Will the Money Illusion of A Strengthening U.S. Economy Persist into 2016?

One of the key questions of 2016 is whether the monetary illusion of a strengthening US$ dollar, a recovering US economy and the normalisation of interest rates by the world's largest economy and financial market will be shattered ?

That question depends on how the U.S. government can continue to publish positive data trends for its housing market, consumer spending and employment numbers. The reality is that the economy is not strong enough to sustain a GDP growth rate of between 2.5%-3.0% in the next few years amidst sluggish wage growth of 2.0% (real and nominal are equal because inflation is almost zero based on the CPI).

If the economy actually grows at 2.0% or below, there are many factors that can tip it into a recessionary phase of 1% and lower:

(1) a steep decline in demand for US exports as US$ continues to rise by 8-10% p.a.;

(2)  lower investment spending as US multinational companies suffer lower revenues from overseas;

(3) the contraction of P/E valuations for an economy that cant reach a healthy pace of 3.0% p.a.;

(4) global economic slowdown causing a flight into the safety of the U$ and pushing Treasury bond yields even lower, which will disincentivise Americans from saving and providing the capital stock for future investment;

(5) a collapse in the US$ caused by the rise in US bond yields when overseas investors lose confidence that the US government can service its debt amidst a slowing economy with the decline in the birth rate;

(6) Along with the fall in the US$, the ensuing inflation will erode the purchasing power of Americans;

(7) social upheaval due to widening rich-poor gap and worsening race relations.

What is the probability of these factors happening ? As I said, that depends on how effective the US government and the Federal Reserve (which is run in the interest of the bankers rather than of the nation) in sustaining the money illusion of an extended US stock market.

The US 2016 Elections: A Black Swan event?

The black swan event of 2016 will be the U.S. elections: we shall see how the global elite will try to manipulate public and global opinion through a series of contrived events. Their aim is to put their selected candidate into place for the Presidency  and perhaps engineer a V-shaped rebound in the US stock market when the various stages of their plan gains traction.

Looking at the candidates from both the Democrat and the Republican party, there doesn't seem to be a credible candidate who can reverse the damages caused by the Clinton-Bush-Obama tripartite regimes. While Clinton and Bush prepared the ingredients during their terms, Obama has cooked a strange soup that has yet to be fully served. Americans need to prepare for domestic trouble that could help Obama call off the 2016 elections and place himself for a third term, something he hinted at during his African trip in July 2015.