Economic Collapse Is Accelerating

 |  Includes: DIA, QQQ, SPY
by: Jeff Nielson

In writing about economies, it is rare to obtain instant validation for one's analysis, however today marks one of those rare occasions. In yesterday's commentary (“U.S. economic propaganda hits fevered pitch”), I scoffed at claims that the housing sector had “stabilized” and that a “U.S. economic recovery” had already started.

I started by pointing out that the fundamentals in the U.S. housing market made it crystal-clear that this sector would continue its collapse for many more years. Today, foreclosure data was released showing that for the third time in the last five months foreclosures had set a new, all-time record.

Combined with “walk aways” (homeowners who voluntarily default and vacate their homes), the total number of homes repossessed approached half a million units in just one month. This means the U.S. is now on track to exceed 5 million foreclosures and repossessions this year – greater than the expected total sales in the U.S. real estate market.

However, at the pace that U.S. banks were selling foreclosed properties in July they would only sell around 1 million foreclosed properties this year. This means that unless U.S. banks stop holding foreclosed properties off the market and dramatically increase the number of foreclosed properties they list on the market that they could add up to 4 million housing units to the millions of foreclosed properties they are already holding off the market.

I continued with my analysis yesterday by pointing out that putting aside the outrageous lies from the U.S. Bureau of Labor Statistics, U.S. unemployment was still at catastrophic levels, and there is no real improvement. Today, the experts were “surprised” that weekly lay-offs increased from the “upwardly revised” total from the previous week.

I would note that U.S. lay-offs are revised higher almost every week. This is part of the game being played by the U.S. government with its propaganda. Knowing the market reacts much more to preliminary estimates than final, revised figures, the U.S. government simply lies in virtually all of its preliminary estimates of economic data – putting out a more positive number than their own data indicates, then revising it to more realistic totals when people are no longer paying attention.

In the case of U.S. unemployment, one of the reasons I gave yesterday as to why the U.S. job-market would continue to deteriorate at “Great Depression” levels was that the U.S. retail sector was in a self-perpetuating downward spiral. Decades of U.S. consumers borrowing to sustain their spending had left them more in debt than any other people in the history of our species.

Not only are these consumers unwilling/unable to borrow any more money, but now they have been forced to start paying off debts they accumulated in their borrowing-binge. In relative terms, the Obama “stimulus package” was simply much too tiny to offset this huge loss in spending power in this consumer economy.

Thus, while it was no “surprise” to me, all the U.S. “experts” were surprised when July retail sales fell in the U.S. - without even factoring in inflation. Add rising inflation into the equation, and the July numbers showed that U.S. consumers purchased MUCH fewer goods, at a time when back-to-school shopping is supposed to surge.

It is utterly absurd to talk about a “bottom” in the U.S. housing sector with foreclosures hitting all-time records, defaults hitting all-time records, and both numbers still rapidly accelerating. For roughly the 100th time, I will point out that we already know the U.S. housing market will be much worse in 2010 and 2011 due to the spike in mortgage resets which are guaranteed to occur over the next two years (see “U.S. mortgage-crisis to get MUCH worse in 2010-11”).

It is utterly absurd to talk about unemployment improving when real numbers show that the U.S. economy is losing more than 1.5 MILLION jobs every month (see “U.S. economy to lose 20 MILLION jobs this year”).

It is utterly absurd to talk about the U.S. retail sector “stabilizing”, when the U.S. economy has lost roughly $2 trillion per year in consumer spending.

More importantly, all these downward trends aggravate each other. Rising job losses (and falling wages) guarantee that U.S. consumers will spend less and also increases the numbers of foreclosures.

Reduced spending means increasing job losses in the massive retail sector, which then leads to a jump in foreclosures.

Rising foreclosures dramatically reduce the wealth of Americans, which automatically reduces spending. The drop in spending, in turn, leads to yet more job losses.

With all three of these categories of the U.S. economy at Great Depression levels (or worse, in the case of the U.S. housing sector), only a massive stimulus package can inject enough spending-power in this consumer economy to halt this self-perpetuating downward spiral. Such massive spending requires massive money-printing – since the U.S. can't even borrow enough to finance its current (enormous) deficit. Printing that much money would destroy the U.S. dollar – and very likely lead to U.S. hyperinflation.

These are the real fundamentals of the U.S. economy. Those who choose to listen to the “don't worry, be happy” mantra do so at their own peril.