Monday, August 26, 2013

So, the economy is in an upswing?

So, the economy is in an upswing.  How much of an upswing can we expect?  How good will times get? and how long will it last?  What will the next recession look like? 

I think this next upturn in the economy is not likely to last long and is likely to be followed by a dramatic down turn, much like the one we experienced in 2008. Here is how I arrive at that conclusion.

In 1983, we experienced an upturn in the economy.  Conservative thinking largely replaced liberalism for a couple of years and we got on this kick making things happen.   In the years prior to that, the unemployment rate was over 10% and there was inflation.  The media began talking about what was known as the misery index (unemployment + inflation). 

Over the next couple of years, the unemployment rate fell to around 4% and manufacturing trended upwards.  This was also the beginnings of the desktop computer revolution, although it was mainly a lot of hobbyists and a few businesses. The economy hummed along pretty well for about 7 years.

Then there was a down turn that lasted about 3 years, it was pretty shallow, causing unemployment to rise to around 6% or 7%, but the beginnings of it led to the election of Clinton as our country turned to liberalism. 

After a few years, in 94, the conservatives took office in both the House and Senate (this was Newt Gingrich and his "Contract with America"), and a more conservative direction was again pursued. This resulted in an upturn that lasted about 6 years, brought unemployment down to around 6% and even brought about a (nearly) balanced budget. 

George W Bush was elected, but by then the Republican party had forgotten its Contract with America and was slowly drifting back to "middle" ground, where they thought popular consent was.

The collapse of the "dot com bubble" and the 9-11 attacks threw us back into a recession, but at the same time brought out some conservative values.  This brought us out of the recession, and despite "W" being a somewhat weak conservative, his handling of the fight against Islamic Extremists assured him of a reelection. We got a weak upturn of the economy for about 3 or 4 years. 

The government leaned back to the left, pushing a strong housing market beyond reasonable limits, as a pretense that the economy was getting better (even though its underpinnings were actually weakening), by pushing a lot of extra cash into the markets through extremely irrational mortgage policies. No down payment, no credit check, and no payments required on the principle were pushed as ways to get those who could not afford a house into a house they could not afford.

A large portion of the people, though became disenchanted with the Republicans In Name Only that were currently running congress and in 2006 congressional election a lot of RINO's got replaced by Democrats. The next three budgets were disastrously liberal.

The economy, and the financial markets, and even the banking industry (which had hollowed itself out by retaining less and less capital on hand), all collapsed at once. 

The result was the Fed had to do a secret bailout of all the world's banks (to the tune of about 16,000 billion dollars), while the governments around the world propped up the markets through giveaways and other "recapitalization" programs.

These actions prevented the entire world economy from an outright catastrophic collapse, but they took us down a deep, 5 year long recession, that is now known as the "Great Recession." As little as a year ago, because of the weakness that still exists in the foundations of our economy, some economists were predicting that it would be as long as 5 more years before we would begin to see real improvement in the economy. 

What they didn't count on was a bumper crop of oil and gas drilling on private land and in Canada, and China and Russia jumping into the game of printing money (they are trading that fiat money for copper, aluminum and coal, as we speak).  Thus a stimulus that we didn't expect brought us an upturn in the current economy. (Thee is a lot between the lines in this paragraph, but would require a whole article to go into the details of why the current Russian and Chinese behaviors are actually a time bomb for us.)

Conclusion.  So here we are, and let's summarize.  The upsides have been 7 years and strong, 6 years and moderate, and 3 or 4 years and weak.  The downturns have been 3 years, 4 years, and a deep 6 year recession.

So here we are, the economy is in an upswing.  How much of an upswing can we expect?  How good will times get? and how long will it last?  What will the next recession look like?

I believe we will have about 18 months of good economy, but since we are no longer a manufacturing powerhouse, the whole thing is hollow.  It is like building a bridge out over a canyon with no support.  No one really knows when or how badly it will fail, we only know it will.  But we can guess. 

Beyond 18 months, with nothing to support the economy, the system will begin again to decapitalise. It is already extraordinarily weak, with capitalization of banks in the single digit percentages, retirement plans are only 15 to 30 percent funded (and the baby boomers retiring in droves) and most businesses so weak that an interruption of less than 48 hours will cause the business to collapse (in the financial world, this is known as mean time to belly up). In addition, we are building a new housing bubble and there is still, in addition to the official unemployment rate, about 8% of our people that are out of work but not counted as unemployed.

There are those who say we have weathered storms like this before.  The truth is, no, there has never been an economic storm like the one that is ahead of us.  Our nation has been sold for bread and circuses.

So yes, the next "downturn" of the economy could be complete destruction of our civilization.  While this isn't necessary, it could happen if, as happened last time, the economy, the markets, and the banks all drop at once.

Friday, August 23, 2013

A return to blogging - the Economy

Well, I have been away from this blog for some time, but now I think I will post some updates on economics and a few assorted other subjects.

In the past couple of years there have been a series of financial crisis in Europe and the US, most of which have twin roots going back to the worldwide financial collapse of 2008.  At least 5 countries in Europe required bail outs. The most notable were Greece (which required $10B and bondholders got stuck with bonds worth 30% of face value)and Cypress (which cause a panic that closed the banks for weeks).

In the US, Stockton California and Detroit come to mind as having declared bankruptcy, although there have been a lot of small ones too. 

The "Fed," over the past several years has injected money into the world financial systems at the rate of nearly $1000B dollars a year for almost all of the past 5 years, and while there is talk of slowing down the injection of money, there is no talk of ending it.  We don't know when inflation will kick in, but about 1/3 of the total US Federal budget is now made up of borrowed money.  This has hidden what would have been a spiraling deflation that would have been ruinous to the country, but it is still ruinous to the nation.  Most of the working class today makes about $2 an hour less than they did 5 years ago, if they have a job at all.  The official unemployment rate is totally bogus, the real rate is about 20%.  If you don't see that where you live, you are fortunate.  Detroit is not fortunate.

This year, people learned a new word.  Sequester.  That is where you keep spending more and more on your entertainment budget, but in order to pretend to save money, you don't put gas in your truck (so now you can't go to work). 

A word no one has learned has cropped up in certain small circles of the "learned." Catabolic collapse.
It basically refers to the tendency of a civilization to build infrastructure until it cannot sustain the effort to maintain that infrastructure.

Our financial structure is a house of cards.  Monetary bubbles upon monetary bubbles.  If it collapses slowly, it will simply leave multiple generations, starting with the oldest, in financial ruin.  It will go from generation to generation, bankrupting millions of people until there is only the miserable poor and the very upper class.

If it collapses suddenly, it will erupt into violence and civil war with no clear cut battle lines and no winners.  It will evolve into anarchy and chaos.  Will we ever emerge?  Many think so, most preppers think so.  I don't really think so.

Well, that is all today.  I will write more in the days to come.