We continue to get more evidence that the
U.S. economy has entered a major downturn. Just last week, I wrote about
how U.S. GDP growth numbers have been declining for three
quarters in a row, and previously I wrote about how corporate
defaults have surged to their highest level since the last financial crisis.
Well, now we are getting some very depressing numbers from the rail
industry. As you will see below, U.S. rail traffic was down more than 11
percent from a year ago in April. That is an absolutely catastrophic
number, and the U.S. rail industry is feeling an enormous amount of pain right
now. This also tells us that “the real economy” is really slowing down
because less stuff is being shipped by rail all over the nation.
One of the economic commentators that I
have really come to respect is Wolf Richter of WolfStreet.com. He has a really sharp eye
for what is really going on in the economy and in the financial world, and I
find myself quoting him more and more as time goes by. If you have not
checked out his site yet, I very much encourage you to do so.
On
Wednesday, he posted a very alarming article about what is happening to our
rail industry. The kinds of numbers that we have been seeing recently are
the kinds of numbers that we would expect if an economic depression was
starting. The following is an excerpt from that article…
Total US
rail traffic in April plunged 11.8% from a year ago, the Association of
American Railroads reported today. Carloads of bulk commodities such as coal,
oil, grains, and chemicals plummeted 16.1% to 944,339 units.
The coal industry is in a horrible condition and cannot compete with US
natural gas at current prices. Coal-fired power plants are being retired.
Demand for steam coal is plunging. Major US coal miners – even the largest one
– are now bankrupt. So in April, carloads of coal plummeted 40% from the
already beaten-down levels a year ago.
Because rail traffic is down so
dramatically, many operators have large numbers of engines that are just
sitting around collecting dust. In his article, Wolf Richter shared
photographs from Google Earth that show some of the 292 Union Pacific engines
that are sitting in the middle of the Arizona desert doing absolutely
nothing. The following is one of those photographs…
As Wolf Richter pointed out, it costs a lot
of money for these engines to just sit there doing nothing…
These engines are expensive pieces of
equipment. When they just sit there, not pulling trains, they become
“overcapacity,” and they get very expensive. Then there are engineers and other
personnel who suddenly become unproductive. Some of them have already been
laid off or are getting laid off.
All over the world, similar numbers are
coming in. For example, the Baltic Dry Index fell 30 more points on Wednesday after falling
21 on Tuesday. Global trade is really, really slowing down during the
early portion of 2016. What this means on a practical level is that a lot
less stuff is being bought, sold and shipped around the planet.
It is becoming increasingly difficult for
authorities to deny that a new global recession has begun, and at this moment,
we are only in the very early chapters of this new crisis.
Another thing that I watch very closely is
the velocity of money. When an economy is healthy, people feel pretty
good about things and money tends to circulate fairly rapidly. For
example, I may buy something from you, then you may buy something from someone
else, etc.
But when times get tough, people tend to
hold on to their money more tightly, and that is why the velocity of money goes
down when recessions hit. In the chart below, the shaded areas represent
recessions, and you can see that the velocity of money has declined during
every single recession in the post-World War II era…
During the last recession, the velocity of
money declined precipitously, and that makes perfect sense. But then a
funny thing happened. There was a slight bump up once the recession was
over, but then it turned down again and it has kept going down ever since.
In fact, the velocity of money has now
dropped to an all-time low. The velocity of M2 just recently dipped below
1.5 for the first time ever.
This is not a sign of an “economic
recovery”. What this tells us is that our economy is very, very sick.
And we can see evidence of this sickness
all around us. For instance, the Los Angeles Times is reporting that
homelessness in Los Angeles increased by 11 percent last year, and this marked
the fourth year in a row that homelessness in the city has increased…
Homelessness rose 11% in the city of Los
Angeles and 5.7% in the county last year despite an intensive federal push that
slashed the county ranks of homeless veterans by nearly a third, according to a report released
Wednesday.
The increase marks the fourth
consecutive year of rising homelessness in L.A., as local officials struggle to
identify funding for billion-dollar plans they approved to solve the nation’s
most intractable homeless problem.
Let us also not forget that about half the
country is basically flat broke at this point.
Just recently, the Federal Reserve found
that 47 percent of all Americans could not pay
an unexpected $400 emergency room bill without selling something or borrowing
the money from somewhere.
With numbers such as these being reported,
how in the world can anyone possibly claim that the U.S. economy is in good
shape?
It boggles the mind, and yet there are
people out there that would actually have you believe that everything is just
fine.
The current occupant of the White House is
one of them.
With each passing month, the real economy
is getting even worse. We may not have slipped into a full-blown economic
depression just yet, but it is coming.
For now, let us be thankful for whatever
remains of our debt-fueled prosperity because we don’t deserve the massively
inflated standard of living that we have been enjoying.
We have been consuming far more than we
produce for decades, but it won’t last for much longer. And when those
days are gone for good, we will mourn them bitterly.
Reprinted with permission from The Economic
Collapse Blog.