The real economy - manufacturing and sales are off ... way off.

As the US government and Federal Reserve work tirelessly to assure that the engines of a debt-based economy (the banks and lending institutions) remain well-supplied with capital and liquidity, the wheels are falling off.

First, retail sales and store traffic suffered some of the most pronounced drops on record in September, indicating that a consumer-led recession is upon us - which would make this the first one since 1991.

...the number of people in U.S. malls and department stores declined 9.3% year over year in September. The U.S. Commerce Department this morning reported that retail sales fell 1.2% in September, marking the biggest decline in three years.

Next, a measure of manufacturing activity in the Philadelphia and NY regions and a different measure of nationwide manufacturing capacity utilization both took very sharp turns for the worse:

WASHINGTON (MarketWatch) -- Turmoil in the credit markets has spilled over with a vengeance into the factory sector in the Philadelphia region, the Philadelphia Federal Reserve said Thursday. The Philly Fed index plunged to a reading of negative 37.5 in October from a positive 3.8 in September. It was the sharpest one-month decline on record and marked the lowest level for the gauge in 18 years. On Wednesday, the New York Fed reported that factory activity in the Empire State region also fell sharply.

In addition, about 43% said the recent turmoil had forced them to scale back their capital-spending plans.

The region's manufacturing executives expect no growth over the next six months. The index of future activity fell to negative 4.2 from 30.8 in the previous month.

Earlier Thursday, the Federal Reserve reported a stunning 2.6% drop in industrial production in September, the biggest one-month drop in 34 years.


The data "make clear that the factory sector has taken a powerful turn for the worse," Action Economics said in a note to clients. "In total, since August, the economy has shifted from a profile of remarkable resilience to one of freefall at a pace that is consistent with a sizable, rather than mild, recession," Action Economics said.Meanwhile, the four-week average of unemployment claims moved to its highest level since October 2001.

For the week ended Oct. 11, the number of initial claims declined to 461,000, down 16,000 from the prior week, according to the government. The four-week average of those claims rose 750 to 483,250 -- the highest level since October 2001.

Also today, we found out that the August data for international capital flows showed a second straight month where foreigners sold more US investments than they bought. Luckily US residents sold even more foreign assets than that and brought the money home so the Treasury still got to report a very modestly positive number. This report (called the TIC report) is one I follow closely because it gives us some indication of the willingness (or ability?) of foreign banks and private parties to continue to fund our excess borrowing needs.

Net foreign purchases of long-term securities were $14.0 billion.

* Net foreign purchases of long-term U.S. securities were negative $8.8 billion. Of this, net purchases by private foreign investors were $1.5 billion, and net purchases by foreign official institutions were negative $10.2 billion.

* U.S. residents sold a net $22.7 billion of long-term foreign securities.

The important figure here is the final balance of $14 billion as compared to the need of the US to fund (borrow) roughly $70-$80 billion a month to keep things moving along.

Unless this capital flow improves - a lot - the dollar is going to be under additional international pressure.

Okay, that's it for now....back to working on Ch 20.

This is a companion discussion topic for the original entry at

Whoa! I guess the folks trying to give things a feel-good spin on tv need to take a bite out of the reality cookie!


Maybe they are vectoring us right through a recession/depression by not mentioning that we are going through one - that’ll keep the market propped up a while longer.
Perhaps pharmachutical companies will come out with a line of meds transforming hunger into nirvana.

I was laughing pretty hard at this off of worlwide today:

Link here


Back assward,

enough said.

in a very prominent position on your site.

Most people coming here are working their way though this process and have partners and family who are themselves at other stages. I know I have been almost paralised by fear and have panicked most days until recently. This is behaviour that is very hard for other people to deal with. As time goes on they will need a lot of help. Your Kubla Ross derivative is invaluable.So, in my opinion, is humour.

Keep up the good work, thanks Chris and Eric


Ugh, so he spends $2,000,000,000,000.00 of our tax dollars to shore massive companies up and then says oops?
FNK - I think you can drop the Back and ward off
One guy (Dr. Ron Paul I think it was) in I.O.U.S.A. says that the Fed. Chairman is more powerful than the president, you’d like to think that he is smarter than this.

That TIC report is really interesting. Check me on this: so to keep things neutral, we have to have net inflow of foreign investment about equal to the government budget deficit each month. Is that right?
I am guessing that the flight to quality has seriously clouded the impact of all this government borrowing that’s happening now. Where does Paulson get his $250B? He borrows it, and that’s easy right now because everyone wants T-Bills. But as soon as the credit crisis calms down a bit, people will move back into higher yielding commercial paper, and then the impact of all this new debt issuance will become more apparent.
Add to this a possible continued unwillingness of foreigners to buy treasuries, and then mix in a Bretton Woods 3 possibly impacting the dollar’s reserve currency status, and that’s a recipe for some serious impact - not sure if its just an interest rate increase, or a drop in the dollar - maybe both.
We’ve just seen what de-leveraging Lehman and some hedge funds can do to a stock market. I can just imagine the global unwinding of a reserve currency. No wonder you watch the TIC report so closely.

On the Breton Woods 3 topic…

My guess is that foreign banks will try to come up with a neutral currency (country independent) for international trade - Initially having it’s value arbitrarily based on a basket of currencies. That would better shield the international community from any given country’s economic follies. This would be in the best interest of the international community who, at this point are unwillling partners with the US economy.

I believe currently the only thing holding the US dollar together is literally that the country owes so much money that there is a lot of vested interest in keeping it together - China won’t simply give up on it’s 1/2 trillion of US debt they own. The old saying holds true, "If you owe the bank a little money, the bank owns you. If you owe the bank a lot, you own the bank".

The problem here is that at some point certain countries WILL be willing to count their losses and cash in their dollars. Probably starting with the ones holding smaller amounts of dollars (US debt). Then we will see the dominoes coming down.

All the rumblings about a new Bretton Woods is, in my opinion a sign of the above coming true. Nobody is too happy about the possibility of the US simply printing money, instead of selling dollars, but (as Chris has demonstrated) that’s inevitable since there is only so much debt other countries can or want to buy. Also, I’m sure that the international community remembers that the US can change the rules at any moment.

I wonder if it will be French that will cash in and check out first - They did it during Vietnam, remember? Gimme my gold!

My vote is to call the new international currency the "Bob", so 1 bob will be equal to about 99 dollars pretty soon… :wink:


Well said… I’ve said a few times that the stability of a currency under distress can be measured by 1. economic diversification, 2. debt/gdp, 3. relative size and 4. the amount of foreign investment it has or in other words, how many different people it owes money to. I don’t think just because the US has a lot of debt that they are holding up, I think it’s because they owe so many different countries and that they have been the world currency to date. You bring up an interesting solution about a basket of currencies, one of hte problems with this is the same reason why the Euro can’t be the new world currency… there’s difficulty in managing fiscal and monetary policies when it comes to manipulating the world currency. Hmmmm, hey, how about the Loonie??! The Cdn $ is resource based, has a puppet Prime Minister, banks are only 11:1 levered, in all seriousness, the C$ is cheap in my opinion.

I know I have been almost paralised by fear and have panicked most days until recently. This is behaviour that is very hard for other people to deal with.
I'm sorry to say I see this all around me in family, friends and co-workers. No matter how I try to get their interest, they either change the topic or their minds go blank. On the few occassions I'tve tried to keep the topic going, they get more resistant. There is a defense mechanism at work here. It's frustrating and sad to see so many people refuse to take the time and effort to know what they are dealing with and how to protect themseves. This is a financial holocaust in the making.


Thanks hewittr

I’m over the moon at getting a response! I guess there is no answer. I’ve nearly convinced my brother, my partner is getting better but my two sisters, one caught in Perth with an unservicable mortgage, the other a church and state believer, hate me with a vengence.

The parrot and the bunny believe me though.


Ok T

If a Bob is worth $99 US we cold just resurrect the old Aussie Slang for a defunct currency.Recycling is all the rage now.

That would mean that

Two Bob would be worth $200 US (rounding up of course)

A Dinna would be worth $100 US

A Zac would be worth $50 US

A Tray would be worth $25 US

And all us OLD Aussies dont need to learn new Slang.

and we could also resurrect all the old terms Like "Not the full Bob" and "A Tray short of a Dinna" or "I havent got two Bob to rub together" There is a million of them.

All the best John



I know I have been almost paralised by fear and have panicked most days
until recently. This is behaviour that is very hard for other people to
deal with.

I’m sorry to say I see this all around me in family, friends and co-workers. No matter how I try to get their interest, they either change the topic or their minds go blank. On the few occassions I’tve tried to keep the topic going, they get more resistant. There is a defense mechanism at work here. It’s frustrating and sad to see so many people refuse to take the time and effort to know what they are dealing with and how to protect themseves. This is a financial holocaust in the making.

[My reply is not directed at any one person. It is as much a reminder to myself about priorities as it is a response to the comments above.]

There is another perspective. You cannot absolutely know for sure that this will end in a financial holocaust. None of us know for sure how this will turn out. However, by creating an environment of resistance, frustration and sadness, maybe you are damaging something real and something far more important than money – your relationships and your health.

You believe you are right about the financial holocaust and you believe anyone who doesn’t listen to you deserves your scorn. I suggest that you consider the possibility that a financial holocaust may not occur in our lifetimes.

Also consider that inner peace and happiness mean more than money to a lot of people (as they rightly should). Therefore, when you attempt to force your view on others and your view makes them feel a lack of inner peace and happiness, they will tune you out. That doesn’t make them wrong. They simply value the present moment more than they value a future that may or may not materialize the way you think it will.

The present moment is all we ever have. If you waste it in a state of sadness or frustration, then something nearly as bad as a financial holocaust has already befallen you. If you don’t believe this, simply go to your doctor for a very detailed physical exam. Bring along your friends or relatives who refuse to buy into the fear of a financial holocaust. Have the doctor check levels of stress hormones, heart rate variability, brain wave patterns, key measures of oxidative stress and many other measures. (Some of this is called "allostatic load".) You will find that your obsession with the financial holocaust, which may or may not ever happen, is already damaging your physical health along with your relationships.The people who choose to be happy and who refuse to buy into the worst scenarios about possible future outcomes will show more healthy measures on many key health biomarkers.

I think CM needs to list "A New Earth" on the recommended reading list.


I get the impression you are new to this subject. I developed an interest in this topic over forty years ago. So I can’t tell you what I know about economics, history and human nature on this site. I’ll stand by my assertion that the US government will destroy this economy tryng to save itself. Many other fiat currencies are going down with the dollar. Too many people are in debt over their heads, with pensions, 401Ks etc. soon to be worthless. Too many people leaving themselves too vulnerable. The more power government has to intervene in the economy, the more damage they are going to do. And the scale of government intervention is unprecedented by several orders of magnitude.The details will become more apparent with time.

I’m confident that I know what I’m doing. I sleep well at night knowing I’ve made some essential preparations and I’m enjoying life day by day. I don’t go around preaching the end of the world. And I don’t push this topic on people when they are not receptive. Please don’t play amateur pychologist. You don’t know me. If you think I’m exaggerating, that’s your business.



DS - I don’t agree but that’s fine.

Humour is my best guage of my state of mind. I enjoy predicting the plots of movies and books to check that I’m doing OK interlectually. I only want to persuade the ones I love to have a look and a think for themselves. If and when I succeed then I can rest. Satisfied.

Lots of people think it will be like it was during the 30’s. I don’t. I made a list of the differences but the one that matters is population. I live in a beautiful valley that could feed about 20 families tops. There are many thousands. Putting it bluntly; if and when oil stops so do we. Should we have traded for what we need.

I have voted Conservative all of my life but this week I voted Green. The Conservative victory is a clear indication of the future we can expect. Canadians are enjoying the highest material standard of living in the history of human civilization. Nevertheless the majority are primarily worried about maintaining and/or improving their standard of living today rather than modifying their lifestyles to address energy and climate problems that will seriously harm them and their children in the future. I am now certain we won’t see material changes in behavior until a crisis develops. The problem is that avoiding an energy or climate crisis will take 20-50 years to address assuming we deploy a World War level of capital investment now. That capital however was just blown by the world governments to bail out insolvent irresponsible banks. Our grandchildren will be very disappointed in us.

What grandchildren? Many of us "buy" clean drinking water, how long before clean breathing air? (already happening for some near the top of high rise appartments) Where is the food coming from? The worst collamity would be if money doesn’t precipitate a huge die off to below sustainable population levels. Because then something else will have to. Climate change? Sea rise? Global conflict? How long do we have? If diversity is our greatest strength then maybe conformity is our greatest weekness.

hewittr and pir8don, I know what you’re talking about. I cycle through scared-to-death, depressed, acceptance, and back to somewhat in denial (pushing the whole idea away, which I think is a psychological resting place). My husband "doesn’t discount" the possibility of what I am afraid of, but goes on living (enviably joyfully!) in the moment, while I worry and do all I can to try to prepare/protect my family from this possibility. I don’t push the idea hard on other people, but find it difficult to even talk about this to others as I see the same types of reactions hewittr described. It does make you sad not to be able to help people you care about. While I agree with DS that we don’t know "for sure" that this financial holocaust is going to happen, we DO know that the possibility is very real, based on the evidence we’ve been presented, and on history. And so while I may hope for the best, I am taking the personal responsibility to plan for the worst, since my family’s well-being may be at stake.



A friend of mine is a licensed stock broker but works as a computer programmer (he got the lisc. so he would be an educated investor.) He told me this would happen when I met him in 1995.
He didn’t lay it out like Chris did with charts and video, he told me the indicators were off but I didn’t know how off they were, he said it would take years to play out. We made life changing course adjustments then and after seeing Chris’s videos I’m glad we did for I think the years have pretty much played out.
When I first heard what my friend said, I remember thinking, this guy is telling me that the world is square. I mean it is as if I am still standing in his side yard today, that is how clear my recollection of it is.
I can so relate to what you encounter with your friends family and loved ones. On one hand, to not tell them is almost criminal aside from the moral issues.