Why the US will have the Biggest Crash the World has Ever Seen

[Madmick]

So are we ready to stick a fork in this Chicken Little?

 

[Lee978]

So its been a while. Jack, could you summarize the terms of this bet again?

 

[Jack V Savage]

So its been a while. Jack, could you summarize the terms of this bet again?

This is what was proposed:

OK. So I have your sig for a year and you have to start a thread on why I was right if by Dec. 31 2015, there has been no additional QE in America and if the end-of-February 2016 Q4 2015 GDP estimate is higher than the end-of-February 2015 estimate of Q4 2014 GDP? Meaning that our bet is settled on the announcement of the second Q4 2015 GDP estimate? And if there has been additional QE or the YOY Q4 GDP is negative, you have my sig for a year and I start a thread on why you were right.

But Greoric said after accepting that he thought he was betting on whether Q4 2015 YOY growth would be higher than Q4 2014 YOY growth was. In the context of the discussion, it makes no sense to me that he could have made that mistake, but I told him that I won't hold him to a bet that he didn't intend to make. Under the original terms, he'd be way behind at this point.

 

[Greoric]

Hey guys,

It's been awhile since I've been had a good chance to post in here, and I wanted to touch base with a few items. Wow, there's a lot to cover though.

In terms of the bet, Jack summarized it fairly. I admitted to him it was my oversight on the GDP issue. In hindsight, it seemed like a safe assumption to me considering in the last GFC we didn't see the GDP drop until 2010 despite the acuity of the contraction in 2008, hence why I assumed growth rate instead of GDP proper.

http://www.tradingeconomics.com/united-states/gdp

http://www.tradingeconomics.com/united-states/gdp-growth

As far as the interest rate hike goes, it's just a posterity game as far as we're concerned. The Fed knows they're in a damned if they do and damned if they don't scenario. They can raise rates 25 basis points to 0.25% and risk having to revert back to 0% shortly after and possibly into negative territory with another QE. That's basically the death rattle of the dollar's value at that point though. Or they stay at ZIRP and just start up QE4 from there, which results in the same eventual swan song for the dollar as the reserve currency.

http://www.bloombergview.com/articles/2015-05-31/monetary-policy-for-the-next-recession

Throwback to February...

Herein lies the crux of what I'm saying. The recovery is going to require ever more liquidity to fight the deflationary pressure. I'm sure it hasn't escaped you that we started out at 1% after the NASDAQ bubble, then we had to go to 0% with the GFC, then QE1, QE2, Operation Twist, then the biggest QE of all... QE3. They keep ratcheting the anti up. They have to or else all the leverage that's been created in private equity and treasuries will fall away, hence my prediction for QE4.

http://davidstockmanscontracorner.com/wall-street-r-i-p-the-bubble-is-dying-at-the-zero-bound/


The third and least likely possibility considering the Fed's recent history is an unprecedented normalization of rates. Here all the bubbles that we've been built up since the 80s, student debt, equities, derivatives, and bonds are going to implode and it will be extraordinarily painful (but necessary). This is the only option that will save our country as we know it, because it will purge the market of all the bad investments and keep the government in check with more realistic borrowing costs.

That said, things right now are looking hairy. No one will deny that we're having a very acute deflationary pressure around the Globe... Canada, Brazil, the Chinese stock market are contracting. Not to mention the Greek and Puerto Rico debacles to boot.

http://www.blacklistednews.com/World_Trade_Drops_Most_Since_Financial_Crisis/45150/0/38/38/Y/M.html

On the home front, I'm sure no one has missed the collapse in commodities (Dr. Copper and Crude especially). Stocks are trading sideways over 6 months and are down over 3 months. The correction is already here, and this is no blip in the market. The slide has already started and its going to get a whole lot worse before it gets better.

http://www.businessinsider.com/stock-market-crash-2015-7

http://seekingalpha.com/article/335...reaming-that-the-next-economic-crisis-is-here


Throwback to the fundamentals of what's going on...

More important to understand is the wedge that’s created with the misallocation propagated by the false credit signals, between how much people are actually deferring to savings, how much they’re consuming, and how investors interpret the market signals in terms of interest rates that provide information about the former two.
Interest rates lower than the representative savings, for example when people have actually consumed much more than they’ve saved, sends the opposite signal to investors. They interpret the low interest rates to mean people are deferring that consumption until later. Thus in response to a lower price of credit, they embark on longer term projects.
So leading up to the GFC, you had people consuming substantial amounts of their income, while investors like real estate developers were responding to the low interest rate signal and building whole neighborhoods that could never have been bid on considering the actual levels of consumption, debt, and limited savings.

Finally, while the plural of anecdotes doesn't necessitate evidence, these are interesting pieces to look at also...

https://brettdanko.wordpress.com/2015/03/26/financial-repression-has-cost-u-s-savers-470-billion/

http://thehill.com/blogs/pundits-blog/finance/241836-reckoning-for-the-fed