and they shall not escape’” (1 Thessalonians 5:3).

–Todd

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