Ep. 362 – A Total Collapse

The Kapital News
The Kapital News
Ep. 362 - A Total Collapse

Another week and an additional 4.4 million Americans have filed for unemployment insurance. This take the five week total to nearly 26.5 million. These last five weeks of job losses have entirely outstripped the job gains since the end of the Great Financial Crisis (GFC).

PMI figures have also been published globally and we are witnessing levels in both manufacturing and services that are nearing levels not seen since the GFC. In some cases, they are even worse.

The Federal Reserve has updated its balance sheet, which now stands at nearly $6.6T and counting. This represents an increase of around $200 from the week prior. If this rate of increase remains, then we are talking about an increase of $10T on an annualized basis. If this happens, the Fed’s balance sheet would be around $14T. This would then represent about 70% of US GDP. Most of the gains on the balance sheet were from purchases of US Treasuries and mortgage-backed securities. Of course, there is little outside demand for US Treasuries, which is even why a recent analysis by Goldman Sachs suggested that nearly 70% of new Treasury issuance will be purchased by the Federal Reserve. This is virtually debt monetization and more reminiscent of a banana republic as opposed to a Constitutional Republic. There is no free lunch and per a previous podcast, “Free Was Never So Expensive.”

We lastly discuss some recent surveys that highlight the economic and behavioral changes that we’re likely to see once the economy is “opened” up for business. When asked about receiving government spending money directly and what would you do with it, the largest responses were the following – savings, everyday expenses, and payoff debt(s). A handful of other options, primarily centered around spending, all received a response around 5%. Then there was another survey that asked if stay-at-home orders were lifted, how comfortable would you be going to bars and restaurants, getting on an airplane, and going to a large event – by factors of 3 to 1, people would not feel comfortable with those options. This simply confirms what we have been discussing here for weeks – and that is how people will be changing their spending habits and behavioral “norms” for the foreseeable future, which will translate negatively with respect to the economy on a short and mid-term basis. On a longer-term basis, this kind of deleveraging is healthy for an economy and is part of the broader correction. This is a process and will take time. And the more the government tries to “help” the worse the outcomes will be and the longer it will take to recover. Stay diversified, stay vigilant, and stay with The Kapital News. #Economy #Jobs #Recession #Debt #Gold #Depression #USA #EndTheFed #Congress #Bailouts #Oil

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