2019 – “The Great Recession” Redux

At first, I thought all this talk of the United States moving into another recession was just fake news to scare folks away from President Trump; However, I think there is more to it than just fake news now.

Several friends involved in the manufacturing industry are all reporting to me that orders coming in are slowing down. In some cases, lay-offs are happening and overtime has become a thing of the past. Then a friend in the investing world told me about the troubles the big banks are having with covering their expenses and investment shorts. I figured it was time for me to do a little research and to make up my own mind.

Based on what has been going on behind the banking scenes overnight makes the 2008 Troubled Asset Relief Program (TARP) pale in comparison. A common practice overnight between banks is to loan each other moneys to cover short term expenses or stock price purchases/payouts. The fee between banks typically is 1.75 to 2.0-percent. Over the past summer that gentlemanly rate between banks has risen to 10%. The main reason being money is in short supply. Short supply generally means loans by banks are at an all-time high.

Monday of this week, the Federal Reserve (Fed) jumped in and opened their discount borrowing window and offered banks money in the 1.75 to 2.0-percent rate. To put that into dollars, the Fed made available $55B of newly printed money Monday night of last week to loan out (Fed Repo). That money was exhausted in no time. The Fed increased the loan amount for Tuesday night to $75B and again the money was exhausted quickly. They did this for Wednesday, Thursday, and yes Friday too. A 2019, $350B version of TARP was loaned out without Congressional approval last week. Rumor has it that $2.2T has been set aside by the Fed to loan out going forward. Just for reference the 2019 Federal budget was $4.74T.

Reuters – The exact cause of the squeeze is a matter of some debate, but most market participants agree that two coincidental events on Monday were at least partly to blame. First, corporations had to withdraw funds from money market accounts to pay for quarterly tax bills, and on the same day the banks and investors who bought the $78 billion of U.S. Treasury notes and bonds sold by Uncle Sam last week had to settle up.

Now let’s look at the US Stock Market and why in part it is going through the roof. Many of us do not care why the market is doing well as our 401K’s are looking sweet. But what is causing it? In large part European investing houses are putting customers money into the US market because their markets are flat, and many European central banks are offering zero interest rates (Negative Interest Rates). The European central banks are doing this because if the economy goes down the toilet having 95% of today’s assets is better than having let’s say 50% of tomorrows assets.

Let’s look at US Treasury bonds now. If you buy some of the government’s debt the US Treasury is paying an interest of 1.88% for one year. Below are rates as offered Friday, from 6-months out to 30-years.

Time 6 Month 1-Year 2-Year 3-Year 5-Year 7-Year 10-Year 20-Year 30-Year
% 1.92 1.88 1.74 1.68 1.66 1.73 1.79 2.04 2.22

Compare the one-year rate to the 10-year rate. It is in essence flat so we are experiencing a Flat Yield Rate which is typically the harbinger of a recession.

With the tin foil hat firmly atop my balding dome, will a Democrat Socialist presidential candidate de jour win over Trump if we find ourselves in a recession as we approach the November 2020 election? If a Democrat Socialist won the presidential brass ring, I suspect the House would remain Democrat, and the Senate would flip to the Democrat side too. If the above did happen I hypothesize that America would become Socialist and Capitalism would be forced to ride in the back of the bus not unlike 1932-39 with the then new President Roosevelt in the White House. Remember what old Ben Franklin said, When the people find that they can vote themselves money, that will herald the end of the republic.

Add to the above horror story a natural or manmade catastrophe e.g. Hurricane, Tornado, Dust Bowl, Floods, an attack on our electrical grid et cetera, how far off would we be from bullets being traded in the streets I wonder.

If you too are concerned with the metrics I point out and others I have yet to address, may I suggest and for legal reasons they are only suggestions – You tackle the list below;

  • If you have your money in a large corporate bank, move it to a local small (Under 6-branches) bank or credit union now.
  • Have on hand a minimum of one month’s household expenses.
  • Pay off and or down, your debts. No credit card debt would be optimal.
  • Look at your three B’s on hand – Beans, Band-Aids, and Bullets. By not using credit shore up those areas of concern.
  • Turn some saving’s and or investments into tangibles.
  • Strategize on what you and or your family will do if the top breadwinner of the household loses their job.
  • Get your Communications squared away. If your grid goes down so does your cell phone towers even if they are backed up with generators.
  • Get right with God.
  • If all of the above is squared away, maybe it is time to buy PM’s (Precious Metals). Focus on silver at first especially pre-1964 coins also known as junk silver. I like the ratio of 3:1 silver to gold. Remember you use silver for small purchases and gold for larger like a horse, cow, tractor, land, et cetera.

In closing, take a minute to do a “search” of these subjects; Fed Repo, Yield Curve, and EU & Negative Interest Rates. Get educated and act accordingly.

Pleasant dreams folks!

Freedom Through Self-Reliance®

 

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25 Comments

  1. BLACK September 22, 2019 at 08:05

    i’ve been tracking the scrap steel market since about 94. in 94 a gross ton [GT 2200 LBS] was selling for $40/GT . 2008 -2010 some where it went up to $400 for a few weeks. when orange man took over. it was $140/GT , last week it was at $30.. that is 25 years worth of growth wiped out.because of manufacturing decline.

    • johnyMac September 22, 2019 at 12:03

      BLACK, part of that drop in scrap steel price is because the USA is making steel again. We have seen an increase of over 10% steel production since the Orange Man took office. While China and the EU are tied for the number one spot, the USA since 2016 has moved from 5th to 4th place in the worlds steel production. I have not seen 2019’s production forecast but I will bet ya’ a dozen donuts that we saw another increase in steel production.

      Thanks Brother for your comments.

  2. Mike September 22, 2019 at 08:43

    I suspect a 2020 communist sweep in the event of a recession will also lead to the nationalization of private IRA and 401k retirement accounts in order to “save” the Roosevelt Social Security Ponzi scheme. I’m betting they would move fast in order to keep people from closing those accounts despite existing tax penalties. I am contemplating taking that step myself at this point with at least some of those funds and purchasing an established farm in a strategically remote area. I figure i can afford a better place with the involvement of my life savings instead of settling for what I can afford by way of a mortgage at the moment. I also figure it would be harder for them to get me off my place after the fact than it would be for them to just take the funds by congressional action. I have looked into it a bit and it is a big step to take. Almost everything I have read on the subject assumes you are looking to only borrow a portion of your retirement savings and repay it back into the account. None of the hardship exemptions that would evade the IRS 10% tax penalty would work for me, so it looks like i could expect to lose about 1/3rd of what I take out by way of income taxes and the 10% penalty. I have not seem any serious discussions about such a course of action in any of the main stream financial advice sources, Does anyone have any thoughts?

    • johnyMac September 22, 2019 at 11:53

      Interesting Mike.

      I am in no way suggesting that you close your 401K for the obvious reasons you listed, e.g. taxes however here are two stories of friends that did this back in the early days of Mr. Obama’s Presidency. Of course we were in the midst of the Great Recession at the time.

      I very close friend was laid off but found a job quick enough back in 2009. While in layoff mode he cashed out of his 401K from the previous company and bought into a piece of property and house along with buying some PM’s. Yupper, his tax penalty was high and his wife although supportive was not really happy about it. His accountant was furious. LOL. Anyway, I was talking to him about it awhile back and I asked him if he had any regrets. His response was “No!’ He went onto explain to me that the 401K to him was a mirage of sorts but the property is something he can touch. He also shared with me that the purchase of the PM’s was not an investment but an insurance policy against when the US dollar ceased to hold the value it does today.

      A neighbor needed a new tractor the one he was using was 50-years-old and could not do what needed to be done anymore around the farm. He too cashed out his 401K and bought a used 95hp tractor. At dinner one night I asked him if he felt today that he made the right decision cashing out his 401K. He too said, Yes. And I would do it again if I had to.”

      Your call completely Mike. Cashing in ones 401K is a scary proposition. You need to weigh the benefits vs. pitfalls, however, owning a tangible that works for you is hard to beat.

      Let me know what you decide Brother! Thx for reading.

  3. XP September 22, 2019 at 12:32

    How much gold and silver should one buy?

    • johnyMac September 22, 2019 at 12:54

      XP,
      Every bodies situation is unique however I will share with you and the AP readers what ratio I used. Let’s use $5,000 as a make believe amount of money you want to use to buy some PM’s. I would go 3 parts silver to 1 part gold. So 75% of $5,000 is $3,750 for silver and $1,250. Spot silver & gold price + 5% commission = $18.87/$1,593.59. In this scenario you would buy a tad less silver so you could buy the one-ounce of gold.

      I few things to remember…
      > Silver is for daily things you may need to purchase, e.g. food, fuel, doctor visit, seeds, tools, et cetera.
      > Gold is reserved for BIG purchases, e.g. transportation, property, live stock, et cetera.

      Just in my opinion now, when you buy silver buy less one-ounce silver rounds than good old pre-1964 silver coins. The junk silver is more recognizable than nice shinny one-ounce USA Freedom Rounds.

      Last, remember you are buying PM’s as an insurance policy against the US dollar going into the toilet. It is NOT an investment!

      I hope that helps Brother.

  4. XP September 22, 2019 at 12:45

    Cashing out your 401k or your IRA is a calculated risk. If you know for certain that they are going to be confiscated — and both Warren and Sanders have stated support for this through a ‘Wealth Tax’ — then I would think you don’t have a choice but to cash it out and pay the penalty. You won’t be getting your withdrawals but you have tangible items, and PM’s, which are going to become the new assets needed in place of the retirement income you had once hoped for. Do I have the balls to do it?

  5. XP September 22, 2019 at 14:58

    JohnyMac, thank you. The “Reply” link does not allow me to post directly to comments. Where are a few sites or places I can get the metals? I would like to understand your $18.87/$1593.59. That calculation equals 0.011. Since I have not yet contemplated this purchase I do not know what you are explaining, but I can get a vendor to teach me. T.Y.

    • johnyMac September 23, 2019 at 09:54

      XP,

      Spot silver price X business commission charged to you = your price. Today, $18.47 x 1.05% = $19.39
      Spot gold price x business commission charge to you = your price. Today, $1,519.60 x 1.05% = $1,595.58

      So silver/gold is $19.39/$1,598.58

      Search Precious Metal Sales. I used Lear Capital however there are a whole host of others out there like, Rosland Capital. The commission that is charged ranges from 3% to 6%. The more you buy the lower the commission will be. Another good spot to buy silver or gold is local pawn shops. They usually sell in the 3% to 4% commission range.

      I hope this helps.

  6. Mike September 22, 2019 at 18:41

    Thanks for sharing those stories JohnyMac. I suspect that few who chose to withdraw their retirement funds with a solid plan in place to buy a lifetime home or other tangible property will end up regretting that choice. Since I have some serious reservations about the future value of the US Dollar and the future of the United States itself, it seems to be a simple choice of use it or lose it to me, so the choice has already been made for me by the circumstances we are in. I have already changed my investments from stocks to bonds and money market funds in preparation for this move and so as to avoid losing my shirt again (2001, 2008) , if the stock market tanks, which it could do any day now. Thanks again and best regards to all.

    • johnyMac September 23, 2019 at 10:02

      Mike,
      MrsMac and I only have 15% of our entire portfolio in stocks anymore. The rest is in a cornucopia of “safe” investments like annuity’s and bonds. These tools will out pace inflation and during the annuitzation phase give us income during our retirement years.

      Take care Brother,

  7. Anonymous September 22, 2019 at 18:50

    5

  8. Crazy Stevo September 22, 2019 at 22:28

    My wife works for the U.S. Trustees office and bankruptcy cases are on the rise. Happened in 2008 also.

    • johnyMac September 23, 2019 at 10:11

      Looking back 10-years, bankruptcy reached its zenith in 2010. In 2018 we reached the lowest point in 10-years. There has been an increase of 2% year over year – 2018/2019; However, it is still very low when compared to 2010 which was 170% higher than 2019 bankruptcy’s.

      Thanks for reading Crazy Stevo.

  9. Bryce Sharper September 23, 2019 at 13:57

    Modern Monetary Theory is the dominant monetary framework of the past 40 years. I’ve struggled to understand it, but it does explain why modern economies can go so far into debt and not collapse.

    My friend explained it to me this way:

    GDP is composed of
    1. Government spending
    2. Business investment (spending)
    3. Personal spending
    4. Net exports (other nations’ spending)

    See a pattern?

    Growth is spending. Period.

    And, it turns out ‘standing of living’ your ability to acquire goods and services through spending.

    When you cook your own dinner, your quality of life may go up. But your standard of living–economically considered–goes down. Think about these implications.

    Your standard of living is markedly better than your parents, even though the PPP of the USD is lower.

    Now, pull out a dollar. It says: This Note is legal tender for all debts public and private’

    But the Dollar itself is ‘fractionalised’ i.e., it is printed on the basis of some ‘underlying’ … i.e., it is, itself, debt.

    We issue debt. People and countries buy it. We pay debt with Dollars. Which themselves are debt.

    SO, I think our ability to tax is about maintaining the perception that our debt obligations will be honoured.

    Yes. It’s a circle. Yes, it’s all perception.

    The Hard Money Traditionalists can’t get their heads around that. They say ‘yeah, but ‘in the long run’…) and Keynes said ‘Right. In the long run, we’re all dead.’ He was right. But he was also gay: no kids. Yet, your kids will have a higher standard of living–and hence, quality of life…than you.

    Unless and until? Well, we have to explain why other countries–democracies with trust economies (e.g., Japan) haven’t imploded…Japan’s Debt/GDP ratio is north of 200% and they CANNOT create inflation, as much as they try. That’s the opposite of the traditional explanation.

    Proponents of MMT tend to be socialists and moralizers. Both are bad when wielding such a powerful tool/weapon as the levers of our currency. Obviously, socialism is totally corrosive to the moral fiber of any nation. We know this from reading about Rome.

    If you want to learn more about MMT, start here:

    http://neweconomicperspectives.org

    • johnyMac September 23, 2019 at 17:16

      Great stuff Brother. Thanks for sharing with the group!

  10. Matt in Oklahoma September 23, 2019 at 14:07

    I always twinge a little when paying off the credit card thing comes up. I payed off everything at one point and was debt free. I was also credit free. I found myself, after a bad wreck, needing a vehicle immediately and decided to get a loan and buy a good one that I could pay off in a few years and go from there. I had no credit. The banker was stumped but impressed. I said yup I’ve been free for years but they couldn’t give me a loan because of it. They started looking for toys as collateral but I don’t own any seadoos, boats (well a little 15yr old bas buggy) or ATVs. I coulda payed cash for it but didn’t want to wipe out the savings. I had to get a credit card buy my gas then pay it off for 6 months to “have credit”. So even if you pay it off don’t tear it up just run a low balance and pay it off monthly and maintain good credit.

    • johnyMac September 23, 2019 at 17:29

      Matt in OK, that’s called “managing your debt”.

      I just bought a new car – For me, 2018 with 24,000 miles on it. I was able to negotiate a great deal because my credit rating was through the roof and I knew what I was looking for as I went into each dealership. After three dealerships, with the sales manager hanging onto my right leg as I tried to walk out of their separate dealerships. The fourth one just said, “O-kay, what are you willing to pay and what interest rate do you want?” I named my bottom-line price for the vehicle I wanted & they had in stock and interest rate I was willing to pay. He said, “Done!” He stuck out his hand and we shook.

      MrsMac and my credit as stated earlier is outstanding. It became outstanding in major part because we do use credit cards and pay them off each month. We have had loans before but typically pay them off in half the time than was originally negotiated. This NOT TO BUST ON you or any other reader. I share this story so people can work with their credit not unlike investing well, not being greedy, and being married for 44-years. Ya’ got to work at it. It is a secondary and in some cases a third job.

      Thanks Matt for sharing your story. It is a good lesson to all. \”/

  11. Matt in Oklahoma September 23, 2019 at 19:27

    Definitely not a bust or negative. I’m the first one to admit I was unprepared to deal with finances. I want others to learn that debt free in this world you still need credit.
    I’ve progressed greatly as we all should with age and experience.
    Financial preparedness is extremely important.

  12. Bryce Sharper September 24, 2019 at 11:51

    Matt,

    “Financial Preparedness is extremely important.”

    Yep. I wished I was taught more about finance growing up. The Silent Generation and early Boomers born immediately post-WWII could still expect pensions and social security. They paid little for housing. The USSA is much different.

    To a banker, debts in the form of loans are actually assets. In other words, when you take out a loan, you owe the bank the principle + interest which is an asset to them. As MMTers explain, all GDP growth is basically debt-based currency originated at the Fed and distributed through government spending and lending at the smaller banks. If you show up without any debt, they can’t understand you. It’s like you’re from a completely different planet.

    I have one of those “cash back” cards that I pay off in full at the end of the month. It has paid me about $1k in the two years I’ve had it. For me, it works. That’s the “personal” in “personal finance.” Everyone has to figure out what works for them. I also have a mortgage that I haven’t paid off because I bought index funds over the past 10 years. I live in an area where home prices tend to go up and I bought at the bottom of the market. Not all debt is necessarily bad, but everyone should decide for themselves according to their conscience.

    In the future, I think CHristians will be denied credit in the same way they were denied access to the agora in the first century for refusing to offer incense to Caesar. Our currency system is both a great producer of wealth and a terrible instrument of control. It’s the Silver Chair we’re sitting in.

    • johnyMac September 24, 2019 at 12:27

      Good comments Bryce. Thank you for taking the time to write them down.

      I was just listening to Harry Dent who is an economist and has a new book out titled, Zero Hour. I like Dent and to be honest he has predicted several things like, earlier financial melt-downs, Brexit, and Trump. Anyway, he thinks the next recession will be a depression because we did not allow the 2008 Great Recession to run its course naturally. The Fed and Government threw money at the recession and the chaff was not cleaned out of the business world. Makes me think…Even a blind squirrel can find a nut once in awhile. LOL. Anyway…

      His next big prediction outlined in his new book is that the stock market and housing market is way over valued and we are in store for a correction that will rival the 1929-32 depression no later than 2021. He suggests reducing your risk in the stock market by a minimum of 50% – 100% would be better – And selling your house now. Take the profits to downsize and pay cash on your smaller house if you can.

      We all know that the stock market and housing markets are WAY over valued so I think his prediction here of a bubble bursting is a safe one. The dates he suggests are rather conservative though. With the tin foil hat firmly upon my dome, I think a large economic downturn is President Trump’s Achilles heel. And if the elite can manipulate things behind the scenes to move us into a recession, I firmly believe they will to take Trump down. Trump is a danger to the power base in DC and around the World.

      Good stuff Brother Thanks!

  13. Bryce Sharper September 24, 2019 at 18:15

    Johny,

    All of that is true, but I predict things will keep going up and to the right. Small fries like me have no where else to put money besides the stock market and real estate. I’m so confident in my prediction that I’ll bet you a Coke Zero there will be no crash by 2021.

    • johnyMac September 24, 2019 at 21:50

      I pray you are right Bryce. I will take your bet and if you win the bet I will fly to commie land to give your Coke Zero to ya’. ;-) If you win this bet, we all will win Sir.

      God Bless Brother,
      JohnyMac

  14. James September 28, 2019 at 20:06

    I have always said if basics covered a well laid out egg nest is way to go.This includes metals(of all types/in hand)land/the few extra pairs of boots(you are planning to survive ,right?),you get the idea.You still have funds what are you missing,trust me,you will find things.The most I ever have in banks/markets ect./1’s &0’s in computer speak is 20%,can lose that and be OK.This is coming from a guy whose dad was considered the godfather of bond investment who also was very honest,last of his gen in that type of business that was honest in my opinion,and that was his spread for me soon before he died.He said for most part the investment end in #’s was a scam,could still do well if timed right but as he said,don’t bet your life savings on it.This is why we do what we do,not only fun to learn new skills ect. but will help carry us and hopefully others in challenging times.

    I do feel there will be a day when ss gone/welfare of personal/corporate level gone/pensions junked ect.,will make for a interesting day to say the least.

  15. […] $4T into the economy through interest rate reductions, REPO loans which I started to report on in September 2019, and suspending the rule that all banking institutions must keep 10% cash on hand of total assets. […]

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