The present situation
Though US government officials say its recovering, the signs all points to upcoming financial demise, from food price hike, which will ultimately lead to food shortage and riots and retailers closing stores because they are losing revenue. China and Russia among other countries are dumping the use of dollar. Also, the recent news that the US economy has shrunk for the first time (officially) since 2011, it seems economic death right in the face and most people don’t even know the extent of devastation about to occur.
A quick look on retail apocalypse happening right now:
- Wal-Mart Profit Plunges by $220 Million as US Store Traffic Declines by 1.4%
- Target Profit Plunges by $80 Million, 16% Lower Than 2013, as Store Traffic Declines by 2.3%
- Sears Loses $358 Million in the First Quarter as Comparable Store Sales at Sears Plunge by 7.8% and Sales at Kmart Plunge by 5.1%
- JC Penney Thrilled With Loss of Only $358 Million For the Quarter
- Kohl’s Operating Income Plunges by 17% as Comparable Sales Decline by 3.4%
- Costco Profit Declines by $84 Million as Comp Store Sales Only Increase by 2%
- Staples Profit Plunges by 44% as Sales Collapse and Closing Hundreds of Stores
- Gap Income Drops 22% as Same Store Sales Fall
- American Eagle Profits Tumble 86%, Will Close 150 Stores
- Aeropostale Losses $77 Million as Sales Collapse by 12%
- Best Buy Sales Decline by $300 Million as Margins Decline and Comparable Store Sales Decline by 1.3%
- Macy’s Profit Flat as Comparable Store Sales decline by 1.4%
- Dollar General Profit Plummets by 40% as Comp Store Sales Decline by 3.8%
- Urban Outfitters Earnings Collapse by 20% as Sales Stagnate
- McDonalds Earnings Fall by $66 Million as US Comp Sales Fall by 1.7%
- Darden Profit Collapses by 30% as Same Restaurant Sales Plunge by 5.6% and Company Selling Red Lobster
- TJX Misses Earnings Expectations as Sales & Earnings Flat
- Dick’s Misses Earnings Expectations as Golf Store Sales Plummet
- Home Depot Misses Earnings Expectations as Customer Traffic Only Rises by 2.2%
- Lowes Misses Earnings Expectations as Customer Traffic was Flat
- Beef: Retail price increased by 22% in the past year.
- Pork: Retail price increased by 6.8% in the past year.
- Poultry: Retail price increased by 4.7% in the past year.
- Milk: Retail price increased by 36%% in the past year.
- Fruits and vegetables: Retail price increased by 3.4% in the past year.
America is currently facing a real impeding threat China.
Not only this, but China holds around 1.3 trillion dollars of US debt.
A debt accumulated by China’s stockpile of dollars from International trade, which they lend back to US at ridiculously low interest rates
But what happens if they stop playing this game?
Well, in some respect they already have.These are typical warning signs of economic collapse.
- Financial globalization
- Great increase in (two-way) capital flows across national borders
- Net flows from emerging market economies to advanced economies (especially, U.S.)
- Financial deregulation
- Blurring of lines between commercial and investment banking
- Free international capital mobility across as a norm
- Allowing big banks to use their own risk models in determining leverage
- The rise of an unregulated “shadow banking system”
- Lack of regulation of new financial products
- “Financial innovation” esp. securitization
- Colletarallized debt obligations (CDO), credit-default swaps (CDS)
Just when it seemed it had used up its available tools, in September 2011, the Fed introduced Operation Twist. Here’s how it works. The Fed sells short-term bonds which reduces demand causing prices to fall and yields to rise. At the same time, it buys bonds with longer maturities (i.e.; 7-10 years), which increases demand causing prices to rise and yields to fall. Why would the Fed want bond yields on the 10 year treasury to fall? Because this helps keep mortgage rates low. Lower mortgage rates creates an increase in refinance activity which improves ones cash flow. An improvement in cash flow results in an increase in spending which helps boost the economy. Hence, the Fed was being quite creative. The greater question is why does the Fed continue expanding the money supply despite tepid results?