Go figure. Unemployment reaches 9.6%, job losses are 375,000 and Wall Street celebrates. (John Williams writes in his newsletter the real payroll loss when you take the gimmicks out was 538,000.) Last week the Wall Street Journal reported that failures are rising steeply on $3.5 trillion of commercial real estate mortgages. This is likely to get worse and consumers who make up two-thirds of the economy aren’t helping.
Target reported a 6% sales drop May over May and Costco fell 7%. Abercrombie and Fitch reported a staggering 27% drop. This latter figure typifies the sales losses for specialty type shops in malls and shopping centers. That the consumers have pulled in their horns is reflected by a rise in the national savings rate. Meanwhile, consumer credit is contracting and wage growth stagnates. Studies indicate that in the U.S. we have been consuming trillions more than we produce.
For the time being, deflation has ended. Almost everything has stopped going down. However, the t-bond yield has risen to 4.5%. This trend could lead to more liquidations for stocks and bonds. The recession continues to deepen and the unemployment figures for future months will be grim. Another three to four-month burst of deflation could be in the cards if the debt problems worsen.
All of this means that downward pressure on commercial real estate won’t be relenting any time soon. These mortgages are greater than the total of all outstanding car loans, student loans and credit card debt. Pension plans and insurance companies who sell annuities are heavily invested in real estate. Some of the biggest names in the insurance industry have already turned to the government to keep them solvent. If commercial real estate continues to slide, you have to wonder how much money the government will inject before all confidence is lost in the dollar.
Ty Andros asks, “What do you think will happen if Treasury Bonds and Notes, as well as the Dollar, decline 20% in the next 6 months? What do you think foreign holders will do when confronted with these potential losses? The answer is self evident. The US economy will be buried by the beltway, legislatively, over the next 6 to 8 weeks, thus guaranteeing a HYPER-INFLATIONARY depression as incomes collapse, borrowing skyrockets, and the printing press is the only avenue of escape.”