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The US Economy Is Shutting Down Rapidly.
Expect Widespread Jobs Losses with Much Higher Inflation.
By Gregory Mannarino TradersChoice.net
Business activity here in the US and around the world has not just stalled, it is contracting.
This past Friday here in the US, the Business Flash PMI, by their own numbers, showed a sharp contraction in business activity. This most recent fall in business activity is following a drop in January of the Business Flash PMI to a nine-month low. Moreover, the S&P Global US February flash services PMI came in at 49.7, vs an expected number of 53.0, (any reading below 50 indicates contraction).
According to S&P Global, “this unexpected decline in services and business activity here in the US is raising concerns about the health of the private sector and therefore the rising potential for private sector jobs losses.” (For weeks I have been warning those who follow my work to expect widespread jobs losses in the private sector moving forward along with much higher inflation).
A COMMON DENOMINATOR.
1. The current phenomenon of a sharp contraction in the global economy, can be traced back to a common denominator. And that is, currency purchasing power destruction on the back of artificially suppressed rates.
2. Despite the fact that the world economy is shutting down, the stock markets of the world are at/near all-time highs. This phenomenon as well can be traced back to THE SAME common denominator. And that is, currency purchasing power destruction on the back of artificially suppressed rates.
What can we learn from understanding the “common denominator?”
Artificially suppressed rates and therefore currency purchasing power destruction are
1. Negative for the economy.
2. Positive for the stock market.
The current trajectory, globally, is to expect that central banks will be allowed to vastly and rapidly inflate from here, which INCREASES their collective power and control. Potentially, this mechanism can boost stock market prices, but the economy will suffer-faster.
Diminishing Effect.
To keep the stock market propped up, the mechanism of artificially suppressed rates and therefore currency purchasing power losses, will require EXTRAORDINARY measures. The Law of Diminishing Returns applies here. To continue to push cash into risk assets/stocks, in the current environment, will require a sharp upward move in debt expansion, debt expansion in the form of currency issuance- which is also massively purchasing power negative and therefore inflationary.
To STOP the economies of the world from contracting, which would help the middle class by returning purchasing power to the currency, would require MUCH higher rates. Higher rates would of course be a wrecking machine for the stock market… Instead, what we will see, is lower rates, and therefore a further destruction of currency purchasing power. This of course is positive for the stock market, and a wrecking machine for the economy and middle class…