US recession data shows it’s a very short road to capital controls
By Simon Black, republished from - March 16, 2016

“Prosperity is like a Jenga tower. Take one piece out and the whole thing can fall.”

That’s a direct quote from John Williams, the President of the San Francisco Federal Reserve Bank in a speech he gave a few weeks ago.

He could have just as easily been talking about propaganda. The Fed, the White House, Wall Street, the media have a vested interest in peddling a certain narrative about the economy.

The narrative goes something like this: “Everything’s awesome. Stop asking questions”.

But if you look at their own data, the numbers tell a different story.

My team and I were recently studying US manufacturing indices, something that has traditionally been a strong indicator of recession.

This is data collected by the Federal Reserve; they survey manufacturing businesses and ask if factory orders are growing, shrinking, or relatively unchanged.

You’d think that based on this “everything is awesome” narrative that all the numbers would be growing.

And yet, much of the data show that manufacturing is shrinking. Or to be even more clear, that the US is in a manufacturing recession.

In Texas, for example, just 4% of businesses report that they are growing. 38% are shrinking.

The Philadelphia Fed’s Manufacturing Index has been in recession since September of last year.

The San Francisco Fed’s Total Factor Productivity is also reporting negative growth.

The New York Fed’s Empire State Manufacturing Index was at minus 16.6 for February. In fact, the last time the index was below -15 was in October 2008, ten months into the Great Recession.

The numbers are all pretty clear: there’s an obvious industrial and manufacturing downturn.

But that shouldn’t matter because Fox News, CNN, CNBC, and the White House tell us that consumer spending drives the US economy; industrial production is irrelevant.

They run headlines like “RETAIL SALES RISE MORE THAN EXPECTED” as part of the good news narrative.


But the reality is that prosperity isn’t a Jenga puzzle. It’s quite simple. You have to produce more than you consume.

Strangely, though, the financial establishment cheers when consumption is up. And they totally ignore the data when production is down.

This is the exact opposite of prosperity.

And no surprise, if you look at the long-term data you’ll see that a manufacturing downturn (i.e. less production) almost invariably precedes a recession.

There were large downturns in manufacturing and industrial production in 2008, 2001, 1990, 1980-81, 1974, 1970… and every other recession since the Great Depression.

More importantly, out of the 17 recessions over the last century, the longest period between them was about 10 years.

The average time between recessions at just about 68 months.

Bottom line– the economy is due for a recession. And the indicators suggest that one may already be in the works.

The bigger challenge is that both the Federal Reserve and the Federal Government are out of ammo.

The US government spent trillions fighting the last recession back in 2008.

But back then the US government debt level was “only” $9.5 trillion, so they could theoretically afford the bailouts.

Today government debt exceeds $19 trillion, well in excess of 100% of GDP. They don’t have the ability to bail anyone out, including themselves.

The Fed doesn’t have any room either. On average, the Fed cuts interest rates by 3.5% in a recession. And the smallest interest rate cut in any recession during the last 60 years was 2%.

Today, interest rates are at 0.25%… next to nothing. They’ve been at near-zero levels since the last recession.

That means that even if the next (i.e. current) recession is extremely mild and the Fed cuts by only 2%, interest rates are practically guaranteed to go below zero.

And from there, it’s a very short road to capital controls.

Capital controls are a policy tool used by desperate governments to keep money trapped in a failing financial system.

Think about it—when rates turn negative, who in his/her right mind would keep money in a savings account that’s going to charge YOU interest for the privilege of letting a banker gamble your funds away on the latest investment fad?

A rational person would close his/her account. Or at least maintain a minimal balance and hold cash.

But if too many people take their money out of the banks, then the entire system collapses.

And governments have shown they will do whatever it takes to prevent this from happening… even if it means restricting what you can/cannot do with your own savings.

We’re already seeing bank withdrawal restrictions in Europe, as well as loud calls to ban cash on both sides of the Atlantic.

These things are happening. And with the recession data in particular, we’re not talking about “what if”. We’re talking about “what is”.

Even if all the data is wrong and there’s never another recession again until the end of time, you won’t be worse off for having a Plan B that protects your family, your savings, and your livelihood from such obvious risks.

  • lulu

    Evidently recession is relative and in fact irrelevant. If life stinks and you are broke and there is no recession, well? You are still broke and life is not good.

    • dave jr

      Life doesn’t stink. Human predation stinks.

      • lulu

        I think you get my point.

  • Bruce C.

    I assume part of Plan B is the holding of most of one’s savings in the form of cash and physical PMs? Other than the risk of loss due to theft or fire, etc., it’s pretty much a no-brainer because there are no “opportunity costs” due to the forfeiture of interest. That’s especially true if rates go negative because you are effectively “earning” that interest rate by virtue of not losing it.

    The other interesting thing about this strategy is that by people starting to gradually take cash out of the banking system now it will add to the already $1.5 trillion in FRNs already in circulation worldwide which would make any efforts to eliminate cash that much harder.

    Furthermore, keep in mind that only those who remove their cash first will actually be able to receive it, even if the banks don’t try to eliminate it. The reason why is because the banking system only has a relatively limited amount of bills available and once those bills are given out it will take quite a while for new currency bills to be printed to replace them, and I mean it could take years.

    Here is a good article that explains why in more detail:

    • Jeff H

      except Bruce, that paper bills are not really money are they….. IOU’s printed on up-graded tollet paper is more like it. Removal of specie is what broke the French Banks and the Regent’s money printing scheme during the days of John Law and the Mississippi Land Company debacle

      • Bruce C.

        Of course, but that’s been true for a while and nobody seem to care (or understand that). Taking out at least some of your savings as cash is a form of diversification because no one knows how things are going to play out. If you leave it in the banking system it is no more sound than physical currency yet is even more vulnerable and perhaps ephemeral.

        Watch “today’s entertainment video” I posted above and then tell me how sophisticated you think most(?) people are monetarily.

  • autonomous

    Aren’t we lucky? Obama can’t run again. He hasn’t run yet, mainly because we don’t have pitchforks anymore–and no one remembers how to use one.

  • Tom

    I would suggest that TPTB are handing the People an historic opportunity to ask for and get whatever we want in the way of a return to sound money and freedom. By loading themselves up on so much leverage and risk assets they have made the system fragile and brittle, where the slightest perturbation will shatter their balance sheets. Even a mildly successful general strike would have the corporations howling in pain within a few weeks.

    • Bruce C.

      I don’t disagree, and if so then it’s important that “we” all figure out just what we do want – which is another reason I think paying attention to what’s going on politically is so important. I have a feeling that the strategy Soros et al may be planning isn’t going to work they way they expect. A lot more push-back is building.

      • John Caudill

        I think the ‘General Strike’ is on its way, Mr. Trump has it in his handbag!

  • Bruce C.

    And for today’s entertainment:

  • Praetor

    Well, I’ve been living Plan B for 30 plus years. The country has been in recession since 1865 and progressively spinning into depression of the chaos kind. Jean-Claude Van Damme, talking on a French talk show: It’s true we have a problem, with globalism because of the globalist. We have to get out of globalism. To leave the world alone! Just maybe the world will wake-up to the NWO agenda, maybe!!!

    • Truth4u

      I doubt it will go back, the elites want a new world order, and the central banks are just too powerful now. But the evidence for my belief is based on something higher than myself – the Bible. A coalition forming a world government was predicted in the Bible for the last days some 2000 + years ago. Also, a man’s wages for a day’s labor will only buy a loaf of bread in the future. Seems like commodity inflation runs away, while wages don’t follow. Hmmm.. that sounds like money printing to me.

      I strongly believe that this century is the one that Christ returns to rule from Jerusalem and restore the earth to proper balance. Matthew 24:22 or Mark 13:20 Jesus tells his disciples that nobody except the Father knows the time of his return, but if the days of man’s self government are not cut short, no flesh would survive. This was a technology statement for today, as well as showing God’s love and patience for a rebellious man who loves evil over good. Other prophecies by Isaiah and Ezekiel talk about Damascus being turned into a heap of rubble in a day and never to be re-inhabited ever again. It talks about sudden destruction in Iraq, and it talks about Russia leading a confederacy of nations against Israel which all happen to be Islamic, but Israel will be saved, and all nations will know God protects Israel. Cool times ahead to witness God’s plan coming to fruition provided you’re on the right side!

      • John Caudill

        Please, save your salvation for the dumb pulpit, North Korea will take over before Jesus gets here.

  • PatrickHenry1789

    Aww come on now. The DB must just be “peddling fiction”. /sarc

  • Danny B

    Dear Bell, I see a different picture. I’ll try to get all my cites together.
    • Marc Faber: Central Banks Will End Up Buying All Financial Assets (CNBC)
    3/14 Faber: Central banks will create global socialism – CNBC

    The CBs are clearly destroying most of the system with ZIRP. In a normal economy, people work and create excess capital. This capital is used to fund new projects. The time factor for the use of this capital merits interest. Since the money that you labor for is indistinguishable from the thin-air money from the FED, it buys the same amount of stuff, even though it doesn’t represent any work or productivity.

    Tyler Durden at ZH wrote that all of this is going according to plan where the CBs kill the existing economy and system.

    As time goes on, there will be fewer and fewer people needed in
    employment. The PTB want to get world socialism fired up before that
    time closes in on us. They need to destroy the current system to get
    world socialism in place. ZIRP is destroying anyone and everyone who
    depends on interest income. THAT is straight out of Keyne’s book;

    ZIRP kills capital formation. The PTB are pushing for the Special Drawing Rights
    as the reserve currency of the future. From the IMF, “The SDR is an
    international reserve asset, created by the IMF in 1969 to supplement
    its member countries’ official reserves.”

    The IMF has screwed the pooch as far as the U.S. dollar. The rest of the
    world wants nothing to do with the SDR. It will be printed as necessary
    by,,, the IMF.

    “Let me issue and control a nation’s money and I care not who writes the laws.” Mayer Amschel Rothschild

    Banking is very attractive to people who don’t want to actually work for
    the money. Socialism is very attractive to people who don’t want to
    actually work for money. The central bankers are all pushing world
    socialism. The CBs grew credit at 3+ times the rate that the
    productive economy grew. This (temporarily) created support for a lot
    of people who didn’t do any actual work,,, bankers, beggars, and

    They see the unwind coming and, world socialism is their solution. A one
    world digital currency would ensure that the wealth keeps flowing to

    Deutsches bank is crashing and the big 3 American banks are buying their
    toxic derivatives. This will ensure that the contagion spreads

    Armstrong said that the banks are not evil, just crazy. Durden said that
    this is all intentional and moving as planned. The bankers and GOV
    bureaucrats want world socialism AND, they are pushing the meme.

    “I’m pretty sure the derivatives meltdown will take down every paper
    currency on earth and major corporations asset values creating urgency,
    forcing the quick transition into a one world digital currency”
    See, we URGENTLY need to switch over to a digital currency.

    Jim Rickards was drafted to do a war-games simulation with 16? U.S.
    intelligence agencies on a meltdown of the bond market. They concluded
    that we will have to switch over to the SDR as a store of value.

    It the Bretton Woods discussions, most of the free world favored a paper
    reserve currency. America had all the gold and demanded a gold backing.
    Times have changed and America’s gold is gone. The R.O.W. is demanding
    gold backing and America wants a paper backing.

    We’re going to have crash and chaos, al right. The CBs are doing their
    best to erase gold from the system. Socialism and gold just can’t exist
    on the same planet. I suspect that the R.O.W. will successfully resist
    the implementation of the SDR. This will leave pox Americana isolated
    and broke.

    Since the FED creates free money, they can always underbid all investors. They can eventually kill off every entity that depends on interest income. They can buy up everything, no matter how stinky it is. If all the CBs create ZIRP in unison, there is no where to escape. FACTA is all part of that.

    ZIRP is intentional. The crash is intentional. Interest-income, like employment, will be a thing of the past.

    “We injected cocaine and heroin into the
    system” to juice the markets during the financial crisis and “now we
    are maintaining it with Ritalin.” Fisher also warned (and we
    concur), that “The Fed is a giant weapon that has no ammunition
    left.” – See more at:

    Like Kuroda, the FED will continue to buy everything in sight. What could stop them? Once that every drop of interest income has dried up, the FED will continue to print and buy. The bankers financed the rise of our Marxist president.
    The banks got hooked on QE, even though it turned toxic to them. Now, it is too late. They didn’t understand the trap.

    The Free money was meant to take down the system.

    • Philosopher

      Great analysis.

  • dave jr

    “Capital controls are a policy tool used by desperate governments to keep money trapped in a failing financial system.” – DB

    Hmm, isn’t it that desperate governments try to keep individuals trapped in a failing financial system? You and I are the ‘capital’ they control. “Money” has become only one policy tool, the carrot. And where that doesn’t work, out comes the stick, more regulation.

    If free markets can not regain control over their own money supply, then they are dead. In this case, plan B would be to create a life for maximum happiness with minimum need of money/debt. The trick is to stop thinking of money/debt as wealth. But naturally, as the carrot is rejected, out comes the stick. And increasing it becomes impossible to earn wealth outside the monetary system without being criminalized.

  • frankensteingovernment

    Well according to Yves at naked capitalism, the national debt does not matter. Since we have a printing press, we will always be able to pay our debts- that according to Modern Money Theory.

  • Pilgrim

    Central bank loans are zero sum. All “created money” is loaned into the economy. All borrowers have to pay it back WITH INTEREST. For borrower A to pay back interest, he has to somehow get it from borrower B. Borrower B has to default on his loan so Borrower A can have the additional “created money” he needs to stay solvent.

    In theory, the national debt represents the default that allows the “others” to NOT default. But since the national debt interest must be paid from the current budget, the bigger the national debt is, the larger the percentage that must be taken from those who remained solvent by government defaulting on their loans.

    If this sounds like a Ponzi scheme that will eventually collapse, it’s because you’re smart. If it doesn’t sound like a Ponzi scheme to you, you’re a politician.