Is this the peak?

Exhibit 1 - Dow Jones
The Dow Jones closed yesterday (Feb 27) at 20,837.44, and is down 25.50 today to close at 20,812.24.  It could go higher tomorrow, but it seems like it is running out of steam.

Exhibit 2 - Commercial and Industrial Loans
Commercial and industrial loans have plateaued.  They have been flat at about $2.1 trillion for 4 months now.  "The timing of a turning point may not be perfectly aligned with the beginning of a recession, but it’s close.And turning points become clear only after CI loans are in a real downdraft. Before then, we just have our suspicions. For now, we have four months of stagnation, a first since the trough of the Financial Crisis, and a sign that companies have become more reluctant to borrow from banks."

Exhibit 3 - NYSE Margin Debt
This hit an all-time high in January 2017 of $513,278 million.  I've written about this before.  It could be a danger signal or it could be nothing.

Exhibit 4 - Initial Jobless Claims
The 4-week moving average is at 241,000, which is at the lowest level in 47 years (since 1970).  It appears to be at a low.  And once it hits a low, it doesn't stick around, it starts going up quickly.

This recovery could still go on longer.  But I think the March 15 date will panic the market.  We will see.  Some point will be the high and yesterday might be it.

Disclaimer:  My track record on this is horrible.  The last time I though a crisis was imminent was Sept. 30, 2016, and before that on September 11, 2015, and I could find more.  I am not saying a crisis is imminent now.  I am just saying that this may be a peak, and there may be a recession within 6 to 18 months.

Update:  The housing bubble is starting to pop worldwide.

Update 2:  The Dow closed on March 1, 2017 at 21,115.55.  Let's see where it is on March 16.

After March 15 Everything Will Grind To A Halt

“I think what people are missing is this date, March 15th 2017. That’s the day that this debt ceiling holiday that Obama and Boehner put together right before the last election in October of 2015. That holiday expires. The debt ceiling will freeze in at $20 trillion. It will then be law. It will be a hard stop. The Treasury will have roughly $200 billion in cash. We are burning cash at a $75 billion a month rate. By summer, they will be out of cash. Then we will be in the mother of all debt ceiling crises. Everything will grind to a halt. I think we will have a government shutdown. There will not be Obama Care repeal and replace. There will be no tax cut. There will be no infrastructure stimulus. There will be just one giant fiscal bloodbath over a debt ceiling that has to be increased and no one wants to vote for.” 
http://www.zerohedge.com/news/2017-02-26/stockman-after-march-15-everything-will-grind-halt

Comment:  I fully agree, which is why I posted it, but the "drop dead" date will be about September 1, not March 15.  The "drop dead" date is when the Treasury exhausts the extraordinary measures, and they can go a few months with all the tricks.

The system can't continue past 2037

This isn't recent news but noteworthy nonetheless.  This is a quote from Paul Ryan on April 6, 2011.

“We’re on a debt crisis path. We are on a path where the government goes from 20 percent of GDP, to 40 percent then 60 percent of GDP. We’re on a path where our debt goes from about 68 percent of GDP to 800 percent of GDP over the three-generation window,” Ryan said.

“I asked CBO to run the model going out and they told me that their computer simulation crashes in 2037 because CBO can’t conceive of any way in which the economy can continue past the year 2037 because of debt burdens,” said Ryan.

So, this quote is almost 6 years old, and I think the long-term outlook has improved since then.  Still, there is a Y2K38 bug that will occur on January 19, 2038, which seems like a "bad omen".

I'm trying to be proactive and positive here.  How can the system continue as is after 2037?

Budget and Economic Outlook: 2017 to 2027

https://www.cbo.gov/sites/default/files/115th-congress-2017-2018/reports/52370-outlookonecolumn.pdf

The CBO recently released their latest 10 year budget outlook. I'm looking for their worst-case scenario and when they think it might occur. Here it is:

 Beyond the 10-year period, if current laws remained in place, the pressures that contributed to rising deficits during the baseline period would accelerate and push debt up even more sharply. Three decades from now, for instance, debt held by the public is projected to be nearly twice as high, relative to GDP, as it is this year—and a higher percentage than any previously recorded. Such high and rising debt would have serious negative consequences for the budget and the nation:

• Federal spending on interest payments would increase substantially as a result of increases in interest rates, such as those projected to occur over the next few years.
• Because federal borrowing reduces total saving in the economy over time, the nation’s capital stock would ultimately be smaller, and productivity and total wages would be lower.
• Lawmakers would have less flexibility to use tax and spending policies to respond to unexpected challenges.
• The likelihood of a fiscal crisis in the United States would increase. There would be a greater risk that investors would become unwilling to finance the government’s borrowing unless they were compensated with very high interest rates; if that happened, interest rates on federal debt would rise suddenly and sharply.

This is my interpretation of what is being said here.  In 3 decades from now, that is, in 2047, a fiscal crisis is likely to occur unless major changes are made.

When do they expect the trillion dollar deficits to re-occur?  In 2023, when the budget deficit is conveniently predicted to be exactly $1.000 trillion.

The Debt Limit is back

The debt limit is suspended until March 15, 2017, at which time it will be both reset to include all debt issued while it was suspended, and frozen at that level until it is raised or re-suspended.  The Treasury should have enough cash to operate until at least August.

Usually it just gets suspended again without much of a fight.  This time, however, the Republicans, being in the majority, could get tough, and the Democrats would love to trip Trump up.

The main question I have is will it reach $20 trillion before March 15?

See also: http://www.marketwatch.com/story/raising-the-debt-ceiling-is-now-trumps-problem-2017-02-01

2016 Financial Report of the US Government

Link:  https://www.fiscal.treasury.gov/fsreports/rpt/finrep/fr/16frusg/01112017FR_(Final).pdf

Although this isn't GAAP, its the closest we have.

The executive summary is that the US Government lost $1,047 billion in FY 2016 and its net financial position (assets minus liabilities) was a negative $19,292 billion.

How much interest was paid in FY 2016?  It's hard to find in the report, because you have to use the right search words, which are: "Interest on Treasury Securities Held by the Public".  The total was $273 billion.

So, no worries.  The debt will never have to be paid back, and the only real cost is the interest, which is totally manageable.

Global Helicopter Money

There is $150 billion per month being created out of thin air by the BOJ and  the ECB that indirectly makes its way to the US to buy Treasury bonds.  This keeps the yield of T-bonds about 1% lower than it otherwise would.  If this flow of money stops, then the US would immediately fall into a recession:

"I would venture a guess that without QE from the ECB and BOJ that 10-year U.S. Treasuries would rather quickly rise to 3.5% and the U.S. economy would sink into recession."
--http://www.zerohedge.com/news/2017-02-06/gross-without-qe-ecb-and-boj-us-economy-would-sink-recession

Thanks Japan and Europe, for subsidizing our economy.  Thankfully, this situation will continue forever!

There is no need to worry about deficits because we can always issue more bonds.  And they will be purchased with money created out of thin air.  It's alchemy!  We have discovered a way to create unlimited wealth.  Step 1, have the government spend it on whatever they want.  Step 2, issue bonds to cover the deficit.  Step 3, the BOJ will create more money to buy the bonds.  The only problem is that the government does not spend enough,  We need moar!

Steampunk in San Francisco

Nikola Tesla’s alternating current may have “won” the War of Currents at the end of the 19th Century, but the defeated incumbent—direct-current distribution, aggressively championed by Thomas Edison—endured. As historian of technology Thomas P. Hughes observed in his influential essay on the evolution of large technological systems, the War of Currents ended “not with victor and vanquished, but with the invention of devices making possible the interconnection of the two systems.” Remnants of DC power distribution kept performing their assigned tasks for decades as the AC grid thickened around them.

In fact, a few live on to this day. One of the best examples is in San Francisco, where 250-volt DC power still flows through underground and overhead cables across the city. These DC lines peacefully coexist with their AC counterparts; you can see this mix of currents straddling utility poles in the city’s South of Market district. DC’s perseverance in that neighborhood seems fitting, for it was just a few blocks away that the tiny California Electric Light Co.—a forebear to California’s dominant Pacific Gas and Electric (PG&E)—became the first power company in the United States, and possibly the world, to supply electricity to multiple customers from a central generating station. It was in September 1879—a full three years before Edison turned on his famous Pearl Street generating station in New York City—that California Electric began burning coal, raising steam, and driving dynamos in a wooden shack at the corner of Fourth and Market streets to feed current to its customers’ electric lights.

DC-driven winding-drum elevators—the leading design until the 1930s—use a DC motor in the basement that winds and unwinds the elevator’s steel cable on a steel drum, thus lifting and lowering the car from pulleys atop the elevator shaft. DC drive was the only way to go at the time for a speedy elevator, because only DC could deliver variable-speed operation for smooth starts and stops. The DC motors were also energy efficient, capable of something that has only recently become possible with modern elevator designs: regenerating power when the elevator descends.

--http://spectrum.ieee.org/energy/the-smarter-grid/san-franciscos-secret-dc-grid

The Debt now seems under control

As of yesterday, January 31, 2017 the national debt was at $19.937 trillion.  One year earlier, it was $19.012 trillion.  So it increased less than a trillion over that period, breaking a streak of 10 months in a row where the debt increased at least 1 trillion from the previous year.  I consider this very good news.  The new President Trump deserves at least a little credit for this I think.

The $20 trillion mark still hasn't been breached, but this should occur later in February, which usually runs a large deficit.