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First Macro Cloud

As we all know, The bernanke's most cherished policy measure QE2 comes to a screeching halt at the end of this month.  Assuming that the program ends as planned, the Fed will have bought about $600 billion of various Treasury securities since late 2010, in addition to whatever agency debt proceeds were “re-invested” into Treasurys.  Once the cruthches are removed from the patient, will he stand on his own two feet?  I should think not, afterall, his arms (unemployment) & his legs (Housing values) have not heeled at all.  Ask SHJ what happens when crutches are removed prematurely;-)

"The Standard & Poor's 500, the US stock market's benchmark index, could fall roughly 10% from its current level, partly due to the upcoming end of the Federal Reserve's bond-buying program, Credit Suisse's US equity strategist said on Wednesday." Doug Cliggott, of Credit Suisse, told the Reuters 2011 Investment Outlook Summit in New York.  "We are of the opinion it is still a big deal," Cliggott said. "We would think an index between 1,170 and 1,200 would be a realistic estimate of where we might be headed."

Although a third round of QE, namely QE3 has been heralded by the lame street media, as a possibility.  We all know that inflationary price pressures created by QE1 & QE2 make a new round of QE very remote for now, and most politically controversial, as it is now perceived to have mainly helped the very same bankers whom are largely responsible for the mess we find ourselves in.  Of course, the stealth QE of re-investing the interest earned on the hugh amount of crap currently held on the Fed's balance sheet will continue unabated.  However, all in, this stealth QE only adds up to a little more than a third of the current monthly POMO.  Hardly enough to keep grossly inflated asset prices from rapidly deflating.

 

Second Macro Cloud

The ever growing amount of discouraging economic data points released over the past month are alarming to say the least.  The jobs report was a “disaster”, the housing numbers are dismal, manufacturing has slowed way down and consumer confidence is dropping like a rock.  The bad economic news just keeps rolling in.  It is almost as if someone has slammed on the economic brakes.  The Institute for Supply Management (ISM) said its index of national factory activity fell to 53.5 in May from 60.4 the month before. The reading missed economists’ expectations by a long shot! 

Mike Riddell, a fund manager at M&G Investments in London, recently explained to CNBS why he is so alarmed right now….“Initially, we just had bad news from the weekly jobless claims data, but now we’re starting to see a broad-based economic slump. US house prices have fallen by more than 5 percent year on year, pending home sales have collapsed and existing home sales disappointed, the trend of improving jobless claims has arrested, first quarter GDP wasn’t revised upwards by the 0.4 percent forecast, durables goods orders shrank, manufacturing surveys from Philadelphia Fed, Richmond Fed and Chicago Fed were very disappointing.”  

Earlier this week it was announced that U.S. home prices have declined 5.1% from a year ago.  Sadly, U.S. home prices have now fallen more than they did during the entire Great Depression.

 

Third Macro Cloud

Federal, State & local budgets are now squarely on the choping block.  Only two choices before us, raise taxes or cut spending, both will adversely effect economic growth.

As Treasury Secretary Geithner warned, on May 16 a recent Treasury auction of U.S. debt will clear, putting the nation at its $14.294 trillion legal debt limit.  With even the most aggressive plans taking years to balance the budget and end deficit spending, the U.S. will need to raise the legal debt ceiling to prevent economic calamity. Geithner has warned that he can only keep things running until July through “extraordinary measures” before the crisis reaches a state of overload. 

The federal government today is taking in revenue equal to about 15 percent of the GDP. It hasn’t been that low since the 1950s, before programs like Medicaid and Medicare existed. To keep revenue that low as Baby Boomers retire is simply not realistic.

The housing market downturn, financial crisis and recession created a collapse in state and local revenues, which caused many states, cities and counties to raise taxes, slash spending and turn to the federal government for help.  Almost all state and local governments must end their fiscal years with balanced budgets. As their costs rise in one area, they will have to cut spending in another or raise taxes to cover the new demands.  Investors in the $2.9 trillion municipal bond market have been spooked by the budget crisis and have been pulling their money out of muni mutual funds for nearly five months.

China is certainly concerned about our fiscal woes, this from AFP Yesterday:
 
A Chinese ratings house has accused the United States of defaulting on its massive debt, state media said Friday, a day after Beijing urged Washington to put its fiscal house in order.  "In our opinion, the United States has already been defaulting," Guan Jianzhong, president of Dagong Global Credit Rating Co. Ltd., the only Chinese agency that gives sovereign ratings, was quoted by the Global Times saying.  Washington had already defaulted on its loans by allowing the dollar to weaken against other currencies — eroding the wealth of creditors including China, Guan said  

  

Forth Macro Cloud

China slow down becoming more & more pronounced. 

China has been called the “savior” of the world’s economy as its massive $586 billion Government Stimulus and Easy Money policies sustained over 10% GDP growth in 2009 even as the world GDP was contracting for the first time in recent history.  However China’s huge stimulus has created problems of inflation and asset bubbles which threaten to slow down the world’s “Growth Engine” .

Seven very compelling reasons outlined by noted economic journalist Abhishek Shah as to why China's growth is now in serious question:

1. Real Estate is a Bubble – The Chinese real estate is in a bubble with real estate prices growing far in excess of Chinese income levels. Though the real estate is not driven by a debt fueled boom like the US and other developed countries, nonetheless avg real estate prices / average income levels would suggest that the real estate prices are poised to come down sharply. Chinese authorities are using both monetary and non-monetary tools to bring sanity to this market
2. US  and European Export markets are slowing down – China’s growth has been a export driven growth like those of other Asian Tigers. However its main export markets of Europe and US are going to see sub-par growth in the next few years due to a debt driven excess. Europe’s Austerity measures and a low Euro is not an ideal situation for China’s export industries .
3. Pressures on Yuan growing – China is facing an ever increasing chorus from countries around the world to appreciate the yuan which is artificially suppressed through currency controls. Some think tanks suggest that the yuan is 40% undervalued to its fair value against the dollar. With countries seeing their domestic markets shrink,everyone wants to export more and import less to repower their economies. An undervalued yuan is a trigger for trade wars.
4. Foreign MNCs feeling discriminated against – China’s protectionist policies has led to an alienation amongst the foreign companies doing business in the country. Rio Tinto’s much publicized China corruption case and the Google abandonment of China has brought this issue into the limelight. Foreign countries are reevaluating whether China’s huge market is worth the discrimination they face vis-a-vis domestic companies
5. Banks and Local Government have huge unaccounted liabilities – China’s corporate structure runs large based on patronage networks of government owned banks, state owned companies and provincial authorities. This frequently leads to misallocation in capital which shows up in the forms of NPAs. Local governments compete with each other for projects giving out huge subsidies and incentives which are funded mainly through local land sales. With real estate prices crashing and profits of export industries being pressurized, this is another bubble that may crack.
6. Chinese Stock Market is down the most among major markets in 2010 – The Chinese stock market has been the worst performer among major economies with the interest rate increases and real estate bubbles making investors wary. Note this by itself is a poor indicator of economic health as stock markets are generally poor predictors of economy in the short run
7. Chinese wages are going up – There has been a lot of social unrest and suicides in China as wages fail to keep in sync with the rising productivity. Recent suicides at Electronics Giant Foxconn and strikes at Honda are indicative of this trend.  Low wages which are China’s biggest competitive advantages may no longer remain one for much longer. 

 

Fifth Macro Cloud

European soverign debt / EU banking crisis is clearly coming to a rapid head, and about to take on a much more ominous direction.   Should the Syntagma square Greeks in the street of Athens obtain the plebiscite / national referendum they are clamoring for…watch out below!  The fuse is now lit, and this could well be the first domino to fall, causing the anticipated chain reaction setting off the $600 trillion in CDSs (you know….Warren Buffet's weapons of mass financial destruction), which would unravel the entire EU / Western World banking system as we know it…….

Prime Minister George Papandreou said Monday he would consider holding a referendum on the government's reform agenda, if necessary, to shore up popular support for the measures.  Papou used the word referendum last week and again this week. Referendum is not a word that goes down easily in the corridors of power in Brussels.

From Israel news – Arutz Sheva:  

Yet it is hard to see what other choice the Greek Prime Minister has. His popularity rating is hovering around 30%; he faces growing dissent within his own Greek Socialist PASOK party and Greece is ablaze with strikes as workers who see themselves victimized by privatization vent their anger. The economy has contracted more than expected. Further austerity is a hard sell to the Greek population because it appears to be all pain no gain. This is particularly true for the young who are living with 42% unemployment.  The Greek politicians show no desire to emulate the Portuguese and therefore somebody must give in real soon – the European governments, the banks,  the bondholders or all of them.

Here is how John Maudlin sums things up in the old world continent:

There are just so many risks in Europe that it is hard to make a list long enough. I think the risk to the world markets is higher than the subprime risk, at least from what I can see today. I know that the leaders of Europe think they can “contain” the risk. So did Bernanke in the summer of 2007. You cannot contain this until you actually admit the problem.  Our credit institutions are so intertwined that a repeat of the 2008 credit crisis is entirely possible. Who plays the role of Lehman? Let me count the candidates. Greece. Ireland. Portugal. Spain.

 

Sixth Macro Cloud

Middle East mayhem shows no signs of abating….Stalemate in Libya, Upheaval in Syria, Yemen bedlum, Supression in Bahrain, Saudi Arabia paying off dissent, Iranian sponsored medling, Egypt turnover turmoil, Renewed Iraeli / Palestinian clashes, Hamas & Hesbullah brotherhood,…….the beat goes on.    

The Arab Spring seems to have disolved into the Winter of discontent.  Oh, and let's not forget the trillions spent keeping us safe from the boogeyman in the ongoing Iraq /Afghan / Pakistan clusterphuck.

 

 

 

 

 

 

 

 

                                                                                                                                            

                                        Dancing with Bulls

                                                    or

                                Stampeding with  Bufalloes                                                  

 

1st Indian:   Looming Inflation?

Maybe you think it's crazy to worry about inflation when the consumer price index is rising at a modest 1.5% year over year. That's a valid point. It's also true that many of the items that make up inflation in our daily lives are climbing fast.  Raw food commodity indexes, for example, have hit all-time highs. And the broader CRB Commodity Index, including food, energy and industrial commodities, has run up 32% the past 12 months.

As anyone who owns a car or truck knows, oil prices have jumped 29% in the past year to more than $108 a barrel. This has pushed gasoline prices over $3.70 a gallon nationally, twice what they were when President Obama entered office.  As for that weak CPI, there are good reasons to question the government's benign official readings. Bill Simon is one of them. When the CEO of Wal-Mart's U.S. arm talks, we listen. And last week he told consumers to get ready for a burst of "serious" inflation.

John Williams, of the useful and iconoclastic Shadow Government Statistics website, measures prices the old-fashioned way. He employs the methodology used before 1992, when Labor Department changes started producing milder readings.  By his measure, inflation is close to 10%, tracking price increases for commodities, energy, food, precious metals and health care, among other items.

Investors Business Daily, outlines the culprits:

• The $2 trillion in money created by the Fed under "quantitative easing" since 2008,  unprecedented liquidity.
• The $5.5 trillion in new debt added by our government in just three years — nearly a 60% rise.
• The Environmental Protection Agency's move to regulate all stationary producers of carbon dioxide.
• The surge in regulation at all levels of government, which has added to small-business uncertainty.
• The record 29% jump in federal spending in the past three years, which has crowded out business investment.
• Spending on TARP and "stimulus," which could total nearly $2 trillion when all is said and done.

2nd Indian:   End of QE?

Bloomberg notes that policy makers are signaling an abrupt end to $600 billion in Treasury purchases, rather than a gradual end to bond market intervention. It is not unreasonable to expect that the end of QE2 will allow the world’s reserve currency to breathe, and perhaps find its footing. And that is likely to have EXTREMELY serious consequences for Equities, Bonds, Oil Gold and AG commodities.

To bring the program to a full stop in June, "they must be confident that the economy is strong enough to endure higher long-term interest rates, albeit an exit from the most expansive monetary policy in Fed history", said Dan Greenhaus at Miller Tabak & Co. LLC in New York.  Meanwhile, Atlanta Fed President Dennis Lockhart told reporters in mid March that a tapered approach is not necessary.

Dian Chu, of Econmatters observes:

There is a camp in Wall Street that still believes that QE3 is a distinct possibility, and they have invested accordingly. These investors would be in for a rude awakening if QE2 was cut short – think in terms of Silver investors who bought at the top of the market thinking silver was destined for $50 an ounce.

Another camp in Wall Street believes that QE2 will continue through to its scheduled June conclusion without any hiccups along the way. This is the more moderate camp who have parked capital in Gold, Silver and Oil, who didn`t buy at the top of the market, but had planned to close out positions once QE2 ended in June.  This camp would also be caught off guard if the current asset buying program ended ahead of schedule – this group would include hedge funds, pension funds and money managers who are overly weighted in commodity oriented funds currently, and would start reducing their exposure to reflect the changing monetary policy.

Now, there’s also the third Wall Street camp that already knew that QE3 was a non starter, and QE2 would probably finish according to schedule, but wanted to front-run the selling by positioning themselves for the inevitable asset realignment by being in position in late April (after April options expiration for example).  Well, this group of investors would also be caught flat-footed and would have to speed up their timetable by getting into position immediately. This would means getting out of any commodity related positions ASAP, and then entering additional short positions, buying puts, and going long the US Dollar.

3rd Indian:   USD?

Standards & Poor’s rating agency downgraded Portugal and Greece’s debt rating following similar moves by Moody’s Investors Services and Fitch Rating Agency, while adding that further downgrades is expected if debt conditions in Europe fails to improve.  The USD should find support from these measures.

Inside Futures view:

The EUR/USD pair snapped a three-day rise on lower confidence reports from the Euro-Zone, on debt woes that continue to stalk investors in Europe. Furthermore, the U.S. economy released its ADP report that estimated that U.S. companies added nearly 200.0 thousand jobs in March, coming ahead of the infamous jobs report on Friday.  Debt problems in Europe had significant spillover on the continent where further instability is expected, according to a paper published by the International Monetary Fund (IMF).

Action Forex view:

The greenback gained some traction midweek as hawkish rhetoric from Fed members Lacker and Kocherlakota led market participants to begin pricing in Fed policy normalization. Broad based USD strength followed suit as the apparent shift in Fed policy direction lifted expectations for tighter relative rate differentials between the U.S. and other economies. The greenback looked set to extend gains into the weekly close as U.S. labor data printed on the positive side – U.S. March NFP rose more than expected (+216k vs. consensus +190k) and the unemployment rate declined to 8.8%. EUR/USD plunged to lows near 1.4060 following the spate of positive U.S. data surprises.

Trader Dan's view:

If the Fed starts sounding hawkish in an attempt to keep the Dollar from collapsing through a major chart support level near 75 on the USDX, they cannot prevent the long bond from breaking down technically and thus commence a rise in long term interest rates which will bury what might be any signs of life in the comatose housing market.

4th Indian:   Consumer Consumption?

75% of Us Are Getting Poorer

"A Two-Tier Recovery that consists of the haves and have-nots!” At least that is the view of this economy by economist Gary Shiller. The real median income per household fell 5% between 1999 and 2009. And to many people, the hit seems worse than that. According to Bloomberg, during the recession, which officially ran from December 2007 to June 2009, the median family’s net worth fell 23.2% from $125,000 to $96,000. For those who lost their jobs in the recession but are now fully employed. 36% have suffered 20% or greater income declines. Per the National Employment Law Project, lower-wage industries accounted for just 23 percent of job losses, but fully 49 percent of recent job growth.

Warren Brussee’s take on the subject:

Besides all that, rising gas and food prices hit those in the have-not category far harder than those in the upper tier because of the larger percentage of income going to transportation and food.  So, is the wealthiest getting wealthier a problem? Is there a connection between extreme wealth inequality and economic crises? Economics professors Saez (UC Berkeley) and Piketty (Paris School of Economics) show that the percentage of wealth held by the richest 1% of Americans peaked in 1928 and 2007 – right before each crash. And, the percentage of wealth held by the richest 1% has grown even more since 2007! Per an April 30, 2010 article in the WSJ, the top 1% held 35.6% of all national wealth by the end of 2009.

How can an extreme disparity of wealth destroy an economy? Reich and Kocieniewski have some thoughts on this. First, the rich spend a smaller percentage of additional wealth than those with little wealth, slowing the economy. Second, the middle class having stagnant or falling wages build more and more debt as they try to keep up their standard of living. Third, some of the excessive wealth held by the prosperous few goes into speculative investments, building bubbles which eventually break. And fourth, the wealthy can now buy politicians, basically tainting and killing free capitalism.

5th Indian:   Housing Market?

Not only are our real wages and jobs hurting, so is our major asset: our homes. Again, from Shiller, “The massive overhang of excess house inventories…suggests another 20% fall in prices….. With that further drop in prices, we estimate that about 40% of mortgages will be under water, up from 23% in the fourth quarter 2010. At that point, few will be able to get above water by repaying their mortgage principals.”

Per the Associated Press, buyers of new homes plunged in February to the fewest on records dating back nearly half a century. It’s the third straight monthly decline. The median price of a new home dropped to $202,100, the lowest since December 2003. New home prices are now 30 percent higher than of those being resold, which does not bode well for the recovery of new home construction.

The National Association of Realtors say sales of previously occupied homes fell to a seasonally adjusted annual rate of 4.88 million. That’s down 9.6 percent from 5.4 million in January. The median sales price fell 5.2 percent to $156,100, the lowest level since April 2002. Sales of homes at risk of foreclosure rose to 39 percent of all sales in February.

More from Brussee on housing:

The housing recovery just got another kick in the pants. Per SmartMoney, first-time homebuyers, who accounted for 40% of home sales, are now down to 29% and falling. First-time buyers confront a steady accumulation of rising fees, costs, and rates. This month, fees on most new mortgages will rise by up to 0.50%. In April, fees on small-down-payment mortgages, a first-time buyer favorite, will spike. Meanwhile, more lenders are requiring larger down payments, and new proposals call for mortgages to become more expensive and limited in size. Insurance fees on government-insured mortgages that require just 3.5% down have doubled in seven months. Of course, all of this is in response to the losses banks have taken on past mortgages. All of this will just slow housing sales even more and housing will continue to drop in price.

6th Indian:   Geo-Political Tusnami?

Very recent dramatic events in Japan and the Middle East/North Africa region just make the scenario of a consolidation in global recovery and a return to a more widespread preference for risky assets more uncertain, Credit Agricole Corporate & Investment Bank said Sunday in its latest Economics Quarterly report. Uncertainty could last longer than expected with an obvious implications for oil prices, which would stay higher for longer than initially expected. The ratio of oil expenses to global GDP above 4 percent (the world is around this level currently) has historically been a sign of economic hardship. Geopolitical risk has become the latest threat to global growth and is continuing to spread, raising the specter of rising inflation and receding growth. The safe-haven bid for gold has returned in force as tensions intensify in the Middle East and North Africa. Markets are beginning to price a shift of contagion from North Africa to some of the Gulf economies, principally Bahrain. With the MENA region a significant crude-oil producer, energy prices are likely to remain elevated for longer.

Thomas Ricks outlines a Libyan worst case scenario, 13 steps to ME disaster:

1. We arm the “rebels”
2. Find this is both not enough and Qaddafi's forces overrun, confiscate,
    and use arms against rebels and coalition air forces
3. We try air assault against Qaddafi's ground forces
4. Find this is insufficient and leads to excessive collateral damage
5. We try to convince coalition to place boots on the ground
6. Notably France and other members reject land invasion
7. NATO can't gain consensus to modify Resolution 1973
8. United States bites the bullet, air assaults known Qaddafi military bases, and
    lands troops in Libya
9. Muslim nations raise unified cry that U.S. interest is Libyan oil and
    Qaddafi becomes a hero with broad-based Islamic support, notably Iran
10.We pull troops from Afghanistan (not a bad thing, just not soon enough) for Libyan engagements     
11. Pakistani ISI and TTP move with impunity across the FATA and begin
     retaking Afghanistan (sounds like May 2002 ­- summer 2003)
12. Meanwhile Qaddafi's forces melt into southern Libyan desert leaving us
     with a broken country #1 (courts won't allow confiscated billions to be
     used by "coalition" for Libyan rebuilding), a latent desert threat, and
     Afghan as broken country #2
13. Iran sees this as opportunity to "Balkanize" Iraq and presses
     negotiations with Syria, Turkey, the Kingdom, and Jordan to carve out pieces of Iraq.

7th Indian:  Japan Earthquake Aftermath?

Aaron Marvel informs us; that the world’s largest mobile phone maker, Nokia, has announced that factory closures resulting from the Japanese earthquake and tsunami will disrupt the supply of certain of its products. Nokia’s rival, Sony Ericsson, has previously reported supply chain problems. Problems have been evident elsewhere.

Three days ago, Volvo reported that it holds only ten days’ stock of Japanese-built climate and navigation control systems, and faces a halt to production. In Marion, Arkansas, the Hino Motors plant which makes rear axles for Toyota vehicles is struggling to stay open because of a shortage of gears and other components. Last week, General Motors revealed that it will close the 923 employee plant at Shreveport, La. where GMC Canyon and Chevrolet Colorado vehicles are assembled because of a lack of Japanese-made parts.

A great deal of the equipment employed in the manufacture of semiconductors is made entirely or mainly in Japan. Approximately 90 percent of the BT resin incorporated in cellphones and laptop computers as well as 60 percent of all the silicon wafers in the world originates in Japan. Companies such as Hewlett Packard and Apple could find themselves confronting severe difficulties if disruption in Japan lasts longer. The carbon fiber used in the manufacture of golf clubs and the wings of the new Boeing 787 Dreamliner comes mostly from Japan: the three top producers account for 70% of the global market.

It is humbling to consider how many auto plants outside of North America would be impacted by a shortage of U.S.-supplied parts. One of the few examples of critical U.S. manufacture is that of Intel computer chips.

8th Indian:   EU Sovereign Debt Crisis?

A study which was published on IMF website said that the debt crisis “has been the theater of sovereign credit-rating downgrades, widening of sovereign bond and credit default swap spreads, and pressures on stock markets,” adding that “Interestingly, financial markets throughout the euro area have been under pressure although credit-rating actions were concentrated in few countries such as Greece, Iceland, Ireland, Portugal and Spain”.

The Economist’s take:

It is a measure of European politicians’ capacity for self-delusion that Angela Merkel, Germany’s chancellor, called the euro-zone summit on March 24th-25th a “big step forward” in solving the region’s debt crisis. Something between a fudge and a failure would be more accurate. The leaders fell short on almost every task they set themselves. They agreed on a “permanent” rescue mechanism to be introduced in 2013, but couldn’t fund it properly, because Mrs Merkel refused to put up money her finance minister had pledged. The Brussels gathering did little to help Greece, Ireland and Portugal, the zone’s most troubled economies. Their situation is getting worse—and Europe’s leaders bear much of the blame.

9th Indian:   U.S. Debt?

From the sharp pencil of Tyler Durden:

From the relentless shock and awe happening abroad every single day, we briefly turn our attention to the total financial chaos domestically. Following the settlement of $67.6 billion in debt from last week's auctions, the Treasury managed to raise its dangerously low cash to a level that will give Tim Geithner pocket change for another week, or $99.5 billion. Alas, the cash buffer came at a price: total debt increased from $14.166 trillion to $14.238 trillion. As a reminder, the debt ceiling is $14.294 trillion, so on a pure basis there is a $56 billion buffer or less than one's week's worth of auctions. However since the debt actually subject to the limit is $52 billion less, there still is $109 billion in constitutional capacity. Add to that the $45 billion in SFP run offs over the next two week and Treasury has $150 billion or so in spending money left. As the deficit in the month of March is expected by Zero Hedge to be around $90 billion due to the deferred tax refund payments, we believe the money will last the US a month and a half, although once again depending on the daily burn rate, it may come much sooner as there is no book debt settlement until the week after next.

10th Indian:   Fiscal Constraints?

To date, some 44 states and the District of Columbia are projecting budget shortfalls for fiscal year 2012, which begins July 1, 2011 in most states. These come on top of the large shortfalls that states closed in fiscal years 2009 through 2011. States will continue to struggle to find the revenue needed to support critical public services for a number of years, threatening hundreds of thousands of jobs.

Center of Budget and Policy priorities observes:

As states across the country consider their budget proposals for the coming year, they continue to face a daunting fiscal challenge. The worst recession since the 1930s has caused the steepest decline in state tax receipts on record. State tax collections, adjusted for inflation, are now 11 percent below pre-recession levels, while the need for state-funded services has not declined. As a result, even after making very deep spending cuts over the last several years, states continue to face large budget gaps.

Will 10 determined Indians chase the Stampeding Buffaloes over a cliff?

1929 had major corporations earning huge profits while manufacturing wages remained stagnant; burdensome debt payments by consumers, an overleveraged, overheated stock market, and wealth concentrated in the hands of the few priviledged & connected.  In 1937 the government grew very concerned that the debt was no longer sustainable, and thus took away stimulus with nothing to take its place. Both periods brought on a depression.  Look out Slopers!  Inflation is starting to build.  QE3 is looking uncertain.  Stimulus money ends in a few months.  States are slashing jobs and expenses just as fast as they can. Congress is likely to dramatically reduce fiscal spending, leaving a hugh void with nothing to replace it.  Unemployment will rise again due to the looming massive layoffs of public service sectors.

 

Compiled by BDI (French Idiot Savant)