A little more than two years ago, economist John Williams of shadowstats.com predicted a “severe recession” was coming and soon. At the time, I was working as an investigative correspondent for CNN. I interviewed Williams for a story about the coming financial crisis. Most so-called experts, at the time, did not see the financial meltdown coming, let alone that all the banks were in trouble. Williams’ assessment of the economy was spot on in 2008. I don’t see how you can characterize what we have now as anything but a “severe recession.” Accurate information is the first and foremost reason to use someone as a source when you are a journalist. In my experience, what I have gotten from Williams has been stellar. (Click here for the 2008 CNN story featuring Williams and his predictions for the President in 2012.) (Click here for shadowstats.com)
Williams also predicted 2 years ago we would have a “hyperinflationary depression” within 10 years. Then, about a year ago, he revised his prediction and narrowed the window to “five years.” The day before last Friday’s dismal jobs report, Williams said, “. . . the timing of the looming U.S. financial Armageddon is coming into better focus, with increasingly high risk of it breaking within the next six months to a year.”
“Financial Armageddon . . . within the next six months to a year.” I called Williams to see why the odds of calamity have accelerated. He told me on the phone last night, “What is happening now to bring the timing into focus is the economy IS turning down. It is no longer the perspective the economy is going to turn down. That, in turn, will eventually trigger all the problems with the dollar, the debt and the deficit.”
For confirmation the economy is rolling over, look no further than the awful jobs report from the government last Friday. The Bureau of Labor Statistics (BLS) reported July payrolls fell 131,000. To add insult to injury, the June jobs number was revised downward. The economy lost 221,000 jobs which is considerably more than the 125,000 the government reported last month.
You want more confirmation the economy is in the tank? Also, last week, the government revealed a record 40.8 million Americans are now on food stamps. More budget woes can be seen at the state level. Congress just passed an emergency aid package worth $26 billion to save teachers’ jobs around the country. States are facing $200 billion in shortfalls in the coming months. California is one of the worst, with a $40 billion budget hole to fill. Commercial and residential real estate is still losing value, and set to take another plunge.
So, what’s the government doing about the economy? The Fed has set interest rates at near 0% for more than a year and a half. The economy is not taking off. According to a recent article from financial writer Jim Willie, who has a PhD in Statistics, “Never in US history has a recession struck after several extended months of emergency ultra-low interest rates. This will be the first such occurrence. The policy response from the USFed must therefore be limited. They cannot reduce the official interest rate, unless below 0% (which did happen briefly in Japan). The nation stands on the doorstep of hyper-inflation. The only available tool within the USFed tool bag is Printing Pre$$ activity, pure monetization of both USTreasurys and USAgency Mortgage Bonds.” (For the complete Willie article click here.)
How much of a chance is there the Fed will just print money to pay bills? When asked how the Fed was going to stop the slide in the economy on CNBC, St. Louis Fed President James Bullard said, “Quantitative Easing is our best bet.” For us regular folks, QE means printing money out of thin air. I talked about this in a recent post called “Money Printing Is Our Best Bet.”
How fast could things go downhill when real trouble starts? Mallory Factor at Forbes laid it out nicely in an article last week called “Collapse In Internet Time.” Factor writes, “In an age when billions of dollars in securities are traded in nanoseconds, when a 24-hour news cycle seems long, why should national decline be exempt from what the Germans call Zeitgeist, the spirit of the age? The Book of Revelation, speaking allegorically of ancient Rome, states, “Alas! Alas! You great city, you mighty city,Babylon! For in a single hour your judgment has come.” Ancient Rome surely did not expect its sudden fall any more than the Soviet Union did in 1991, or than Americadoes now.” (Click here for the complete Forbes article.)
Ultimately, the immense debt and deficits of the United States will crush the dollar. In his most recent report, Williams says, “The unfolding renewed decline in economic activity now is likely to be one of the proximal triggers for an even greater systemic solvency crisis, one that will pummel the U.S. dollar, threaten the solvency of the U.S.government and set the stage for a hyperinflation in the United States. In turn, such a crisis would exacerbate the intensifying downturn into a hyperinflationary great depression.”
No one knows exactly when the buck will buckle, but it looks like the dollar will take a short walk off a tall building a lot sooner than later.