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7 Signs of a U.S. Economic Collapse in 2016

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U.S. Economy Collapse in 2016? It’s Possible.
A U.S. economic collapse in 2016? Is it possible that the world’s biggest economy will face its biggest challenge next year? While most talking heads on Wall Street think the U.S. is heading in the right direction, the fact of the matter is, there are more than enough indicators to suggest the U.S. economy will come under serious pressure in 2016.

The U.S. economy is rock solid! Or so the commission-dependent brokers, analysts, and fund managers will tell you. They would have told you the same thing back in 2007 and 2008… just before the Great Recession and the stock market crash.

But then reality set in. Only a few months later, the world was on the verge of economic collapse. Despite the warning signs, we’re hearing the same kind of misguided optimism today. The pillars supporting the U.S. economy are more fragile than they were before the Great Recession.



Despite being in the midst of a so-called recovery, the global economy is still appears to be in a recession, American workers aren’t benefitting from the long-in-the-tooth bull market, underemployment remains high, inflation is much higher than the U.S. government’s official tally, a third of Americans have no emergency savings, and most worry more about their finances than anything else.


This is all after trillions of dollars and years of meddling from the Federal Reserve and other central banks around the world. As a result, the U.S. could experience an economic collapse in 2016.

Interestingly, according to a recent survey, 2018 is the year most economists believe the next downturn will hit the U.S. If not 2018, 2020 is the next date on the calendar before the U.S. economy falters. I think they’re both wrong. (Source: Bloomberg.com, last accessed September 22, 2015.)

Sign #1: Government Statistics Hiding U.S. Economic Collapse
If inflation is under wraps, it doesn’t really matter if wages are stagnant. But this simply isn’t the case. And the official U.S. numbers are seriously misleading.

According to government statistics, inflation was held to just 0.6% during the first seven months of 2015. Unfortunately, that data disregards the most basic items that everyone uses, including food and energy costs. (Source: Bureau of Labor Statistics, September 22, 2015.)

Alternative non-government measures of inflation tell a completely different story. The Chapwood Index is an alternative inflation indicator that looks at the unadjusted costs and price fluctuation of the top 500 items that Americans spend their money on in the 50 largest cities in the country. (Source: chapwoodindex.com, last accessed September 22, 2015.)

The index looks at the fluctuations in the cost of items such as Advil, Starbucks coffee, insurance, gasoline, tolls, fast food restaurants, toothpaste, oil changes, car washes, cable TV and Internet service, cellphone service, dry cleaning, movie tickets, cosmetics, gym memberships, home repairs, piano lessons, laundry detergent, light bulbs, school supplies, parking meters, pet food, and People magazine.

For example, in 2014, the CPI rose 0.8%. But according to the Chapwood Index, major cities like New York, Los Angeles, Chicago, San Diego, and Boston saw inflation for the trailing 12 months (through to June of this year) run over 10%.

In San Jose, the Chapwood Index registered a 13.7% rise in the cost of living. Even Colorado Springs—the city with the lowest increase of 6.6%—was still 5.8% higher than the official CPI figure.

If you happen to work in Boston or San Jose and got a 0.8% raise in 2014, it wasn’t nearly enough to cover the increase in your day-to-day expenses. No matter what the official government data tells you.

But inflation means more than just higher prices at the grocery store. Nominal Gross Domestic Product (GDP) is deflated by the measure of inflation being used to calculate real GDP and real GDP growth. Therefore, for a given nominal GDP growth rate, underestimating inflation over time would result in overestimating real GDP growth over time.

If this is true, a U.S. economic collapse may have already begun.

Sign #2: Real Wages Falling for Average Americans
Roughly 70% of U.S. gross domestic product (GDP) comes from consumer spending. The operative word there being consumer. So you can’t really predict what the U.S. economy is going to do unless you see how the average American is doing.

It isn’t pretty.

In spite of the highly touted unemployment rate, the underemployment rate (those working part time who want full-time work, and those who have stopped searching but want a job) remains above 10%. (Source: bls.gov, September last accessed 22, 2015.)

On top of that, most U.S. workers have not seen any improvement in their wages. In fact, when you factor in inflation since the recession apparently ended in 2009, wages have declined for most workers. (Source: nelp.org, last accessed September 22, 2015.)

I enter as evidence: between 2009 and 2015, 20% of people in the lowest-paid occupations saw their wages decline an average of 5.7%. Those included people working in retail, food preparation, personal care aids, cleaners, and home health aide. Specifically, for restaurant cooks, the decline was 9.8%; food prep workers 7.7%; and for home health aides, 6.2%.

For all U.S. workers, the purchasing power of their average income declined by four percent; meaning, the cost of living in the United States outpaced any increase in pay. This suggests that millions of Americans have little to no economic security.

It’s not as if this is news to anyone. Even the Federal Reserve has said stagnating wages is proof the U.S economy has not fully recovered. And this will negatively impact the overall economy. If real wages fall, consumers cannot make ends meet—let alone help economy growth through spending.

Only loans and credit card is keeping households afloat. If consumers are forced to rein in spending, a global recession in 2016 is almost inevitable.

Sign #3: Millions of Americans Have Little to No Money
Not only are Americans making less and having to spend more, they also have little to no money set aside for emergencies.

According to one report, roughly one third (34%) of American adults do not have any emergency savings. That means 72 million Americans have no safety net in case they lose their job, have unexpected expenses, or can’t afford the rising cost of living expenses. (Source:neighborworks.org, last accessed September 22, 2015.)

Almost half (47%) said their savings would cover their living expenses for 90 days or less. Add it up, and 81% of Americans are either at a breaking point or just 90 days away from it.

According to financial experts, those who make decent money and know how to budget their money, say Americans should set aside 15% of their gross income in case of emergencies, in addition to retirement and other goals. But it seems that few have been able to follow that sage advice.

It seems as if Americans are worse off than before the Great Recession.

Not surprisingly, Americans worry more about money on a daily basis than anything else, including their health. In another survey, one in five Americans fears living paycheck-to-paycheck for the rest of their lives—with almost as many people worried about being in debt forever! That translates into never being able to retire. (Source: marketwatch.com, last accessed September 22, 2015.)

But at least they have ultra-low interest rates to rely on!

Sign #4: U.S. Interest Rate Hike Could Cripple America
The Federal Reserve’s fund rate has been coming down for more than 30 years. That means virtually everyone with a mortgage, loan, or credit card debt, is used to the low interest rate environment. But that’s about to change.

Most expect the Federal Reserve to raise interest rates later this year. If so, it will be the first time it has raised interest rates in nine years. And with nowhere else to go but up, it will put an end to free, cheap money.

Admittedly, the world needs normal interest rates. The artificially low rates brought in by the Federal Reserve through quantitative easing have devastated returns on investment. On the other hand, rising interest rates could cripple those Americans who already have trouble making ends meet. That includes anyone with large amounts of debt, including student loans.

We could be swimming in debt in the not-too-distant future. And by “we” I mean the entire planet. The Bank for International Settlements (BIS) warned that the world has taken on so much debt that a rate hike led by the Fed could send the whole planet into a debt crisis.

The BIS warned that market instability, in particular in China, is a sign that the debt build-up is coming back to haunt the markets. And it could do so for a long time. The total accumulated debt is higher now than it was before the start of the U.S. economic collapse in 2008.

Since then, the world has taken on an additional $57.0 trillion in debt. As of the end of 2014, the planet owed $199 trillion on a world economy worth about $80.0 trillion annually. China, the world’s second-largest economy, has quadrupled its debt since the last financial crisis. (Source: mckinsey.com, last accessed September 22, 2015.)

Sign #5: Global Economy Anemic
U.S. economic growth has not exactly been steamrolling the competition. And it’s been consistently underwhelming. Before the Great Recession, in 2006, the U.S. reported GDP growth of 2.7%. Those were the good old days. In 2007, GDP was 1.8%. In 2008 it was -0.3%; and in 2009 it was -2.8%. (Source: worldbank.org, last accessed September 22, 2015.)

Fast forward to 2012 and the country’s GDP came in at 2.3%, 2.2% in 2013, and 2.4% in 2014. While second-quarter 2015 GDP expanded at a solid 3.7% annualized rate, the overall GDP of the country has not been stellar. Especially when you consider that we are the world’s largest economy.

China expects its GDP to grow at seven percent this year. Relative to the United States, that’s pretty extraordinary. But for China, it represents the worst performance in more than 20 years.

With the two largest economies in the world limping along, the rest of the major global economies cannot be doing any better. And they’re not. The eurozone isn’t out of the water by any stretch. Germany continues to plug ahead. But France, Italy, and Greece are economic millstones. This has left the entire continent on the brink of recession.

Japan’s economy shrank 1.6% in the second quarter and is a mess. It’s hard to decide if the country is in recovery mode or not. Over the last 14 quarters, Japan has posted seven uneven quarters of growth and seven quarters of contraction. (Source:wsj.com, last accessed September 22, 2015.)

Then we have Canada. The country is in a technical recession after its GDP fell -0.5% in the second quarter after slipping -0.8% in the first quarter. Not a big deal, you say? Janet Yellen said recently that while China was an issue, Canada’s economic slowdown was one of the reasons why the U.S. economy is too weak to raise interest rates. She described Canada as “an important trading partner of ours that has been negatively affected by declining commodity prices, declining energy prices.”

While China is a big trading partner with the U.S., Canada is actually the number one export market, accounting for 19% of all exports. That’s more than double China’s seven percent share.

On top of that, Canada’s resource-heavy dollar has been in freefall, down 12% against the U.S. dollar since the beginning of the year. The Chinese yuan, on the other hand, is down just three percent.

Sign #6: U.S Companies Increasingly Relying on Foreign Sales
All of this could mean a U.S. economic collapse in 2016. A weak global economy will put added pressure not just on the global stock markets but also U.S. exchanges. Remember, stock exchanges are only as strong as the stocks that go into making them up.

And with the global economy anemic, no one major economy can carry the country to prosperity. The average American certainly can’t. With interest rates at zero, there isn’t much central banks can do to kick-start the economy. Interest rates have been artificially low since the last recession. Where can you go from here?

A study by the BIS found that much of the global financial system is anchored to U.S. borrowing rates. On average, a 100 point move in U.S. rates results in a 43 point move for emerging markets and open developed economies. A rise in interest rates could shock emerging economies and stagnant developed ones.

Why should we care? For S&P 500 companies, the percentage of sales from foreign countries has increased after five years of stagnation. The percentage of S&P 500 sales coming from outside the U.S. was 47.82% in 2014, up from 46.29 in 2013 and 46% for each of the previous four years. (Source: spindices.com, last accessed September 22, 2015.)

The U.S. is not an economic island. It’s relying more and more on sales from outside the country. But it isn’t working. At least as far as earnings and sales go.

Earnings growth for the third quarter of 2015 is projected to decline -4.4%. That’s much higher than the forecasted decline of just one percent at the start third quarter. If this data holds true, this will mark the first back-to-back quarter of earnings declines since 2009. (Source:Factset.com, last accessed September 22, 2015)

As for revenues, third-quarter sales are projected to fall -2.9%. This is also higher than the estimated year-over-year revenue decline of -2.5% at the beginning of the quarter. If this comes to fruition, it will mark the first time the index has seen three consecutive quarters of year-over-year revenue declines since the first quarter of 2009.

Sign #7: Nosebleed Valuations Could Lead to Stock Market Crash in 2016
Despite the seesaw that stocks have been riding in 2015, investors remain overly optimistic. Approximately 33.3% of investors are bullish on the stock market for the next six months. Just 29.1% are bearish and an astonishing 37.6% are somehow neutral. Investor sentiment is at its most bullish since April. (Source: aaii.com, last accessed September 22, 2015.)

Despite weak manufacturing data coming out from the U.S., a weak outlook on the global economy, and nothing really positive being announced since Black Monday, investors are still exceptionally optimistic.

Two key indicators back this up.

According to the Case Shiller CAPE P/E Ratio, the S&P 500 is overvalued by around 62%. Over the last 10 years, that average CAPE ratio has been 15. Today, it’s sitting at 24.34. What that means is, for every $1.00 of earnings a company makes, investors are willing to pay $24.34. To put that into context, the only times the ratio was higher were in 1929, 2000, and 2007. All three instances were followed by a collapse. (Source: Yale University, last accessed September 22, 2015.)

The market cap to GDP ratio compares the total price of all publicly traded companies to GDP.Warren Buffett calls it the single best measure of where valuations stand at any given moment. Who would argue with that? There is obviously a correlation between the country’s economic output and the earnings of its companies. As a result, stocks and their valuations should bear some relationship to the benefits of investing or not investing.

A reading of 100% suggests U.S. stocks are fairly valued. The higher the ratio over 100%, the more overvalued the stock market. It currently sits at 117.3. The Warren Buffett Indicator has only been higher once since 1950. In 1999 it came in at 153.6%. It was only at 108% before the housing bubble burst in 2008.

Eventually stocks and their valuations will run in step. But for that to happen, the stock market needs to experience a significant correction. What could that look like? The S&P 500 is currently at 1,938; Shiller thinks it should be closer to 1,300. That suggests a drop of roughly 33%. Shiller also thinks the DOW, which is at 16,280, should be closer to 11,000; a 32.5% correction. (Source: nytimes.com, last accessed September 22, 2015.)

Those kinds of corrections could seriously undermine the U.S. and global stock markets. Rising interest rates could also hammer the average American and negatively impact foreign markets.

The fact of the matter is that the U.S. economy is not doing nearly as well as we’re being led to believe. And the global economy is no better off. Crash. Recession. Economic collapse. However you want to say it, 2016 is not shaping up to be a good year for the U.S. economy.

7 Signs of a U.S. Economic Collapse in 2016
 
Will the U.S. Dollar Collapse in 2016?
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Will the U.S. Dollar Cause a Stock Market Crash in 2016?


Although the stock market grew at a rapid clip in recent years, 2015 is shaping up as a tipping point for the economy. Growth sputtered to a near standstill by the middle of the year as the economy was plagued by a bundle of problems. Tectonic forces beneath daily market movements continued raising fears of a U.S. dollar collapse in 2016.

There are two main factors that could trigger a U.S. dollar collapse. China could achieve reserve currency status for the yuan, undermining the relevance of the U.S. dollar and U.S. stock markets could crash. Again.

Think of how the world is changing. Since the 2008 stock market crash, asset prices were buoyed by easy money from the Federal Reserve. Stock markets soared as investors regained their confidence. But that confidence came at a steep price.



The Federal Reserve spent more than $4.0 trillion preventing both a stock market crash and the U.S. dollar collapse. Unfortunately, quantitative easing wasn’t meant to last forever.


The Fed finally wound down their bond buying program last year, injecting a strain of worry into stock markets. We’ve seen that strain grow into a full-fledged panic this year, with markets gyrating wildly through the summer.

Why are they panicking? Well, the short answer is that monetary stimulus is nearly at an end.

But what does that mean for U.S. stock markets? Does it necessarily signal a U.S. dollar collapse in 2016? The answers are far from clear, but there are legitimate fears of aneconomic collapse. At the very least, a stock market crash is virtually guaranteed.

Consider this; at the same time the Federal Reserve is wrapping up its monetary stimulus, we’re seeing a massive reordering of global power. China has evolved from being a regional power to a heavyweight on the international stage.

Russia successfully annexed Crimea and Eastern Ukraine without any practical opposition from the West, and Iran has been admitted back into the community of nations. The world has changed a lot in a surprisingly short while.

We’re no longer living in a unipolar world where America could singlehandedly dictate terms to everybody else. These days China, Russia, Germany, Iran, and Saudi Arabia are powerful geopolitical forces in their own right.

As political power redistributes to these countries, so too will capital flows. The U.S. dollar will be brought down from its pedestal and be measured alongside the yuan and the ruble. That much is clear.

Will the U.S. Dollar Lose its Reserve Currency Status?
One potential factor in a U.S. dollar collapse in 2016 is the rise of the yuan. China’s currency is growing ever more important in world affairs, and it’s not by accident.

Time and again, the country’s leaders have announced their intention to gain reserve status for the yuan. Reserve currencies are essentially the backbone of international finance.

Central banks across the world hold large quantities of these currencies as a way of gaining credibility for their own country’s currency. Granting China reserve currency status would symbolize its transcendence in the world order.

There are currently seven reserve currencies in the world, but none come close to the U.S. dollar. As a percentage of total holdings, the U.S. dollar accounts for more than 63% of currency reserves, followed distantly by the euro at 21%.

This wasn’t always the case. Before WWI, currency reserves were made up of British Pounds Sterling, French francs, and German marks.

At the time, Britain dominated world trade and produced the most goods, forcing a majority of international transactions to be conducted in pounds sterling. After WWII, the German mark was replaced by the U.S. dollar in the basket of reserve currencies.

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The decline of the British Empire came at a great time for the U.S.

Global trade shifted toward the American economy during the aftermath of WWII, putting the U.S. dollar at the forefront of international finance. But now China has surpassed America as the largest merchandise trader in the world.

Doesn’t that mean the yuan is destined to be the next primary currency?

If you told someone back then that the U.S. dollar could collapse in 2016, they would probably fetch you a doctor. Heck, a U.S. dollar collapse would have sounded crazy even five years ago.

But the circumstances have altered more than anyone could have imagined. And it’s important to recognize that. This is the pattern history has revealed to us. When a country dominates world trade, it becomes the world’s primary currency.

By that logic, China’s ascension to reserve currency is all but guaranteed. The International Monetary Fund (IMF) has promised a decision on the country’s application for reserve currency status by the end of 2015.

If China is successful, it’s fairly possible we’ll see a U.S. dollar collapse in 2016.

Impact of China’s Stock Market Crash on U.S. Dollar
However, China is facing some hurdles of its own that could turn the IMF against them. IMF support was conditional on China embracing the ups and downs of free market capitalism, including the unrestrained movement of currencies. (Source: Financial Times, August 20, 2015.)

But China used a heavy hand in markets after the country’s stock market crash this past summer. Starting on June 12, 2015, we saw China’s stock market start to crumble.

Investors were riding high off a credit boom in the preceding year, but regulators tried to reign in the excessive use of leverage. That didn’t go down too well.

The Shanghai Stock Exchange lost over 30% of its value in a single month as hundreds of companies fought to remain solvent. Fear was epidemic. Nearly two thousand companies halted trading on their stock as prices plummeted.



Chart courtesy of www.StockCharts.com

China’s government stepped in to stabilize the stock market. They took extreme measures to control the sell-off, including jailing short sellers and propping up endangered companies.

Then they started printing lots and lots of money. On top of that, China lowered interest rates and devalued the currency. These measures helped stabilize asset prices but the IMF wasn’t too happy about it.

Here they were examining China’s application for reserve currency status, and the country goes and starts a currency war. That could have postponed a U.S. dollar collapse past 2016, but China managed to find a tiny loophole in the IMF’s suggestions.

China’s currency has two different values: the onshore yuan and the offshore yuan. The government sets a target for the onshore value, but the offshore floats freely. By providing two different rates for the yuan, China is trying to convince the IMF it can be liberal.

But the onshore yuan allows them to retain some control. It’s a clever little ruse that effectively gives China the power to counteract another stock market crash without relinquishing their pursuit of reserve currency status.

Will the U.S. Stock Market Crash?
We’ve covered China’s impact on the U.S. dollar quite extensively, but what about here at home? How is the U.S. economy performing?

At the first glance, most analysts would answer with a resounding “yes.” The S&P 500 and the Dow Jones Industrial Average are up 120% and 94% respectively, while the NASDAQ Index gained a whopping 184%.

It’s hard to characterize those gains as anything but impressive. Yet the security of those gains is what investors should be worried about. Rather than patting ourselves on the back, we need to double-check the integrity of our stock market profits.

Not all bull markets are real. Some are the construct of excessive optimism in the market, while others (like in China) are built on a credit bubble. Only on rare occasion do stock markets soar wildly on genuine economic results.

More often than not, investors just start drinking their own Kool-Aid. The desire to see higher stock prices becomes a self-fulfilling prophecy—a vicious cycle where investors feed on their own optimism.

It constantly amazes me how quickly investors forget that another stock market crash would spark a U.S. dollar collapse. Think about this: in the third quarter of 2015, 71% of companies issued negative earnings guidance, meaning they’re pessimistic about future growth. (Source:FactSet, July 31, 2015.)

Despite this admission, stock prices are rising faster than earnings per share.



Don’t they understand that stock prices don’t rise in perpetuity? When earnings slow down, the stock market should decelerate as well. Another probable cause of a stock market crash is the coming interest rate hike.

The Federal Reserve has deliberately kept interest rates near zero percent for the last few years. Big banks were effectively borrowing money for free—something the Fed hoped would spur lending in the economy.

However, we were just coming off a massive stock market crash and housing bubble collapse, and people were reluctant to borrow money. Everyone was tightening their belts, including businesses that had fewer customers.

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The collective impact of all that reduced spending was devastating on the economy, but the U.S. dollar was supported by an influx of capital from overseas. Although the U.S. economy was in bad shape, the rest of the world was worse.

Like Alan Greenspan said in 1998, “it is just not credible that the United States can remain an oasis of prosperity unaffected by a world that is experiencing greatly increased stress.” (Source: Federal Reserve, September 4, 1998.)

We cannot reasonably expect investor confidence in the U.S. dollar to be unlimited. There are consequences for repeated stock market crashes.

Another economic collapse would decimate investor confidence in the American dream. They would abandon U.S. stocks in favour of hard assets like gold and silver, sparking a collapse of the U.S. dollar like we’ve never seen before.

I’m not arguing that an interest rate hike would single-handedly destroy the value of the U.S. dollar. My point isn’t that the U.S. dollar will disappear into the pages of history. But we cannot avoid some basic truths about the correlation between quantitative easing and the stock market recovery.



Between 2009 and 2015, growth in the Dow Jones Industrial Average almost perfectly mirrors expansion in the monetary base. Wall Street has developed a sense of sheltered safety much in the same way children feel safe with their parents.

Underlying the complex risk analysis done on Wall Street is a simple calculation that uses no number. And it goes something like this: don’t worry; the Federal Reserve will save us.

But the gravy train is coming to a stop. The Fed’s insistence on a rate hike this year makes it nearly impossible for them to backtrack. They are running out of road, so there’s nowhere to kick the can.

The Federal Reserve Open Markets Committee is meeting again in December for their quarterly review. Most analysts, myelf included, expect the Fed to raise interest rates by 0.25% at the next meeting.

Under normal circumstances, 0.25% isn’t a big deal. By itself, an interest rate hike isn’t enough to cause a U.S. dollar collapse, but that’s where context comes in.

It matters that we’re seeing a global shift in power towards China when the U.S. economy is weakest. China is the largest force in global trade and history suggests they will become the world’s leading reserve currency.

Economic Collapse Headed for U.S. in 2016

At the same time, the U.S. stock market is overinflated and addicted to easy money from the Federal Reserve. The bubble is built and it is astonishingly vulnerable to even the slightest shocks. That’s the nature of bubbles.

With a backdrop that volatile, shouldn’t everyone be worried about a U.S. dollar collapse in 2016?

Read More: 2015 Predictions: U.S. Dollar to Collapse?
Will the U.S. Dollar Collapse in 2016?


U.S. DOLLAR COLLAPSE 2016 - China Orders Banks To Drop The USD
 
Just another collapser, these guys are a dime a dozen.

10 kr (at the current exchange rate that's $1.16) says we'll see the same article next year too, only with the 2016 changed to 2017. I've seen one of these articles every year for my 20 odd years of life.

Last I saw the US economy, apart from some manufacturing indexes, though those have been recovering as of late, is doing better nearly all of its admittedly anemic peers. But even high growth developing nations have been struggling to match the structural stability of the US economy, let alone its diversity.

Look forward to next years article.
 
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The US economy is not about to collapse. In fact, you guys should be praying that it thrives, as a US economic collapse would be disastrous for the global economy. You may think it won't affect you, in the country you live, but every single country has a direct and indirect link to US market health.
 
lol another one.............

We ought to have a sticky thread to keep track on all these article by year.

Seems like a lot of people is living in a La-La land these day, may be I should write something like that and earn a few buck over it too, it's easy, just plug one out and replace the year to 2016.
 
I've been hearing about this 'impending' collapse of dollar for the last decade or so, what does it really mean?
 
Things are worse here in the UK. Wages are still well below their peak, house prices in the south east are more than double the USA's and rising rapidly. There is still a massive trade deficit as industries have made little sustainable growth. There is more employment but many people are living on little, not because they dont earn enough but Britain is so expensive. If any developed country is going to collapse first its the UK.
 
The downward economic pressure means USA must fight another war to maintain itself. If it wins the war, the economic problems will fix themselves. If it loses, then USA loses everything and maybe will have another civil war.

Unfortunately for USA, the next opponent is China :china:
 
U.S. Economy Collapse in 2016? It’s Possible.
A U.S. economic collapse in 2016? Is it possible that the world’s biggest economy will face its biggest challenge next year? While most talking heads on Wall Street think the U.S. is heading in the right direction, the fact of the matter is, there are more than enough indicators to suggest the U.S. economy will come under serious pressure in 2016.

The U.S. economy is rock solid! Or so the commission-dependent brokers, analysts, and fund managers will tell you. They would have told you the same thing back in 2007 and 2008… just before the Great Recession and the stock market crash.

But then reality set in. Only a few months later, the world was on the verge of economic collapse. Despite the warning signs, we’re hearing the same kind of misguided optimism today. The pillars supporting the U.S. economy are more fragile than they were before the Great Recession.



Despite being in the midst of a so-called recovery, the global economy is still appears to be in a recession, American workers aren’t benefitting from the long-in-the-tooth bull market, underemployment remains high, inflation is much higher than the U.S. government’s official tally, a third of Americans have no emergency savings, and most worry more about their finances than anything else.


This is all after trillions of dollars and years of meddling from the Federal Reserve and other central banks around the world. As a result, the U.S. could experience an economic collapse in 2016.

Interestingly, according to a recent survey, 2018 is the year most economists believe the next downturn will hit the U.S. If not 2018, 2020 is the next date on the calendar before the U.S. economy falters. I think they’re both wrong. (Source: Bloomberg.com, last accessed September 22, 2015.)

Sign #1: Government Statistics Hiding U.S. Economic Collapse
If inflation is under wraps, it doesn’t really matter if wages are stagnant. But this simply isn’t the case. And the official U.S. numbers are seriously misleading.

According to government statistics, inflation was held to just 0.6% during the first seven months of 2015. Unfortunately, that data disregards the most basic items that everyone uses, including food and energy costs. (Source: Bureau of Labor Statistics, September 22, 2015.)

Alternative non-government measures of inflation tell a completely different story. The Chapwood Index is an alternative inflation indicator that looks at the unadjusted costs and price fluctuation of the top 500 items that Americans spend their money on in the 50 largest cities in the country. (Source: chapwoodindex.com, last accessed September 22, 2015.)

The index looks at the fluctuations in the cost of items such as Advil, Starbucks coffee, insurance, gasoline, tolls, fast food restaurants, toothpaste, oil changes, car washes, cable TV and Internet service, cellphone service, dry cleaning, movie tickets, cosmetics, gym memberships, home repairs, piano lessons, laundry detergent, light bulbs, school supplies, parking meters, pet food, and People magazine.

For example, in 2014, the CPI rose 0.8%. But according to the Chapwood Index, major cities like New York, Los Angeles, Chicago, San Diego, and Boston saw inflation for the trailing 12 months (through to June of this year) run over 10%.

In San Jose, the Chapwood Index registered a 13.7% rise in the cost of living. Even Colorado Springs—the city with the lowest increase of 6.6%—was still 5.8% higher than the official CPI figure.

If you happen to work in Boston or San Jose and got a 0.8% raise in 2014, it wasn’t nearly enough to cover the increase in your day-to-day expenses. No matter what the official government data tells you.

But inflation means more than just higher prices at the grocery store. Nominal Gross Domestic Product (GDP) is deflated by the measure of inflation being used to calculate real GDP and real GDP growth. Therefore, for a given nominal GDP growth rate, underestimating inflation over time would result in overestimating real GDP growth over time.

If this is true, a U.S. economic collapse may have already begun.

Sign #2: Real Wages Falling for Average Americans
Roughly 70% of U.S. gross domestic product (GDP) comes from consumer spending. The operative word there being consumer. So you can’t really predict what the U.S. economy is going to do unless you see how the average American is doing.

It isn’t pretty.

In spite of the highly touted unemployment rate, the underemployment rate (those working part time who want full-time work, and those who have stopped searching but want a job) remains above 10%. (Source: bls.gov, September last accessed 22, 2015.)

On top of that, most U.S. workers have not seen any improvement in their wages. In fact, when you factor in inflation since the recession apparently ended in 2009, wages have declined for most workers. (Source: nelp.org, last accessed September 22, 2015.)

I enter as evidence: between 2009 and 2015, 20% of people in the lowest-paid occupations saw their wages decline an average of 5.7%. Those included people working in retail, food preparation, personal care aids, cleaners, and home health aide. Specifically, for restaurant cooks, the decline was 9.8%; food prep workers 7.7%; and for home health aides, 6.2%.

For all U.S. workers, the purchasing power of their average income declined by four percent; meaning, the cost of living in the United States outpaced any increase in pay. This suggests that millions of Americans have little to no economic security.

It’s not as if this is news to anyone. Even the Federal Reserve has said stagnating wages is proof the U.S economy has not fully recovered. And this will negatively impact the overall economy. If real wages fall, consumers cannot make ends meet—let alone help economy growth through spending.

Only loans and credit card is keeping households afloat. If consumers are forced to rein in spending, a global recession in 2016 is almost inevitable.

Sign #3: Millions of Americans Have Little to No Money
Not only are Americans making less and having to spend more, they also have little to no money set aside for emergencies.

According to one report, roughly one third (34%) of American adults do not have any emergency savings. That means 72 million Americans have no safety net in case they lose their job, have unexpected expenses, or can’t afford the rising cost of living expenses. (Source:neighborworks.org, last accessed September 22, 2015.)

Almost half (47%) said their savings would cover their living expenses for 90 days or less. Add it up, and 81% of Americans are either at a breaking point or just 90 days away from it.

According to financial experts, those who make decent money and know how to budget their money, say Americans should set aside 15% of their gross income in case of emergencies, in addition to retirement and other goals. But it seems that few have been able to follow that sage advice.

It seems as if Americans are worse off than before the Great Recession.

Not surprisingly, Americans worry more about money on a daily basis than anything else, including their health. In another survey, one in five Americans fears living paycheck-to-paycheck for the rest of their lives—with almost as many people worried about being in debt forever! That translates into never being able to retire. (Source: marketwatch.com, last accessed September 22, 2015.)

But at least they have ultra-low interest rates to rely on!

Sign #4: U.S. Interest Rate Hike Could Cripple America
The Federal Reserve’s fund rate has been coming down for more than 30 years. That means virtually everyone with a mortgage, loan, or credit card debt, is used to the low interest rate environment. But that’s about to change.

Most expect the Federal Reserve to raise interest rates later this year. If so, it will be the first time it has raised interest rates in nine years. And with nowhere else to go but up, it will put an end to free, cheap money.

Admittedly, the world needs normal interest rates. The artificially low rates brought in by the Federal Reserve through quantitative easing have devastated returns on investment. On the other hand, rising interest rates could cripple those Americans who already have trouble making ends meet. That includes anyone with large amounts of debt, including student loans.

We could be swimming in debt in the not-too-distant future. And by “we” I mean the entire planet. The Bank for International Settlements (BIS) warned that the world has taken on so much debt that a rate hike led by the Fed could send the whole planet into a debt crisis.

The BIS warned that market instability, in particular in China, is a sign that the debt build-up is coming back to haunt the markets. And it could do so for a long time. The total accumulated debt is higher now than it was before the start of the U.S. economic collapse in 2008.

Since then, the world has taken on an additional $57.0 trillion in debt. As of the end of 2014, the planet owed $199 trillion on a world economy worth about $80.0 trillion annually. China, the world’s second-largest economy, has quadrupled its debt since the last financial crisis. (Source: mckinsey.com, last accessed September 22, 2015.)

Sign #5: Global Economy Anemic
U.S. economic growth has not exactly been steamrolling the competition. And it’s been consistently underwhelming. Before the Great Recession, in 2006, the U.S. reported GDP growth of 2.7%. Those were the good old days. In 2007, GDP was 1.8%. In 2008 it was -0.3%; and in 2009 it was -2.8%. (Source: worldbank.org, last accessed September 22, 2015.)

Fast forward to 2012 and the country’s GDP came in at 2.3%, 2.2% in 2013, and 2.4% in 2014. While second-quarter 2015 GDP expanded at a solid 3.7% annualized rate, the overall GDP of the country has not been stellar. Especially when you consider that we are the world’s largest economy.

China expects its GDP to grow at seven percent this year. Relative to the United States, that’s pretty extraordinary. But for China, it represents the worst performance in more than 20 years.

With the two largest economies in the world limping along, the rest of the major global economies cannot be doing any better. And they’re not. The eurozone isn’t out of the water by any stretch. Germany continues to plug ahead. But France, Italy, and Greece are economic millstones. This has left the entire continent on the brink of recession.

Japan’s economy shrank 1.6% in the second quarter and is a mess. It’s hard to decide if the country is in recovery mode or not. Over the last 14 quarters, Japan has posted seven uneven quarters of growth and seven quarters of contraction. (Source:wsj.com, last accessed September 22, 2015.)

Then we have Canada. The country is in a technical recession after its GDP fell -0.5% in the second quarter after slipping -0.8% in the first quarter. Not a big deal, you say? Janet Yellen said recently that while China was an issue, Canada’s economic slowdown was one of the reasons why the U.S. economy is too weak to raise interest rates. She described Canada as “an important trading partner of ours that has been negatively affected by declining commodity prices, declining energy prices.”

While China is a big trading partner with the U.S., Canada is actually the number one export market, accounting for 19% of all exports. That’s more than double China’s seven percent share.

On top of that, Canada’s resource-heavy dollar has been in freefall, down 12% against the U.S. dollar since the beginning of the year. The Chinese yuan, on the other hand, is down just three percent.

Sign #6: U.S Companies Increasingly Relying on Foreign Sales
All of this could mean a U.S. economic collapse in 2016. A weak global economy will put added pressure not just on the global stock markets but also U.S. exchanges. Remember, stock exchanges are only as strong as the stocks that go into making them up.

And with the global economy anemic, no one major economy can carry the country to prosperity. The average American certainly can’t. With interest rates at zero, there isn’t much central banks can do to kick-start the economy. Interest rates have been artificially low since the last recession. Where can you go from here?

A study by the BIS found that much of the global financial system is anchored to U.S. borrowing rates. On average, a 100 point move in U.S. rates results in a 43 point move for emerging markets and open developed economies. A rise in interest rates could shock emerging economies and stagnant developed ones.

Why should we care? For S&P 500 companies, the percentage of sales from foreign countries has increased after five years of stagnation. The percentage of S&P 500 sales coming from outside the U.S. was 47.82% in 2014, up from 46.29 in 2013 and 46% for each of the previous four years. (Source: spindices.com, last accessed September 22, 2015.)

The U.S. is not an economic island. It’s relying more and more on sales from outside the country. But it isn’t working. At least as far as earnings and sales go.

Earnings growth for the third quarter of 2015 is projected to decline -4.4%. That’s much higher than the forecasted decline of just one percent at the start third quarter. If this data holds true, this will mark the first back-to-back quarter of earnings declines since 2009. (Source:Factset.com, last accessed September 22, 2015)

As for revenues, third-quarter sales are projected to fall -2.9%. This is also higher than the estimated year-over-year revenue decline of -2.5% at the beginning of the quarter. If this comes to fruition, it will mark the first time the index has seen three consecutive quarters of year-over-year revenue declines since the first quarter of 2009.

Sign #7: Nosebleed Valuations Could Lead to Stock Market Crash in 2016
Despite the seesaw that stocks have been riding in 2015, investors remain overly optimistic. Approximately 33.3% of investors are bullish on the stock market for the next six months. Just 29.1% are bearish and an astonishing 37.6% are somehow neutral. Investor sentiment is at its most bullish since April. (Source: aaii.com, last accessed September 22, 2015.)

Despite weak manufacturing data coming out from the U.S., a weak outlook on the global economy, and nothing really positive being announced since Black Monday, investors are still exceptionally optimistic.

Two key indicators back this up.

According to the Case Shiller CAPE P/E Ratio, the S&P 500 is overvalued by around 62%. Over the last 10 years, that average CAPE ratio has been 15. Today, it’s sitting at 24.34. What that means is, for every $1.00 of earnings a company makes, investors are willing to pay $24.34. To put that into context, the only times the ratio was higher were in 1929, 2000, and 2007. All three instances were followed by a collapse. (Source: Yale University, last accessed September 22, 2015.)

The market cap to GDP ratio compares the total price of all publicly traded companies to GDP.Warren Buffett calls it the single best measure of where valuations stand at any given moment. Who would argue with that? There is obviously a correlation between the country’s economic output and the earnings of its companies. As a result, stocks and their valuations should bear some relationship to the benefits of investing or not investing.

A reading of 100% suggests U.S. stocks are fairly valued. The higher the ratio over 100%, the more overvalued the stock market. It currently sits at 117.3. The Warren Buffett Indicator has only been higher once since 1950. In 1999 it came in at 153.6%. It was only at 108% before the housing bubble burst in 2008.

Eventually stocks and their valuations will run in step. But for that to happen, the stock market needs to experience a significant correction. What could that look like? The S&P 500 is currently at 1,938; Shiller thinks it should be closer to 1,300. That suggests a drop of roughly 33%. Shiller also thinks the DOW, which is at 16,280, should be closer to 11,000; a 32.5% correction. (Source: nytimes.com, last accessed September 22, 2015.)

Those kinds of corrections could seriously undermine the U.S. and global stock markets. Rising interest rates could also hammer the average American and negatively impact foreign markets.

The fact of the matter is that the U.S. economy is not doing nearly as well as we’re being led to believe. And the global economy is no better off. Crash. Recession. Economic collapse. However you want to say it, 2016 is not shaping up to be a good year for the U.S. economy.

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