Economics and the possibility of a meltdown

by TRex2 Mon Dec 31, 2018 10:43 am

While a total meltdown is unlikely, we are ripe for a recession.

A little info:
https://moneymaven.io/mishtalk/economics/suddenly-there-s-no-appetite-for-bond-deals-as-spreads-widen-lb8DY1H_oUS2vMiqdcy8mw/

Rise of the Zombie

In the US, 15% of the companies in the S&P 1500 are Zombie corporations. The Zombie attribute applies to firms that are unable to cover debt servicing costs from current profits over an extended period.

Prolonged cheap debt explains the Rise of the Zombie Corporations.

Zombie corporations only survive because they can roll over debt.

Fools' Mission

The Fed is desperate to keep Zombies alive, but that keeps productivity low and it is at the expense of corporations that make better use of capital.

by rick1 Mon Dec 31, 2018 5:43 pm

Maybe or maybe not. There's an old song from back in the 60's when I was a teenager called,
"The Answer My Friend Is Blowing In The Wind." Stocks may tumble, even the fake ones, the 10 and 30 year notes may raise and stay above 3%, new home builds or sales may draw back and oil may stay below $50.00, the Feds may continue to raise rates 3 or 4 times a year, so who knows. But read the link below:

https://www.thebalance.com/us-economy-wont-collapse-3980688

by TRex2 Tue Jan 01, 2019 9:05 am

The article (Top 10 Reasons Why the U.S. Economy Won't Collapse) is well thought out, but subtly slanted to the Leftist point of view (we have to borrow, and being fiscally responsible is of no value), and is short sighted in much of its analysis.

That said, I agree with much of what is in that article, and much of it I have said, myself.

But not all of it. Point #6, for instance is egregiously incorrect. Quantitative easing and low interest rates cause malinvestments. They may add to liquidity, but only to a small degree. They create market bubbles, something the article dismisses without even addressing. Point #7 is only partially correct: stock prices should be, and usually are, based on corporate earnings. The reason they "crashed" in 1929, 1982, 2000, and 2008 is that they were priced according "the greater fool rule."

Any time you see the phrase in point #8 it should be used as a warning sign that the person writing the article is infected with the Keynesian economic theory, which, on its own, is a recipe for disaster. My counter point is that wealth is created by harvesting things from the earth, or manufacturing things. Consuming (eating) your wealth doesn't make you wealthier and to suggest it does is lunacy.

As for Point #10: if you borrow enough, you will bankrupt yourself, and the author completely ignores that, bowing to the Leftist mantra that Obama was always right.

Ultimately, the artcle makes assertions that it cannot, and in some cases it doesn't even try to, back up. If the article were the work of a blog poster, it would be acceptable, but coming from someone who is supposed to be a nationally recognized economic expert, it provides me more reason to worry, rather than calming me.

by rick1 Tue Jan 01, 2019 1:49 pm

Well TRex, sounds like the economist are like our representatives in government, they tell you what some of the facts are but don't tell you what ALL the facts are (the good and the bad).

by TRex2 Tue Jan 01, 2019 3:46 pm

rick1 wrote:Well TRex, sounds like the economist are like our representatives in government, they tell you what some of the facts are but don't tell you what ALL the facts are (the good and the bad).

That is true.

Well, I don't know if I got this across or not, but I do agree with most of what she says, I just think she soft petals what really could but isn't likely (in the near future) to happen.

(Not to mention, I get irritable around leftists Laughing

)

by Dave58 Fri Jan 11, 2019 3:23 am

https://www.nbcnews.com/politics/politics-news/doomsday-scenario-here-s-what-happens-if-shutdown-drags-n955946

Is this even a possibility ???
If so any guesses on how soon SSI would affected ??

I tell folks that I don't care who they voted for if they don't like who is in office then by all means vote against them next time..

I think the people in Washington forgot who they work for....

So much for my 3 in the morning Mad

by rick1 Fri Jan 11, 2019 3:50 am

Dave, I still remember from back in the '60's my grandfather and dad saying that those in public office have three traits, they lie, they cheat and the are all thieves. Notice how they are all getting paid while 800,000 employees aren't.

I didn't get paid back in the 90's when Pres. Clinton shut down the government, but of course I'm a prepper, so I was ready.

The article that you posted is mostly true, but the FDA is still inspecting meats, eggs and poultry. They aren't inspecting fruits and vegetables, so watch what you eat.

As far as food stamps/SNAP program, while, I see first hand how people (not all) buy the best cuts of meat and most expensive items in the store and while checking out they are on their free cell phone and when they get outside, they get in their $40,000 SUV and that really tee's me off.

I see people on social security/disability that are in their 30's and 40's, but yet they can cut firewood or drag a 150 lb deer out of the woods. We as American citizens have turned the U.S. into a welfare state.

by TRex2 Fri May 31, 2019 5:48 am

TRex2 wrote:While a total meltdown is unlikely, we are ripe for a recession.

A little info:
https://moneymaven.io/mishtalk/economics/suddenly-there-s-no-appetite-for-bond-deals-as-spreads-widen-lb8DY1H_oUS2vMiqdcy8mw/
Rise of the Zombie

...

Looks like Mish was simply a little ahead of the curve,
and the next recession has begun.

by rick1 Fri May 31, 2019 7:49 am

TRex2 wrote:
TRex2 wrote:While a total meltdown is unlikely, we are ripe for a recession.

A little info:
https://moneymaven.io/mishtalk/economics/suddenly-there-s-no-appetite-for-bond-deals-as-spreads-widen-lb8DY1H_oUS2vMiqdcy8mw/
Rise of the Zombie

...
Looks like Mish was simply a little ahead of the curve,
and the next recession has begun.

Yes, yes it has!!

by TRex2 Fri Jun 07, 2019 2:26 pm

I have seen the (stock)markets tic back up the past few days. Everyone seems to be getting optimistic. Don't let it fool you. The stock market is not the one you should be watching. Watch the bond markets. Interest rates on all bonds longer than 2 years is down substantially. Potential for growth in our economy causes rises in our interest rates.

Conversely, loss of interest rates will drain capital investment, which in turn, causes a recession. Not immediately, of course. There is usually a year or two lag. I am expecting less than a year this time.

Employment is already beginning to become an issue.
Here is the monthly employment article I read, from "Mish"

https://moneymaven.io/mishtalk/economics/jobs-75-000-vs-employment-113-000-revisions-75-000-J1pPvDTWukCpGPSzKQ4RBQ/

The things I pay most attention to are:
in the first graph, manufacturing. Anything over 10,000 is good, and 20,000 would be great. In the past year the average was over 10k, this month it is 3k.
The third graph is "total nonfarm" which is ok, but I wish he would post "total civilian." (I would rather not include people who work for the government) Anyways, this should average over 175k, and over 200k would be great. But
while the average for the past few months is over 175k, the past couple of months is has been low.

(As a note, Mish does not comprehend war at all, not even economic or trade wars, so I pay absolutely no attention to what he says about those things.)

by TRex2 Fri Aug 02, 2019 11:28 am

Well, gee, the things ya' learn in a couple months. The interest rates on our bonds is down, because there is a flow of money from Europe into our bond markets. Bond interest rates in the US are influenced by a form of "bidding" and the more people who "bid" on a bond, the lower the interest rate for that bond is. Since bonds in Europe are paying zero (or sometimes negative), there is a lot of money from Europe being invested, here in the US.

Among other things, that money from Europe (temporarily) funds the American economy, and is (temporarily) removed from the European economy. How long is "temporary?" As long as European interest rates remain at or below zero. So, my previous estimate of an impending recession was more pessimistic than it should have been.

Globally, of course, there is a recession going on. Just not here in the US. Our gains are weak, but the rest of the world is in contraction. Here is an article on the global recession in Manufacturing. (I have to point out that Mish has a bit of Trump derangement syndrome, so even though his facts are in order, a lot of his commentary is overly pessimistic.
https://moneymaven.io/mishtalk/economics/global-manufacturing-recession-started-trump-s-china-tariffs-made-matters-worse-zmELIRkGAUK8taIGowyU8A/

by **ReadyMom** Fri Aug 02, 2019 11:39 am

So ... for us laymen ... the bottom line is what? Thinking

by rick1 Fri Aug 02, 2019 1:33 pm

TRex is correct, don't watch the stock market watch the bond market, right now the 2 year versus the 10 bond interest rates are getting closer together instead of further apart. It seems we hit a recession every 10 to 15 years, the last one was 2007/2008. Also with the recent tax cuts, the rich are getting richer and the middle class is starting to dwindle. Here's a good article from the Baltimore Sun:

https://www.baltimoresun.com/opinion/op-ed/bs-ed-op-0721-recession-looms-20190719-35hwth44wnc5jlvbs4aqylh2vm-story.html

I forgot to add this link from market watch, look how close the interest rate is for 2 year and 10 year, very little difference, the U.K is at .589%, not good:

https://www.marketwatch.com/story/treasury-yields-edge-higher-ahead-of-check-on-us-factory-health-2019-08-01

by TRex2 Fri Aug 02, 2019 7:35 pm

Well, yes, watch the bond market, but my previous assessment that we might expect a recession in a year or less did not take into account that Europeans (and some S.Americans and Chinese too) are investing in our bonds. This gives a skewed picture. The real picture is better for America, and worse for Europe.

True, the worldwide manufacturing recession will drag on our economy, to a degree, since no nation is completely independent of the rest, but right now we are the engine that is dragging the rest of the world forwards.

This article explains a lot of the employment situation, and despite the author (whom I have followed for years) having more than a little Trump Derangement Syndrome, he is a good economic analyst (though he tends to put too much emphasis on how the world is doing, and not enough on how Americans are doing).
https://moneymaven.io/mishtalk/economics/nonfarm-jobs-expand-by-164k-unemployment-rate-remains-3-7-revisions-negative-E5VDAJf1HEqVzygJaOOI1w/

Bottom line is were doing well, and most of the rest of the world is falling apart. Growth is slowing down, but it hasn't stopped. Right now we also have good wage growth, in both blue collar and middle class.

by rick1 Fri Aug 02, 2019 10:46 pm

ReadyMom wrote:So ... for us laymen ... the bottom line is what?

I found this from the New York times, this may make it a little easier to understand:

https://www.nytimes.com/2019/07/28/business/economy/economy-recession.html

by TRex2 Sat Aug 03, 2019 4:18 am

Most of that article is good, though you have to read all of the "discussion" to see how to use the indicators, and a couple of them are "lagging" indicators (even says so in the article) and therefore useless in forecasting.

by TRex2 Sun Oct 06, 2019 7:27 pm

Still not seeing any signs of a meltdown or even a recession in the near future.

There are signs however (low interest rates, reduction in manufacturing jobs with lack of manufacturing demand), the growth rate is slowing.

by TRex2 Tue Nov 05, 2019 6:23 pm

A few days ago, the Fed cut interest rates again. This completely (approximately) undoes the last two rate increases done by the Fed, in 2018. Both Trump and I said, at the time, that those rate increases were a mistake (Trump said the Fed can't put. They have no short game), and we were right.

As a parallel to interest rates, you can ask a pilot about pulling up the nose of a plane too much. Or lowering it too much. They will tell you that keeping the nose too low will keep the plane from gaining altitude, but pulling up the nose too much will cause a "stall," and the result is the plane will fall.

Monthly jobs report, ISM manufacturing index, and current interest rates are showing that we have pulled back from the edge of a recession, for now.

Manufacturing is slow. Very slow. And that is keeping growth to a minimum. (This is like the engine of the plane, not producing enough power to keep it in the air.) If it doesn't pick up soon, we will be back at recession's door.

by Drinkthekoolaid Tue Nov 05, 2019 6:33 pm

I keep reading about the German bank TD Deutschebank being in serious trouble and a lack of liquid funds.

Many speculate that if TD goes under it would trigger a major bubble burst.

Any idea what makes TD so important?

by Drinkthekoolaid Mon Dec 09, 2019 6:57 pm

Here is an interesting article

https://finance.yahoo.com/news/jeffrey-gundlach-on-outlook-for-2020-decade-182455166.html

There definitely are warning signs.

by TRex2 Tue Dec 10, 2019 10:08 am

In reference to the above two postings, I believe wherever DTKA got "TD Deutschebank" they meant "TD" and "Deutschebank" where TD is short for Toronto Dominion. These banks are two of about thirty "systemic" banks that are worldwide in scope. If any one of them collapses, it will imperil the entire world wide banking system. The world came, in 2008 (give or take a few months) within two hours of a world banking collapse, when one of them was on the brink. (Scotland, if I recall correctly)
Article of interest:
https://www.reuters.com/article/us-banks-fsb/toronto-dominion-joins-ranks-of-systemic-banks-deutsche-drops-a-level-idUSKBN1XW11R

As for the yahoo finance article, overall, I recommend reading it.

I have a few quibbles, though, It may be that Jeffrey Gundlach was trying to simplify the discussion for the interviewer. Or it may be that guys like him don't have a full understanding of how it works, which is why they keep forecasting a downturn that never seems to materialize.

First, he says:
"trouble brewing in the debt market, despite interest rates hovering near historic lows"
No, trouble is brewing because of low interest rates. We were only able to paint ourselves into this corner because of those low interest rates. And I am not talking about the government, although it seems to be the flagship in this armada sailing for hell. We have corporate debt, mortgage debt, student debt, auto loans, and credit card, just to name a few.

And all of it at historically low interest rates. We borrow from the banks, the banks borrow from each other, and from the fed, and the government borrows from everybody. This is going on, worldwide, not just in the US. And all at historically low interest rates.

"the next decade will be the opposite of the roaring 1920s, he said, as the debt bomb the U.S. is sitting on becomes untenable in the next economic downturn. "

It isn't necessarily the next downturn that will do us in. The next major up-tic of interest rates could bring the house of cards crashing down. Each round of interest increase will become vastly more expensive to maintain, and will suck up more collateral, and more investment cash. In the mean time historic low interest rates are like keeping the nose of a plane near or on the horizon, the plane won't suddenly stall, but it can't gain any altitude, either.

The high level of competition for resources (too many people for the planet to sustain, and no, I am not talking about man made climate change) resulting in high cost of resources, and the lack of reinvestment in our manufacturing base has kept our economic engine running weakly. With a weaken manufacturing base, we are vulnerable to a host of problems, although none of them are "the wolf at the door," right now.

As long as interest rates remain between the inflation rate, and the rise in GDP, we will continue this slogging along. When resources get scarce enough, or some other calamity happens that causes another loss in the manufacturing sector, we will go downhill fast. The last downturn took eight months to send us to the bottom (and we never really hit bottom, instead we traded our future for a soft landing), I suspect the next one will take around eight weeks.

by Dave58 Tue Dec 10, 2019 1:07 pm

https://www.wsj.com/articles/fed-pumps-70-2-billion-in-short-term-liquidity-into-markets-11575993443

I will be the first to tell anyone that I am not the sharpest tool in the shed when it comes to this stuff.. White Flag

So could anyone that understands this stuff pls explain why they are doing this and what happens when they stop...

Thanks I will appreciate it....

by TRex2 Tue Dec 10, 2019 5:01 pm

Explaining the "Fed" aka the Federal Reserve System Banks .
This is separate from the Federal Government, which has limited oversight.
This is going to be a bit sketchy, since we're not taking a semester course,
and my have errors (invitation for others to correct me if I screw up).

We sometimes hear about corporations sitting on cash reserves, and the major banks keeping cash reserves (see link to reuters article two posts up from here). This is a must to keep the system stable, and that is one reason the "Fed" exists.

Let us say that Scrooge McDuck buys a $billion in blue chip stocks, so the market goes up. Great, but where did he get that money? He pulled it from Citibank, which now has a shortage of cash reserves, so first, they trade a $billion in mortgages to the Central Bank for a $billion "cash" (electronic, not paper) so that they are not below their minimum requirements.

Then they put another $billion in similar securities up for sale. Whatever they sell, that market goes down (probably just a smidgen), and thus they can pay the "Fed" back and get everyone back in balance. The interest on these short term "loans" that are held by the "Fed" helps to fund them. Problem is, the "Fed" has been lending more than they have been redeeming, so their balance sheet has been growing over the decades. Indeed, after a couple years of reductions, that balance seems to be growing again.

Some of this info is found here:
https://bitcoinist.com/repo-markets-gain-another-70-billion-usd-continues-to-weaken/
https://www.federalreserve.gov/releases/h41/current/?mod=article_inline

Where does the "Fed" get this money to lend?
As far as I know, they make it up, out of thin air.
Does this increase the Federal Debt? No.
It does dilute the money supply, making your dollar worth just a bit less.
(The total pool seems to be about $100Trillion, so the effect is minimal.)

by TRex2 Mon Dec 23, 2019 2:12 pm

Here is an interesting crack in our economy.

(There are many cracks, but like a bridge, cracks should cause concern, but it doesn't mean the bridge will fall down, this month, it might take years before it falls.)

Flat is the New Up: Cass Shipping Index Down 12 Straight Months
https://moneymaven.io/mishtalk/economics/flat-is-the-new-up-cass-shipping-index-down-12-straight-months-dRR-BG96ckiVTrGC4n4C5g
Among the interesting things in this article is the loss of analysis in the report, due to management changes. This reminds me of the years leading up to the 2001 and 2008 collapses. The watchdogs of the finance system kept changing the criteria, so that things that were progressively getting riskier didn't look as risky.

In this case, that charge is brought by the third comment on the article:

Tony Bennett
5 days
"Most of the hard-hitting analysis is gone."
...
Not surprising. When news is bad - TPTB have 2 choices - 1) change index to make things appear less bad or 2) quit reporting all together.

There is still a lot of good info in this report, and I find the (discontinued) chart comparing the Cass index to GDP of interest. It appears that the index is a leading indicator of recessions, and a lagging indicator of growth. (there is not enough data to say this with certainty)

by TRex2 Sat Feb 08, 2020 5:36 pm

TRex2 wrote:Well, yes, watch the bond market, but my previous assessment that we might expect a recession in a year or less did not take into account that Europeans (and some S.Americans and Chinese too) are investing in our bonds. This gives a skewed picture. The real picture is better for America, and worse for Europe.

...

Bottom line is were doing well, and most of the rest of the world is falling apart. Growth is slowing down, but it hasn't stopped. Right now we also have good wage growth, in both blue collar and middle class.

While the prepper world is watching the Wuhan Coronavirus, the engines of our economy continue to drive us forward, but at a slightly weaker rate. The jobs report came out, yesterday, and on the surface it looks great. Underneath, it is still positive, but not as much.

https://moneymaven.io/mishtalk/economics/jobs-rise-225-000-but-employment-fell-by-89-000-vA-EWz0U50-9lB9OiC7sfw
(remember, the guy who writes that column is a economic genius, but he has a slight case of Trump Derangement Syndrome)
https://www.calculatedriskblog.com/2020/02/ism-manufacturing-index-increased-to.html?m=1
(the graph at the end of the article is good)

Employment is up, and wages are up, but manufacturing is down for the month. The overall picture for last year is a slight increase in manufacturing, but not enough. This will lead to some inflationary pressures next year, as more money chases manufactured goods that are not increasing in quantity.

It isn't huge, but something to be watched.

by TRex2 Sat Mar 28, 2020 6:04 am

Well, in the past six weeks, the world is completely changed, and the US is "officially" in a recession. There are both, inflationary and deflationary pressures at work in our economy.

Trump signed the stimulus bill yesterday, to inject $2000 Billion dollars into the economy, as a partial offset to the inactivity caused by closings and shelter in place orders.

Injecting money into an economy always has an inflationary effect, as the Fed will, more than likely create (some people say "print" but much more is created electronically) more money to deal with the Treasury bonds that the government issues to finance this effort.

OTOH, petroleum prices are at a low that we haven't seen in years, with no signs of rising in the near future. This has a deflationary effect, in that almost all products can be made more cheaply, of the cost of energy is lower.

Manufacturing is down, as is all activity, so there are less products being produced, and we are trying to bring manufacturing that has been outsourced to China, back to the US. This will have a minor inflationary effect, since the reason it was outsourced was to take advantage of cheaper production.

These are the major forces at work today, and what tomorrow brings is anyone's guess.

by Blondie Mon Apr 20, 2020 3:07 pm

Ayecheewowa!

WTI, West Texas Intermediate oil....the gold standard of oil in the USA just went negative for the first time ever. As I type, -$30 a barrel.

Translation? I'll pay you $30 to take this barrel of oil off my hands because the barrel is now worth more than the oil in it!

by TRex2 Mon Apr 20, 2020 3:59 pm

Blondie wrote:Ayecheewowa!

WTI, West Texas Intermediate oil....the gold standard of oil in the USA just went negative for the first time ever. As I type, -$30 a barrel.

Translation? I'll pay you $30 to take this barrel of oil off my hands because the barrel is now worth more than the oil in it!

I believe you have misinterpreted what you think you saw.

I suspect they were saying that the price was down $30 from where it was,
not $30 below zero.

by Dave58 Mon Apr 20, 2020 4:28 pm

TRex2 wrote:
Blondie wrote:Ayecheewowa!

WTI, West Texas Intermediate oil....the gold standard of oil in the USA just went negative for the first time ever. As I type, -$30 a barrel.

Translation? I'll pay you $30 to take this barrel of oil off my hands because the barrel is now worth more than the oil in it!
I believe you have misinterpreted what you think you saw.

I suspect they were saying that the price was down $30 from where it was,
not $30 below zero.

https://www.cnbc.com/2020/04/20/oil-markets-us-crude-futures-in-focus-as-coronavirus-dents-demand.html

by Blondie Mon Apr 20, 2020 5:03 pm

WTI closed at -$15+. May contracts expire tomorrow.

I'm buying a storage tanker. Or two. Shocked

by TRex2 Mon Apr 20, 2020 6:37 pm

Blondie wrote:WTI closed at -$15+. May contracts expire tomorrow.
I'm buying a storage tanker. Or two.

OK, your talking about "contracts" which are prices of oil that has not yet been pumped. Real oil, already pumped, is still around +$20. That is what confused me.

by TRex2 Fri Sep 25, 2020 3:01 pm

TRex2 wrote:Well, in the past six weeks, the world is completely changed, and the US is "officially" in a recession. There are both, inflationary and deflationary pressures at work in our economy.

Trump signed the stimulus bill yesterday, to inject $2000 Billion dollars into the economy, as a partial offset to the inactivity caused by closings and shelter in place orders.

Injecting money into an economy always has an inflationary effect, as the Fed will, more than likely create (some people say "print" but much more is created electronically) more money to deal with the Treasury bonds that the government issues to finance this effort.

OTOH, petroleum prices are at a low that we haven't seen in years, with no signs of rising in the near future. This has a deflationary effect, in that almost all products can be made more cheaply, of the cost of energy is lower.

Manufacturing is down, as is all activity, so there are less products being produced, and we are trying to bring manufacturing that has been outsourced to China, back to the US. This will have a minor inflationary effect, since the reason it was outsourced was to take advantage of cheaper production.

These are the major forces at work today, and what tomorrow brings is anyone's guess.

Just an update, as we are now six months (and several weeks) into this disaster.

The total liquidity injected into the economy stands between 4 and 8 Trillion Dollars,
or as I prefer to write it:
Between $4000B and $8000B has been injected into the economy. The reason for the "range" of numbers is because some of it may have been counted twice: once when the "Fed" created it, and once when the Government spent it.

Manufacturing is returning to its pre pandemic levels, but the economy still isn't humming along smoothly, as can be seen by oil prices, which actually need to reach $50 a barrel before the oil companies can make any profit on drilling and refining. Failure to reach those levels will result in a continually shrinking availability of US made petroleum products.

by TRex2 Tue Oct 20, 2020 5:19 pm

The "creation of money" by the Fed and the Federal Debt (often called national debt) is much like storing water behind a dam. As long as it stays there, it doesn't cause inflation and other calamities. Things like raising taxes (even if it is only taxing billionaires) will trigger inflation in much the same way opening floodgates on a dam swells the river downstream, and will usually lower revenue collected by the government, resulting in the need to print more money.

Here is an article from Mish Shedlock. While he knows nothing about war, and has a fair amount of Trump Derangement Syndrom, he is generally an economic genius.
https://www.thestreet.com/mishtalk/economics/23-6-of-all-us-dollars-were-created-in-the-last-year

by TRex2 Sun Jan 31, 2021 2:40 pm

Since we are now in almost the same situation we were in, back around 2013, I thought I would re-post something I wrote back then. (I have learned a few things since I wrote this, but it isn't that far off the mark.) About 40 months after I wrote this, the economy had begun to stall, but then we elected Trump: the deregulation and optimism kept things growing for three more years, until the pandemic hit.

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.

Posted by TRex at 3:38 AM
Labels: Economics

by TRex2 Wed Mar 03, 2021 4:57 pm

With Thousands of Billions of hollow dollars in fiat money being pumped into the economy, the only questions that remain are when the inflation wave will arrive, and how bad will it be.

I have been forecasting about 30% inflation, but over about a two year period. Most of the economists are forecasting a wave to hit in May or June, this year, but I haven't heard any of the say how big it will be.

Right now, the Business Price Index is rising, and I heard on Charles Payne's show (Fox Business) that the CPI usually lags that by about three months.

by rick1 Wed Mar 03, 2021 5:05 pm

With the up tick on the money printing for this $1.9 trillion bail out, that will bring the national debt to over $30 trillion.

We only take in around $30 trillion, something is going to break like a big iceberg in the middle of the artic ocean and the splash is going to be huge.

The money trees are being cut down for firewood.

by Drinkthekoolaid Wed Mar 03, 2021 10:16 pm

rick1 wrote:With the up tick on the money printing for this $1.9 trillion bail out, that will bring the national debt to over $30 trillion.

We only take in around $30 trillion, something is going to break like a big iceberg in the middle of the artic ocean and the splash is going to be huge.

The money trees are being cut down for firewood.

We're going to be 30+ trillion in debt and like 160+ trillion in unfunded liabilities.

So far the economy has been melting up instead of melting down. Over the past year even though we're in a global recession, pandemic and have massive unemployment somehow despite all logic and common sense our stock market was absolutely unstoppable. I secretly think people are subconsciously deciding to throw money into the market because they subconsciously would rather trust that than the USD.

The stock market is so artificially inflated it's going to be bad when it corrects.

I'm getting very concerned more so by the day that we might be getting closer to the market having a late 90s "dot com" style recession or worse. And all the retail investors who by some measures are approaching 50% of the investors might panic and try to pull money out or sell investments. It's going to get really interesting and tense.

(In my stock market positions not my 401k) I have set stop loss orders. About half of them have already been triggered. It's been a very rough week or so. I think there is a lot to worry about.

by Blondie Thu Mar 04, 2021 12:17 am

Hyperinflation is already here. Been to the grocery lately? I'm seeing organic ground beef at $11 to $12/lb. It was $8-$9/lb. a year ago at the start of lockdowns, up from $6/lb.

Gasoline here is $2.78/gal. It was $2.09 at Christmas. Lumber hit over $1,000. It was $350 a year ago.

Interestingly, I've read some posts where Patriots are calling out to crash the economy by buying only necessities like groceries and choosing to use ebay, craigslist or FB marketplace to buy used items when necessary. Look for ways to avoid paying state sales taxes in personal transactions.

Walmart's CEO was crying to congress to pass stimulus asap as customers are only buying necessities and not the shiny new flat screen tv's. Crying or Very sad

Groceries typically have overall low markups at stores but when you have a 100,000 sq ft store where little else is selling, then why not price gouge the customer?

People's savings rates are higher and one of the big banks reported a major decline in use of credit cards. They count on swipe fees.

I bought into some airline stocks last fall but have since cashed out. I'm in all cash right now as there are no fundamentals.

If anyone has thoughts on how to deal with what's ahead, I'm all ears!

by rick1 Thu Mar 04, 2021 8:49 am

Blondie, my advice, buy some cows, chickens, pigs, plant a big garden, can, freeze goods, stock up on flour, sugar, etc.. AND don't forget the guns and ammo.

It'll all come together for the prepared.

by Dave58 Thu Mar 04, 2021 8:58 am

by Dave58 Thu Mar 04, 2021 9:33 am

rick1 wrote:Blondie, my advice, buy some cows, chickens, pigs, plant a big garden, can, freeze goods, stock up on flour, sugar, etc.. AND don't forget the guns and ammo.

It'll all come together for the prepared.

I think it would be a really good idea to buy any heirloom garden seed that you might need just in case....

If its heirloom you can save seed and replant next year....

The cost of seed has really went up and last year we had a hard time finding Roma green beans to plant. I think it was a Gurney's seed catalog but bi colored sweet corn seed was $200.00 per pound....

by **ReadyMom** Thu Mar 04, 2021 10:46 am

rick1 wrote:Blondie, my advice, buy some cows, chickens, pigs, plant a big garden, can, freeze goods, stock up on flour, sugar, etc.. AND don't forget the guns and ammo.

It'll all come together for the prepared.

My homeowners Association would just love me! I'm doomed! Neutral

by TRex2 Thu Mar 04, 2021 6:09 pm

ReadyMom wrote:
rick1 wrote:Blondie, my advice, buy some cows, chickens, pigs, plant a big garden, can, freeze goods, stock up on flour, sugar, etc.. AND don't forget the guns and ammo.

It'll all come together for the prepared.
My homeowners Association would just love me! I'm doomed!

Ultimate revenge against anti prepper groups.
Survive long enough to see them gone.

by TRex2 Sat Mar 06, 2021 2:30 pm

TRex2 wrote:(snipped things from Aug 2019

We haven't discussed Labor and Unemployment for 19 months.

(When looking at the following numbers, subtract U6 from Labor utilization, to get a feel for how well we are doing. The best it has ever been was somewhere near 67% and 7%, so 60%, total, would be a real goal.)

Our labor utilization rate is 61.3% and U6 unemployment rate is 11.1%. (50.2%)

If you look back in history, we were 64% and 7% (57%) before the pandemic, so we had about 7% to go to get back to pandemic conditions.

Now that we have to deal with Socialism, I will be surprised if anything gets better at all.

Labor Participation:
https://www.bls.gov/charts/employment-situation/civilian-labor-force-participation-rate.htm
U3 and U6 unemployment rate:
https://www.bls.gov/charts/employment-situation/alternative-measures-of-labor-underutilization.htm

by TRex2 Fri Apr 02, 2021 6:42 pm

The Bureau of Labor Statistics publishes every month, and this month the numbers read labor utilization rate of 61.5% and U6 unemployment rate of 10.7, so that gives us 50.8% or about 0.8% movement towards our goal of 60%. In the extremely unlikely event we maintained this growth, we would reach our pre pandemic level in just under a year.

The recent stimulus bills did not get the $15 an hour minimum wage, nor has the administration gotten any tax increases through, yet, so I do expect some growth this year. And, while the most recent stimulus and any further stimulus will result in inflationary pressures, we shouldn't see much of those come to fruition until next year.

by rick1 Fri Apr 02, 2021 7:41 pm

I agree with ya TRex, except for a couple of things. Inflation has been here since last year, and has gotten a little worse since then, but won't last long, for now. A 2X4X8 costs $6.00 now and that's the cheapest, $5.99/lb for a junk chuck roast and gas, well, it's jumped $.75/gallon here in the last 2 months.

The U.S. dollar has declined somewhat, but not a lot, yet. Next year, watch out, I think we are in for a good recession, but not as bad as 2008.

Another stimulus package, yep, I think they'll pass two of them, even if they have to end the filibuster. Then watch the dollar drop, inflation rise for (next year).

I look at it this way, my dad used to say, "it's pay me now or pay me later, it doesn't matter, but you're going to pay me".

by TRex2 Thu Jun 03, 2021 6:01 pm

The U.S. dollar has declined somewhat, but not a lot, yet. Next year, watch out, I think we are in for a good recession, but not as bad as 2008.

Another stimulus package, yep, I think they'll pass two of them, even if they have to end the filibuster. Then watch the dollar drop, inflation rise for (next year).

The dollar index isn't declining because they compare the dollar to other currencies, and other countries are in worse shape than the US, thanks to Trump.

Yes, inflation is here, and it looks like it will get worse over the next 18 months.

by rick1 Thu Jun 03, 2021 6:44 pm

TRex2 wrote:
The U.S. dollar has declined somewhat, but not a lot, yet. Next year, watch out, I think we are in for a good recession, but not as bad as 2008.

Another stimulus package, yep, I think they'll pass two of them, even if they have to end the filibuster. Then watch the dollar drop, inflation rise for (next year).
The dollar index isn't declining because they compare the dollar to other currencies, and other countries are in worse shape than the US, thanks to Trump.

Yes, inflation is here, and it looks like it will get worse over the next 18 months.

Stock Market channel said today that inflation hasn't been this bad in 30 years. I don't think it is, but I'm not the stock market channel either.

by TRex2 Thu Jun 03, 2021 7:42 pm

Shadowstats dot com has been showing inflation at 8% to 13% (depending on which methodology) for the past few months.

Inflation charts are good for seeing what the inflation rate was, but to see where it is going, you need to look at the money supply. Shadowstats shows a 33% increase in M2 and about 50% increase in M1 money supply.

Money supply shows how much money can chase the available goods, and the "available goods" can be found here:
https://www.bls.gov/opub/ted/2020/manufacturing-labor-productivity-decreased-15-point-5-percent-in-the-second-quarter-of-2020.htm

Manufacturing output is was down 47% second quarter of 2020. That is a lot less goods, being chased by more money: a perfect recipe for inflation.

by TRex2 Wed Jul 21, 2021 5:57 pm

Here is an interesting take on how collapse happens.
(The mechanisms underlying the collapse.)

https://www.shtfplan.com/headline-news/how-breakdown-cascades-into-collapse

Put another way, the economy’s as a network appears decentralized and robust, but this illusion vanishes when we consider how the entire economy rests on a few unstable nodes.

One such node is the delivery of gasoline and fuels. It’s such an efficient and reliable system that 99.9% of us take it for granted: there will always be plenty of gasoline at every station, the tanks of jet fuel will always be topped off, and so on.

The 0.1% know that this system, once disrupted, would knock over dominoes all through the economy.

Another key weakness is the entire system’s reliance on debt, leverage, and speculation. Few seem to understand that physical production and delivery systems can grind to a halt for financial reasons–for example, lines of credit being pulled, a counterparty to some arcane commodity swap goes under, taking the presumably solvent corporation down with it, and so on.

The more debt that’s been piled up, the greater the instability of the entire system. Risk always appears low until the system destabilizes, and then all the hedges fail and risk breaks out, flooding through the entire financial system.

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