This was posted to Medium on 10/9/19.
The Oil Crisis of the 70’s. The Iranian Oil Embargo of the 80’s. The S&L Crisis of the 80’s. The Dot Com Bubble. The Housing Bubble.
Are you seeing a trend here?
Every 7–10 years the US experiences a recession. Each time it has been a habit to name the recession by the alleged cause of the recession. Though the name is typically only applied retroactively. “Experts” during the Housing Crisis never said that the country was in a housing bubble until after the bubble burst. Same is true with the dot com bubble.
This time is different in several ways.
Longer period preceding a recession. At this point the last recession was 11 years ago and independent economists all agree that we are overdue for a recession. The longer we wait before it comes, the worse it will be when it gets here.
This bubble has no actual source which can be applied as a label. Where previous recessions had labels, this one truly cannot have an accurate label. The truth is that previous recessions may have had labels named after the trigger events but each recession was far more complex than any single trigger. Prior to the Oil Crisis of the 70’s, the auto manufacturing business had been in decline in the US, caused by a slowing economy leading to fewer vehicle sales. Prior to the Dot Com crash, employment in the non-tech sector was sluggish, partly (but not exclusively) caused by the Clinton welfare reform. The coming recession may ultimately be labeled as caused by the China Trade War Bubble or something similar, yet that will in no way be accurate because this recession would be coming even if no trade war were occurring now.
We never actually recovered from the last recession. With the 2008–2009 recession, we saw a dramatic decrease in wages across the country. Wages have never recovered since that time. People learning to adapt to lower incomes is not economic recovery. Jobs offer fewer benefits than prior to the recession, more jobs are part-time than ever. The combination has led many to working temporary (“gig”) positions or multiple part-time jobs. This results in workers paying more to replace benefits like health and life insurance than if they were subsidized by a full time employer. Even if subsidized, deductibles have increased along with premiums while wages have stagnated or declined. Once again, this is not recovery.
The stock market is not a reflection of the economy. I’ve pointed this out many times. The stock market is frequently a negative image of the health of the economy. When wages go up, stocks decline. Your wages are viewed by investors as a cost, a debt, a liability. Thus, an improved wage report will often be followed by mass layoffs to reduce costs. While in previous recessions the stock market did rise, it was typically accompanied by some events in the general economy which could be pointed to as causing that rise. Increased oil prices, home prices rising, expansive investment in internet startups. This time, none of that exists. The only justification for stock prices increasing at this time is stock buybacks by corporations, which is stock manipulation. By definition this is insider trading due to the fact that corporate executives profit from stock repurchases. Stock market rises do not improve the general economy at all. When most of the population is living paycheck to paycheck, stocks have no relation to the real world.
Personal and corporate debt and default are at record levels. One way Americans have been surviving since the last recession has been through incurring more debt than ever. This has been in the face of weak wages, often with the hopes of improving their condition through taking on student loans. It has not worked. Student loan defaults are at the highest rate in US history. We see mass layoffs of people with college/university degrees happening. The average vehicle payment exceeds $500 per month. Bankruptcy rates are rising, both personal and corporate. Corporate debt is at the highest rate in history, while consumer spending is down. Consumer confidence is down. Corporate confidence is down, as indicated by CEO polls and capital expenditures. Capital expenditures have been buoyed up to now by expenditures on contracts which have run their course.
The Fed is bailing out the banks, not the economy. Following the 2008 crash, the federal government bailed out the big banks. However, even that was a response after the crash had recurred. This time around, the Federal Reserve is pumping literally trillions of dollars into the banking and financial services industries to save them before the crash occurs.. Maybe. I’ll get to that. After the 2008 crash, Obama did do one of the few truly valid steps to stimulate the economy he performed during his administration. He increased funding for food stamps, which helped the economy slightly. We may see some similar steps after this crash occurs but only afterward and it is highly questionable it will happen at all with a GOP Senate in place.
Other countries cannot help. The economic contraction being seen in the US is not just here, it is global. Global manufacturing is down. Freight shipping is down. These lead to lower gas and oil requirements, bringing down oil production. It also drags down vehicle manufacturing and sales, fewer freight/shipping jobs, etc. More countries are investing in renewable energy, also impacting oil demand negatively. Numerous countries now have more debt than GDP earnings. Major banks are laying off tens of thousands of workers in all countries. Sociopolitical pressures are forcing more central banks to invest domestically in their home nations, rather than in US assets. US foreign policies are causing independent foreign investors to decrease funding for new US projects. Other countries are selling off US Treasuries, unsure if the US can or even will honor the debts.
Highly questionable rationale. I have been saying for quite some time that as the economy deteriorates, corporate profits based on sales will decline yet stocks will remain high. That is, until all liquidity has been squeezed out of each corporation and stocks are incapable of climbing higher. That is the point we are at right now. The highest valued stocks are for companies that produce nothing for trade. Facebook, Amazon, Apple, Netflix and Google lead, with financial services firms following. Now that liquidity is gone, what will follow will be the rich selling off stocks in massive amounts. That is happening now but will accelerate rapidly. They invest in stocks for the purpose of gaining a profit. Now that no more profit is possible, it’s time to sell.
Once they sell in large enough amounts, they will literally CAUSE the next crash, yet walk away with huge profits. (Smaller investors will lose everything, being last to know the sell off is even happening. The media will only report on it after the fact.) They will deposit those profits in offshore accounts, board their private jets and fly to their private islands or tax havens while the US economy collapses in their wake, causing double and triple digit inflation. The Federal Reserve is helping this process because they have no connection or commitment to anything but money. They will not be held to account because we have no laws holding them to account, no system to hold them to account. Remember the Federal Reserve is NOT a government entity, it is a private capitalist entity and functions in and of itself for profit.
This has all been planned for a very long time and most of it is highly intentional.
None of this means we are without hope. However, it will take some of the most radical steps ever taken by American society to rectify it. I’ll cover the options some other time.