MagicPoopCannon

How A Debt/Currency Crisis Will Unfold! Don't Miss! (ICSA/ES)

FRED:ICSA   Initial Claims
Whether you realize it or not, we are on the cusp of the greatest financial crisis the modern world has ever known — and it all revolves around debt. Practically every nation in the world is in debt, but it's far worse than most people realize. You know that $22 trillion dollar US debt number that everyone always talks about? Well, that's only the government's debt. The total debt of the US can be seen in the "unfunded liabilities" numbers. That takes debts like student loans, personal debts, mortgage debts, credit card debts, social security liability, and medicare liability into consideration. When we factor all of those debts, and add it to the $22 trillion dollar number that everyone always talks about, we get a more realistic look at what the US debt situation is actually like. According to the Federal Reserve's official numbers, the US unfunded liabilities are a staggering $125 trillion dollars. To put that into perspective, the value of all US assets (our real estate, buildings, technology, intellectual property, business giants, transportation systems, infrastructure, etc.) totals about $155.8 trillion. In other words, the US's unfunded liabilities are over 80% of the entire value of our national assets. And that's ONLY the US.

Practically every other developed country in the world is in debt. In terms of national debts alone, the US has $22 trillion, China $9.5 trillion, Japan $12 trillion, Germany $2.2 trillion, UK 3.5 trillion, India $2.8 trillion, France $3 trillion, Italy $3 trillion, Brazil $2 trillion, Canada $1.8 trillion — the list goes on and on. And let me remind you, those are only GOVERNMENT debts. Not the unfunded liabilities of those respective countries.

People, we have a major global debt crisis right in front of our faces, and it's getting worse, and worse, by the day. If something isn't done to change the acquisition of debt worldwide, we will eventually see a financial meltdown like the world has never known.

In my view, here is how it will start. Since Federal Reserve banks set interest rates worldwide, they have been able to enjoy the economic benefits of growing a debt-based economy, with the LUXURY of new debt being subjected to low interest rates. Meaning, people and businesses acquire debt, at low rates that the Fed has created. However, I believe that Reserve Banks will eventually lose control of interest rates, and that is where the collapse will begin.

You may be wondering how Reserve Banks could lose control of rates. The answer is demand. Since interest rates and bond prices have an inverse relationship, I believe that bond prices will eventually crater, due to a sudden collapse in demand for debt. In other words, owning debt is becoming increasingly risky, as debt continues to climb, while NOBODY PAYS THE DEBTS!! Who is going to want to own debt, when practically NOBODY is paying it? Eventually, I think demand for debt will collapse, and therefore bond prices will collapse. When bond prices collapse, interest rates will skyrocket, regardless of what federal reserve banks want to "set" them to.

In this scenario, tens of trillions in global debt will suddenly be exposed to inflated interest rates, which will cause these debt figures to swell exponentially. The debt could rapidly grow into the hundreds of trillions, or even quadrillions of dollars. This is how I believe we could see a global currency crisis, and potentially war, as a result.

Now, there are things that Central Banks can do to prolong the inevitable. They could print more money (which they will.) They could suppress interest rates (which they are.) They could even take rates negative, like Japan did. That means that central banks could start charging depositors a fee for their deposits. The intention is to incentivise depositors to keep their money out of the banks, and circulate through the economy. It's an inadvertent form of economic stimulus, and extremely bullish for cryptocurrencies. Either way, the outlook is very grim, in terms of global debt.

So, when can we expect this crisis to erupt? Well, I think it will be born out of the next recession. And I believe that the next recession is most likely less than 18 months away. We've seen an inversion of the yield curve. We've seen the Fed reverse course on rates, showing us all that they are too scared to hike 0.25%, for fear of collapsing the market, causing a recession, and a debt crisis as a result.

I fully expect to see the US Federal Reserve cut rates again, AND return to QE . They will pump the economy with worthless money hot off of their presses, and they will probably be successful at temporarily preventing a complete collapse. But folks, this system is BOUND TO FALL, and eventually, it will.

So, the chart in front of you is something that I've shared in the past. It's my personal recession indicator. I know that
other people follow the initial claims movement as a recession signal, but I have tweaked it to perfection. The blue line is the Initial Jobless Claims. The Pink Line is the S&P 500 . As you can see, when the 25 MA (in orange) crosses above the 100 MA (in green) it has corresponded to an absolute peak in the market, and a subsequent recession. In October of 2000, the signal triggered right at the top of the dot com bubble. Then, in October of 2007, the signal triggered again right at the market high before the Great Recession. Now, the stock market is nearly three times higher than it was then, all thanks to the trillions of dollars of worthless money created by the Fed, during QE1, QE2, and QE3. All I'm waiting for, is the next signal. When that orange 25 period moving averages spikes above the green 100 period moving average, the recession will be just getting started.

As a side note, US unemployment is at record lows, and it tends to bottom out before a recession. I believe that the US labor market is reaching a point of saturation, and that will likely cause growth to stagnate, which will contribute to the emergence of a recession.

#PoopLovesYou

I'm The Master of The Charts, The Professor, The Legend, The King, and I go by the name of Magic! Au revoir.

***This information is not a recommendation to buy or sell. It is to be used for educational purposes only.***

-JD-

Comments

Thanks for the great piece of work here! Now a very important question :)

What can someone do to maximise profit during this upcoming recession? Short S&P? Buy precious metals? ....
+28 Reply
ArsenB Milamansi
@Milamansi, @MagicPoopCannon good question.. an answer is welcomed.. thanks!
+1 Reply
apsnt Milamansi
@Milamansi, Yes, all sorts of hedging.
Reply
Poop, what are your thoughts on how to trade an upcoming recession?
+18 Reply
Debt is one thing...don't forget the massive expense of climate change progressing as it is...consider PG&E's bankruptcy due to the California fires of 2018 and 2017. This is the canary in the coal mine. These types of events are just going to escalate, putting further burden on debt driven financing for recovery efforts - we'll continue to ask "who is going to pay for it?" and the buck will be passed on until its too massive for any one entity to absorb. Not to mention the threat of rising sea levels leaving properties on the coast virtually worthless...people will walk away from their mortgages once again.
+7 Reply
vox-populi HecknDoggo
@HecknDoggo, gotta start buying that future waterfront property about 200 miles inland!
+6 Reply
HRoark64 HecknDoggo
@HecknDoggo, interesting. Friends’ families in HI and CA been there 50 years and it hasn’t risen an inch. Now we’re heading into solar minimum for a decade (maunder minimum?). #junkscience
+4 Reply
HecknDoggo HRoark64
@HRoark64, That's fine to feel that way - ignore the climate data at your own peril.
+2 Reply
@HRoark64, @HecknDoggo, "Junk Science" and yet 99% of climate scientists and 99% of scientific articles published on the matter agree that is real it to be real. Ignoring real data from real experts doesn't make you intelligent, it just makes you look stupid.
Reply
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