Posted on 07/29/2014 8:22:41 AM PDT by SovereignSociety
Central bankers think they can keep their economy going by artificial stimulus until they hit escape velocity and grow at normal rates again — but they’re wrong.
Here at Dent Research we hold a different view to what drives the economy.
And central bankers are in for three big surprises ahead.
Their economies are NOT going to grow the way they’re hoping, at least not until the early 2020s, thanks to declining demographic cycles and unprecedented debt ratios.
But the surprises I’m talking about are going to come out of left field and slam unexpectedly and so fast into these delusional central banks, that it will leave their heads spinning.
I’m talking about:
• Germany.
• China.
• And the good ol’ U.S. of A.
Between now and 2022, Germany is going right over the edge of a demographic cliff steeper than the one Japan crumbled over in the 1990s. Back then, I was one of the very few who saw the demographic-trend-driven crisis ahead for Japan. Once again, I’m one of very few who sees what Germany faces.
The country is supposed to be the largest and most fiscally sound economy holding up the euro zone. So tell me: How is it going to continue its support of the weaker southern countries when its own economy stalls? It’s not, of course, and the fall out will crush Europe.
In the East, China has inflated a massive infrastructure bubble that its top-down, centrally-planned government has supported with unprecedented stimulus. That bubble is already starting to show signs of cracking. When it bursts, there will be little the People’s Bank of China, or any other central bank for that matter, can do to fight the tsunami.
Mark my words here: Real estate around the world will collapse like dominoes.
Then there’s the U.S. economy. It’s not going to accelerate back into healthy growth, like the desperate Fed hopes. Instead, it’s going to begin slowing again by early 2015, if not sooner. We have a second demographic cliff in the U.S. to thank for this.
Take a look at this chart. It shows how spending in the U.S. peaks at age 46, a fact that correlates with the general economy and stock markets (as my Spending Wave shows).
Averaging the Consumer Expenditure Survey over 10 years gives us more detailed data…
What this chart shows is that we get the most rapid increase in spending between the time the average person enters the workforce at age 20 and age 39, when they’re buying their biggest homes (I’m averaging here). That happened into 2000.
Then spending moves up more slowly and peaks at age 46, in line with furnishing those homes and getting kids through high school. That happened in 2007.
But spending continues to meander sideways into age 53, when the most affluent peak in their spending. They reach their top a little later than the average person because they went to school for longer, had their kids later, and sent them to school later than the rest. And that’s what will happen next.
And on cue, the economy and stocks first peaked and slowed in 2000, with the housing and tech bubble. They peaked again into 2007 when the larger generation hit its peak in spending.
Now it will peak again. Stocks markets will hit higher highs, despite lower economic growth — until late this year, when spending peaks for the last affluent baby boomers.
This last, artificial recovery and peak is courtesy of the Fed’s endless free money.
Now, the top 20% may seem inconsequential, but they control over 50% of spending. The top 1% control 20% of spending and 50% of wealth. This makes them anything but “inconsequential.” In fact, it’s this most affluent sector that owns most of the financial assets that the Fed’s bubbling up again.
Unfortunately, this affluent sector will undergo a decline in spending by next year, just like most households did after late 2007. As a result, the automobile sector — which also peaks at age 53 — will collapse, much like housing did many years before it, and the latest subprime build-up we’ve witnessed will cause pain as well.
Incredibly, this market continues to bubble up, despite increasingly bad geopolitical news (which is in line with the down leg of our cycle, from 2001 to 2019). Investors are more convinced than ever that the Fed can keep the economy going.
But the economy has already grown at a slower pace than economists and the Fed have expected, despite unprecedented stimulus.
Well, duh! If you understand anything about demographics and debt, that shouldn’t surprise you.
Now the Fed is finally tapering toward zero QE by October or so, just as an even bigger demographic cliff hits the U.S.! Talk about bad timing.
The thing is, the Fed doesn’t reverse its policies on a dime because that would make it look rash or irresponsible (like unprecedented money printing for over five years isn’t irresponsible!).
Besides, thanks to a lag in data, it takes the Fed a while to realize the economy is worse than it is. So I think the Fed will be behind the curve with this next downturn, just as it was in the 2008 demographic slowdown and subprime crisis.
That’s why I think the next big stock crash will start its first dramatic leg down between late 2014 and early 2015. Then the Fed will stimulate again…
Only, the next time, it’ll have much less credibility and the adverse demographic trends in the U.S., in Europe and in China will be much more powerful.
In short, make sure you’re ready. It’s going to be a rough ride ahead.
Harry
Good find, thanks.
Explains the open borders policy. The future isn’t “us”.
The giddy CNBC Democrat cheerleaders loved the improved consumer confidence report this morning. However, If the GOP does not win control of the Senate, the market will sell off big time. That is the hope and change investors are optimistic about, and it better happen or we are doomed for two more very dreary years.
Michael Pento has broadly the same view: a 20% drop in stocks followed by QE4.
Which seems reasonable - however I wonder if the waters will be muddied by 'stealth QE': otherwise known as 'extremely heavy bond purchases by the Belgians'.
I have found this website to be a very useful source of information on the economy, gold, and silver.
http://goldismoney.info/forums/
What does that mean for prospective homebuyers? Hold off until after the collapse?
I hate articles that set up the problem, and offer no solutions. The end result of the research is worthless without application.
The only reason that this economy is still creaking along is that the Federal Bank is propping it up. They continue to buy stocks and bonds. This is why the stock market keeps growing and growing. Eventually, even this help from the federal bank won’t help. Oh, there will be a crash, and the longer they try to prevent it, the harsher the crash. Here’s what I think this government will do, when the crash comes. 1) They will take all the IRA’s, and federalize it. They will “PROMISE” all those people a return of 3% to 5% of their money, along with their Social security 2) Confiscate all GOLD & SILVER from people that own them. (THEY ALREADY KNOW WHO OWNS THESE PRECIOUS METALS), and all they’ll do is take it. They will make it illegal again to own GOLD or SILVER. And we will be at the mercy of the government.
My understanding is that the Fed not only looks at tons of data (mostly of which is publicly available), but has many people on foot to see first hand what's really happening on Main Street, and to talk face to face with producers and consumers. It was this tactic that gave the Fed the edge on forecasting the economy and setting monetary policy.
Does the Fed not do this anymore? Or maybe the Yellen Fed thinks (feels?) it's no longer necessary.
“THEY KNOW WHO OWNS THESE PRECIOUS METALS), and all they’ll do is take it. They will make it illegal again to own GOLD or SILVER.”
Buying gold and silver was popular when everyone thought hyperinflation was just around the corner. Some would ask if the dollar is going to become worthless, why would the sellers of precious metals sell for soon to be worthless dollars?
Maybe you just gave the answer.
Obviously we need millions of uneducated illegal immigrants from third world countries.
Yeah, but, all we have to say/type is ‘bring back jobs now,’ in unison and we will be magically saved.
It will be a lot more than two. And what makes you think a Republican Senate will matter?
It only makes sense to buy a home for cash, which, of course, closes the market to most. Cash for a home now will likely leave you with a home that is worth less after a couple of years than the price you paid but you are not stuck with a mortgage on that price. I have no mortgage. My house is, indeed worth a lot less than I paid for it. I am happy that I own a home outright. I did not waste money. If I sell it I won’t get so much as I paid for it but what I get doesn’t go right back to pay off a bunch of bankers, not on my side of the deal, anyway.
If you are holding gold and silver during inflation, you sell just enough at a given time to buy, say, a month’s supplies and pay a month’s bills and do all your spending in one day or as fast as you can. Larger ticket items will go for a gold or silver “trade” probably in a burgeoning black market. Hard inflation always brings price and wage and everything else economic controls and spawns an instant and ballooning black market.
bump
“...the next big stock crash will start its first dramatic leg down between late 2014 and early 2015. Then the Fed will stimulate again… “
I think that the idea of stocks crashing after Republicans win big in the election is going to happen - manipulated by the powers that be (Soros, etc.). Just like happened right before Obama got elected. “Stocks fell today with investors realizing the trouble that will be coming with the newly elected republicans....”
While there is a lot of good information there are some flaws in the argument. The Federal Reserve is “forced” to print money because of the size of the Federal Government and out of control spending. It is the job of the Federal Reserve to promote economic stability. As long as the Chinese buy Treasury Bonds and the democrats obstruct economic reform than we will continue on our course until things change.
The author correctly points out the instability of Europe and China. When the Eurozone and China (relatively speaking) crashes our current levels of spending will be unsustainable. It will force a sharp reduction in the size and scope of government and social entitlement programs will have to end. Prices will plummet across the board. At this stage having the Federal Reserve will be vital in preventing a complete collapse.
The good news is America is better positioned to recover than any other nation. We will still be rich in rare materials and resources. We have (for the most part) an educated population and a developed infrastructure. A near collapse will allow us to purge the government of liberals and their Marxist programs. The herd of deadbeats completely dependent upon handouts will be “culled”. As the least unstable country in the world anybody looking to invest their money will look to America first.
It will be the mother of all economic corrections...
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