The title of this article is intended to be snarky. Economic doomsayers have been quite busy over the last ten years making the same predictions over and over again to an endlessly fearful audience. OK, so which economic collapse will we talk about today? You had publishers who were constantly sending out the same message. Every 180 days, there would be another email predicting the economy would collapse in 180 days. Eventually, you would turn off the economic collapse dejour because nothing would happen. That is, until something happened.
The simple fact of the matter is that the $5 trillion in newly printed money pumped into the American economy since the plandemic began has begun to take its toll in record high inflation. A detailed quantitative analysis of this gets to be done later. Now it should be obvious that amount of money is enough to seriously pervert the existing economy. The combination of supply chain issues, and growing energy shortages add to real estate as factors for a real economic collapse.
How do economies collapse? The short answer is when banks and businesses can’t pay their bills anymore. The other key component that precedes overall collapse is impact on the real estate market. The “Great Recession” of 2008-2009 was preceded by the failures of both Bear Stearns and the Lehman Brothers (who still function as a business to this day). Bear Stearns in particular had heavily overweighted its investments in mortgage-backed securities. As foreclosures and bankruptcies of individuals mounted up, the credit worthiness of the banks suffered in turn.
Also, in short order, we saw Europe having to pump $500 billion into their economies to overcome their version of a real estate collapse in May 2008. Several months later, in America, AIG and others caused the 900 point shave on the Dow in September 2008, followed by further drops. This preceded the creation of TARP of 2008 (The Troubled Assets Relief Program), which was supposed to dramatically increase liquidity for the big banks so that credit markets would not freeze up. People forget that is the same TARP program where, in October of 2008, Americans were burning up the phone lines to Congress to not pass TARP. They turned off the phones, crawled under their desks and were completely AWOL on this issue, while going on to pass it anyway. So much for representative government.
Meantime, real estate values plummeted and set off a series of negative impacts on the economy. However, by March 2010, the process of recovery started.
Presumably, the availability of credit helped to prop up the stock markets. Yet, later, the architects of TARP would admit they had no idea how much money was needed and, in fact, the $750 billion they begged for was way more than what was needed in the end.
It should be noted as a historical point, these actions were the opposite of what the Fed did in the run up to the Great Depression. Back then, they withhold putting more money into the system. However, these is still an argument to be made about what that really did. A key factor attributed to the Great Recession was how credit became scarce, and banks tightened up their loan requirements.
The growing worries over the future of the American dollar as a reserve currency have inspired review and reflection on how economies collapse in the first place. It is a question that takes one to many different areas of economics. Strong and stable economies versus fragile economies; poor nations versus rich nations; liquidity, as well as the usual suspects with overspending, inflation, and the vagaries of the business cycle.
The dollar’s status as a reserve currency hides the deeper problems in the American economy. What Brandon Smith of alt-market.us is suggesting leaves one in near despair. First he suggests that the Federal Reserve has brought America to this point intentionally, and they are no where near done. We are left with two choices: Stagflation or a deflationary depression. Instead, Mr. Smith suggests we are headed for a “stagflationary collapse”. Is “collapse” just a polite word for economic depression?
Experts always ask with each looming crisis: “Is this time different?” A review of the history of economic crises suggests that both a variety of factors and the ways in which those factors interact in an economy do set the stage for economic collapse. Irving Fisher is credited in Wikipedia with providing a coherent explanation of the events of the Great Depression. Put simply, money disappeared quickly. However, other elements of the economy such as the banks and other lenders created worsening conditions by failing to adjust to new deflated values.
While there are many to consider, the first has to be America’s Great Depression. A number of economic commentators have suggested the combination of current economic factors strongly suggest America is now faced with a potential economic catastrophe which will be far worse than the Great Depression. If so, how did we get here?
It should be noted that collapse of the 1929 stock market preceded the collapse of the American economy. By destroying the capacity for new capital formation, the collapse of the economy followed. No capital formation ruins credit which ruins employment which ruins consumer spending. Still this raises questions. 75% of the work force was still employed during the Great Depression.
The history of the market between 1929 and 1933 suggest that there were two phases. The first saw the market decline from 3—to 1--. But then it rallied for a time to 2—only to collapse to 41.
Bond Markets: Also Being Overlooked by The Liberal Media
The recent announcement by both China and Japan, our largest holders of U.S. Treasuries, to cut their holdings is a storm warning. As the article points out, the increased yields offered for U.S. bonds has not attracted new investors. If no one is buying those bonds, what will the federal government do to pay off its debts? This is not looking good, folks.
The Fed remains caught between a rock and a hard place: Recession or stagflation? Spoken sotto voce, the Fed whispers Recession. However, as Charles Payne, Fox Economics Guy, this collection of governors making up the Fed constitute a dovish group despite their talk. He may be right.
The problem with the dovish approach is that they avoid being proactive. Events have to be forced on them for them to act; which explains why critics say they are always behind the trends in the current economy. In other words, their impact on bond prices end up hurting the economy more than helping.
Price Controls Then Rationing Then Riots
One prediction is that unemployment will spike in late 2022. Shortly after that the Democrats will push for the same old price controls which have failed every time they have been tried in America and in other countries. While that seems like a reasonable scenario, there is a veritable flock of black swans getting ready to land on the American economy.
The supply chain issues have not gone away. A YouTube channel, Monkey Werk, has a remarkable video which should show how the supply chain between China and America is about to break. Readers are encouraged to go to the 20 minute mark of the video. It dates back to June 15th. So this is quite recent news. The main message is that satellite information of the Shanghai port shows the past majority of shipping out there is being sent to other Chinese ports and the country’s interior. Only 10% is coming to America. Put simply, it is hard to believe that a $100 billion dollar trade imbalance with China comes from just 10% of their shipping.
Should this continue, there will be rationing and then riots. Stay tuned.