There are a number of reasons to suspect that the impending financial and economic crash will be more severe than the 2007-2009 crisis. The recovery since that crisis has been anemic. Real income has not regained its pre-crisis peak. While measures of unemployment have improved, the quality and renumeration of the jobs filled leave a lot to be desired. Governments and central banks have taken on massive amounts of debt, and interest rates are close to generational lows; in some cases they’re negative. Total world debt is significantly higher. Finally, the faith that financial markets have demonstrated in governments and central banks since the bottom in 2009 is dwindling and will soon be gone.
Pundits are forever bemoaning the citizenry’s cynicism and lack of trust in its government and politicians. They’ve become a Greek chorus with the failure of establishment-anointed candidates to gain any traction to date and the ascendancy of Trump, Carson, and Sanders. The wonder is not that people don’t believe, but that there is anybody left who still believes. Government consistently promises more and delivers less than eat-all-you-want-and never-exercise weight-loss plans and miracle wrinkle creams. If it were a business the class action shysters would haul it into court for blatantly false advertising. Lacking that remedy, voters are turning to the outsiders.
For the last six years, US financial markets have conspicuously suspended disbelief. If you keep getting new credit cards and maxing them out without paying them down, you’ll go bankrupt. Incredibly, Wall Street and Washington “economists,” blessed by a majority of academics, assure us that what inevitably leads to ruin for an individual leads to prosperity when followed by governments and central banks. One branch holds that government debt is the key to economic growth; the other branch holds that a central bank exchanging its own conjured-from-thin-air debt for that government debt is the answer. Either branch removes economics from the pretension that the field is a science. Almost as inapt is the reluctant concession by a few that it’s more an art. No, this economics is destined for the Weird and Tragically Deluded Cults bin with the Moonies and the Kool Aid guzzlers.
Many on Wall Street and in Washington know that what they’re peddling is a fraud, but both finance and politics are giant sales jobs, and fiscal sanity has very limited consumer appeal. However, you can only deny reality for so long, and the reality is that magic beans have not sprouted a beanstalk to the sky, only a faux recovery and a growing mountain of debt that does indeed reach the sky. The global economy has to climb that mountain before it can attain even a semblance of growth. The unfolding contraction indicates that it has finally succumbed to altitude sickness.
The computer algorithms that increasingly trade financial markets don’t notice, but the idea that governments and central banks can “manage” anything at all has been taking hits left and right. Crashing commodity markets have made a mockery of efforts to ignite inflation. The normally predictable Swiss revalued their franc and caught the markets by surprise. The Greeks voted down austerity and another farcical European rescue and their government then accepted more stringent austerity and another farcical rescue. The Chinese have frantically attempted and failed to re-inflate their deflating stock markets and economy. After 14 years of the US and its assorted coalitions of the willing, not so willing, and out and out bribed or dragooned mucking around in the Middle East and northern Africa, a stream of refugees leaving various hell holes threatens to overwhelm Europe and their spendthrift welfare states. None dare call it blowback, and every US presidential candidate is proposing more of the same military and foreign policy that produced it.
SLL has predicted that the path of equity markets during the gathering crisis would be similar to that of the last one: roller coaster plunges interrupted by occasional madcap rallies precipitated by announcements of various government and central bank schemes (all of which would eventually prove either ineffectual or counterproductive). SLL may be wrong. Belief ran much deeper back then; now it’s hanging by a gossamer filament. When it breaks, the market graph may well look like the drop of a guillotine blade rather than the more typical sawtooth downward progression. In other words, this crash may happen very quickly. Two words to the wise—which includes all those who read SLL—will be sufficient. Be prepared.
IF YOU WANT TO ENSURE FAILURE, IGNORE SUCCESS. ROBERT GORE’S STUNNING AND PANORAMIC NOVEL IS SET DURING THE MOST SUCCESSFUL—AND MOST IGNORED—PERIOD IN AMERICAN HISTORY.