Why does the economy seem so strong but feel so wrong?

Jim Rickards is the Financial Threat and Asymmetric Warfare Advisor for the DOD and Central Intelligence and he recently reviewed a report by senior intelligence officials that estimated the greatest threats to the United States. At the top of the list was no Muslim terrorism (of any flavor), but instead, imminent economic collapse.

Jim Rickards is the Financial Threat and Asymmetric Warfare Advisor for the DOD and Central Intelligence and he recently reviewed a report by senior intelligence officials that estimated the greatest threats to the United States.  At the top of the list was no Muslim terrorism (of any flavor), but instead, imminent economic collapse.

There are eight slides he used to drive this point home in a recent interview.

The first slide shows the declining impact of $1 of federal spending on the economy:

Rickards-Bang-for-Buck-Spending-1024x482

A lot could be said about that but the results are obvious. Fifty years ago the Feds could spend a dollar and it would generate $2.41 in economic value, while today, that $1 of spending results in only 3 cents of economic value.  This is because of fraud, waste, abuse and spending money on programs that ensure votes rather than generate growth.

The velocity of money-the rate at which money moves through the economy-is also falling sharply.

Rickards-Velocity-of-Money-1024x380

We’re nearing a point not seen since the 1920s!

And the so called misery index, which measures a combination of inflation and unemployment, is worse than it was in the stagflation days of Jimmy Carter.  Not if we rely on the manipulated government data, of course, but on the estimates by economists not on the government payroll.

Rickards-Misery-Index-1024x482

These numbers are also worse than the Great Depression!

Rickards-Misery-Now-Index-v-Great-Depression-1024x305

The Fed’s debt to capital ratio has gone up nearly 400%, from a pre-2008 high of 22 to 2 to a current ratio of 77 to 1.  This means that for every dollar on hand, the Fed used to have 10 dollars in debt.  In order to finance the recent bailouts and spending, the Fed has had to borrow far more money, which means we now owe $77 for every $1 on hand.
Rickards-Fed-Debt-to-Capital-Leverage-Ratios1-1024x447

The Fed is not the only one who is overextended.  Private banks have grown their debt as well-since they can borrow money essentially free, they are encouraged to do so.  Taking on more debt can be rationalized when you’re growing-not unlike a homeowner borrowing against a house that is rapidly appreciating, but in this case banks are taking on debt 30 times faster than the economy is growing.  This is what precipitated the Great Depression.