How Safe Is the U.S. Economy from Economic Collapse?
Monetary cocaine is the only thing staving off a U.S. economic collapse and it’s something President Obama and the Federal Reserve don’t want to talk about.
The world economies and power brokers helped to finance the six-year bull market by injecting the global money system with cheap capital. The problem is that the world is so used to easy money that stock markets around the world are addicted to its flow.
While the easy money was the culprit for the market gains, we are now seeing the dependence on it and the reluctance to come off it.
When European Central Bank (ECB) head Mario Draghi announced the ECB was worried about the state of the eurozone and hinted that more monetary stimulus may be added at the central bank’s March meeting, stock markets around the world collectively rejoiced.
This dependence on easy money is dangerous. We are seeing the effect now on the stock markets.
Monetary Cocaine Is Root of Problems
Oil is getting hammered on global oversupply. This dire situation was created by the massive building of oil rigs and fracking technologies that were, in turn, fueled by historically low interest rates and the massive buildup of debt on the balance sheet.
The reality is that the debt-driven economic buildup has created a world with overcapacity amid stalling demand.
Simply look at China. Beijing pumped over a trillion dollars into the building of manufacturing capacity, infrastructure, and residential and commercial buildings. The problem is that many of these expensive projects now sit idle with little hope of success.
Of course, America under former Fed chair Ben Bernanke also injected over a trillion dollars of stimulus via three phases of quantitative easing (QE) to support the economy and Wall Street. However, now the easy money is over and we are paying the price.
I have commented numerous times in the past years that the Fed’s strategy would drive up debt levels to dangerous levels that will impact future generations. The country currently has more than $18.0 trillion in national debt and that total is growing. Interest rates are low now, but any increase makes the financial situation exponentially worse.
Think of it this way: When an individual or company faces financial distress, the only valid option is to cut spending and control the balance sheet. The problem is that this really didn’t happen due to the cheap financing options filed by the Fed and global central bankers.
Folks, we are at a breaking point that could worsen, especially if central banks around the world continue to pump money into a broken system.
I even heard some economic pundit on CNBC calling for the Fed to pursue QE4 amid the current global chaos. However, I doubt another round of quantitative easing will surface unless the economy moves back into another recession or slows even more.
Central Banks Keep Foot on Money Printing Press
Yet for those who like the easy money, there will continue to be pockets around the world.
Japan is thinking of more easing that will add to a national debt that is rising way too quickly and dangerously relative to its gross domestic product (GDP). Prime Minister Abe has spent his way to a recovery, but the economy is again showing some signs of stalling. The solution will be more money.
Then there’s the Chinese economy. China will likely cut interest rates again and pump more fiscal spending into its economy to avert a crash landing. The problem is that the country is on dangerous ground already, faced with an economy where the real growth is probably much lower than reported in the media. While I continue to like China long-term, the country has numerous immediate hurdles to deal with that could wreak havoc on the world economies and stock markets.
International Monetary Fund (IMF) Managing Director Christine Lagarde sums it up best, suggesting the world central bankers need to keep their collective foot on the monetary easing pedal to avert an economic collapse. Stock markets rejoiced after hearing this.
My thinking is that there needs to be a real fix to the economic system rather than simply pumping money and providing a bandage solution.
And that’s something mainstream analysts don’t want to talk about.