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September
04
2018

Mike Maloney: REVEALED — The Dangerous F.O.G
Alexander Trigaux

The current US economy is like 100 cars flying down a fog-shrouded highway at 80MPH with two feet of visibility. Everyone is all-in, bullish as can be, and simply hoping against hope that nobody in front of them hits the brakes.

The Federal Reserve is the communal foot on the gas. Their massive QE campaigns have injected titanic liquidity into risk assets and kept the stock market free-floating into bubbled-out valuation territory for years on end.

And by pursuing a zero (or nearly zero)-interest-rate policy for the better part of a decade, corporations and consumers alike were heavily incentivized to leverage themselves to the extreme.

After all, if you’re a household, the perceived risk of additional debt is usually measured in how much interest you’re going to have to pay on it. When those amounts are being calculated based on a fed funds rate near zero, borrowing $50,000 doesn’t cost much more than borrowing $5,000. Until rates go up.

Likewise, corporations will seek to borrow every penny they can when it’s next to interest-free: it’s easy to justify rampant business expansion or increased marketing campaigns with lowest-in-history cost of capital.

And those companies who are floundering so badly that they can’t generate any profits at all require this same cheap debt simply to pay for their past debt obligations, while their operational results continue to decay. These are the zombie companies that a free market, absent nanny-state-provided, easy-money-policy loans, would have been unceremoniously driven out of business long ago.

What’s more, the federal government is now incredibly dependent upon stock market capital gains taxes for overall tax revenue. If the market corrects substantially and most investors lose money, there goes a giant chunk of US federal income that already falls well short of being pay for all of our current-year outlays, let alone coming anywhere close to being able to start paying off the massive debtload we’re already incurred:

US tax revenue (red line) has been primarily driven by the Fed-created stock market bubble

So now we find ourselves in the longest economic expansion in history. Make no mistake, this non-recovery recovery has been driven by one thing: central bank market interference.

On average, over the past 200 years or so, we’ve had a recession every 4.5 years. We now haven’t had one for 10.

What does this indicate to the irrationally, perpetually optimistic and self-serving Congressional Budget Office? That we won’t have one until 2029. Over 10 more years from now.

Is it any wonder that these politicians, who themselves get elected by promising free stuff we can’t afford to pay for, are this detached from the stark reality of what is to come?

 

Mike Maloney is host of the smash hit video series, Hidden Secrets of Money; former Rich Dad/Poor Dad advisor; author of the best-selling precious metals book, Guide to Investing in Gold and Silver, and founder of GoldSilver.com. For more than a decade, Mike’s travelled the world sharing his economic insights with audiences from Hong Kong to Rome and from Silicon Valley to Wall Street.

A life-long inventor and serial entrepreneur, by age 23, Mike had already founded sales firm Michael Maloney & Associates, growing it to five employees and two branch offices. He went on to become a manufacturer of high-end stereo equipment, where his designs won numerous awards, including selection in 1992 as one of only five permanent exhibits for display at the opening of the 20th century design wing of the Royal Victoria & Albert Museum in London, the world's greatest design museum.

"That's about the time I had my first up close and personal encounter with economic cycles," Mike says.By 1992, the U.S. economy was in recession, and the market for luxury audio equipment had quickly dried up. To make matters worse, a real estate bubble had burst, and the home Mike then owned dropped 60 percent in value.

Still he managed to grow his business and in 1998 launched The Home Entertainment Show (T.H.E. Show) which is still one of the most respected high-end audio trade shows today.

In 1999 a professional financial planner had been hired to manage his family's estate and the results were disastrous. For two years Mike watched the value of his family's investment portfolio plummet, so he fired the financial planner, took control of the investments, and began to educate himself on investing.

 

 

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