Over the last 95 years, total official US debts of the government, households, and corporations have increased at a stunning compound annual growth rate of 6.62% to their current record level of over $59 trillion!
Since 1920, America’s total credit market of all public and private debts has averaged about 200% of US GDP. When America’s credit market as a percentage of GDP increased to a standard deviation above the mean of 200%, and reached a peak in 1932 of 286.71% – we had the Great Depression and to balance out the economy – the credit market to GDP ratio collapsed to a standard deviation below the mean of 200% – and bottomed in 1951 at a low of 126.05%.
In 2003, after the Federal Reserve lowered the Fed Funds Rate down to a record low of 1% in an attempt to reinflate the dot-com bubble – it created a new unintended bubble in US Real Estate, which caused America’s credit market to explode past its previous peak from 1932. In 2008, it hit a high of 360.58% or two standard deviations above the mean. To once again correct the imbalance, America in 2008 was due to have its worst ever Great Depression, which would have caused the credit market to deflate to a new record low of two standard deviations below the mean. However, after America’s financial crisis began in October 2008, the Fed once again lowered interest rates – this time to a new record low of 0%-0.25%, where it has remained ever since.
Last year, the credit market/GDP ratio began to once again increase. This means none of America’s economic imbalances have been fixed, and the current economic recovery is phony and fake. America’s bubble economy has become totally dependent on the government, households, and corporations continuously getting deeper into debt to create artificial GDP growth – and the longer the Fed keeps it propped up, the more devastating it will be for all Americans when the bubble finally bursts.
America’s current economic bubble is now officially the largest in history, both in nominal terms and as a percentage of US GDP. US household net worth just hit a new all-time high of $84.925 trillion, up over 25% from the 2007 pre-financial crisis peak of $67.858 trillion. As a percentage of GDP, US household net worth just surpassed its 2007 pre-crisis peak of 472.81% – with US household net worth in the 1Q of 2015 hitting a new record high of 480.75% of GDP. US household net worth as a percentage of GDP is now almost three standard deviations above the mean since 1951 of 374.72% – and is completely unsustainable at these levels!
NIA has uncovered a way to perfectly predict stock market crashes and large corrections 100% of the time! From 1997 through 2014, NIA’s indicator signaled that the S&P 500 would soon crash or experience a large correction on three separate occasions. It accurately alerted us to the S&P 500’s summer of 1998 correction of 19.3% in 44 days, its 2000-2002 crash of 49.1% in 915 days, and its 2007-2009 crash of 56.8% in 510 days. NIA’s indicator utilizes the BofA Merrill Lynch US High Yield Master II Option-Adjusted Spread (OAS), which is the calculated spread between an index of all corporate high yield (junk) bonds (rated BB or below) and US Treasuries.
Normally, when the S&P 500 rises, the high yield OAS simultaneously declines as risk falls – and when the S&P 500 falls, the high yield OAS simultaneously increases as risk rises. When divergences of this trend occur, it is always a warning sign that the stock market is about to reach its peak – with a large correction or crash to follow. Recently, the high yield OAS bottomed at 3.35% and failed to retest its record low from 2007 of 2.41%. Since then, it has bounced by 236 basis points to a short-term peak of 5.71%, which should have caused the S&P 500 to make a dramatic short-term correction. Instead, the S&P 500 has continued its uptrend to new all-time nominal highs, causing its correlation with the high yield OAS to explode – signaling that the S&P 500 could soon crash!
In March 2015, the US experienced a record trade deficit for non-petroleum goods of ($62.55 billion)! America’s record non-petroleum trade deficit set in March 2015 was an unbelievable 21.6% larger than the previous record of ($51.428 billion) that was set in January 2015!If we annualize America’s March 2015 non-petroleum trade deficit of ($62.55 billion), it was equal to -4.24% of US GDP! This puts America’s trade deficit back into the extreme danger zone for the first time since prior to the financial crisis, when America’s annualized non-petroleum trade deficit set a record as a % of GDP of -4.42%! This is undoubtedly the worst possible news for the US economy and its phony/fake recovery! Despite America’s record trade and budget deficits, it is investing very little into maintaining and/or rebuilding US infrastructure. Over the last 12 months, total US infrastructure spending was only $264.17 billion or 1.49% of US GDP. We are currently experiencing America’s lowest level of infrastructure spending as a % of GDP in history, when spending on infrastructure is an investment that results in real economic growth – not only at the time the money is spent, but for many years into the future.
With interest rates at record lows, if America was going to invest for the future by upgrading its infrastructure – now would be the time to do it. If America’s infrastructure continues to deteriorate without major short-term improvements – it will soon resemble the infrastructure of a third-world nation.