Nov 102014
 
 November 10, 2014  Posted by at 8:57 pm Finance Tagged with: , , , , , , ,


Russell Lee Columbia Gardens outdoor amusement resort, Butte, Montana Aug 1942

The folks at Bloomberg put this piece up today with the intriguing title‘Predictors of ’29 Crash See 65% Chance of 2015 Recession’, and I thought: wait a minute, that’s what people, lots of people, actually think, that there’s going to be recession. While still others will trust Morgan Stanley and Goldman Sachs, who, as the article put it, “posit an expansion that has plenty of room to run.”

For the vast majority of those in the world of finance, and probably in a much wider world, those are the options, because that’s how they think. Either more of the same, or a recession, as we know it in a cyclical sense, where the economic cycle goes up and down but in the end keeps turning up. And where any sudden moves are telegraphed well in advance by monetary authorities for the grace and benefit of them, the investors, so they don’t lose too much and can instead profit at every step, whether it’s up or down.

And then it dawned on me, which took a few seconds because that’s not how I see the financial system at all, I see neither a recession nor a helpful and friendly Fed, that this is why so much money is going to be lost by so many people. But then, from where I’m sitting, that’s the game, isn’t it? In a functioning market, someone needs to lose for someone else to gain. And the smartest prevail.

And y’all you want a real market, don’t you? One that reflects what’s really going on in the real economy?! Just so, you know, you’re not going to buy shares in companies that report numbers painted with big fat strokes of bright pink or shiny red lipstick on your porkchop.

The problem with this is that whatever money you manage to save in a collapse is money the major banks won’t be making. They’d much rather take it from you than let you keep it. And who do you think the Fed will turn out to be more friendly with, you or Jamie Dimon and the Oz behind his curtain?

if you take a good hard look at how the US – and EU and Japan – economies have developed over the past decade, there’s only one possible conclusion you can draw. Which is that these countries no longer have functioning markets. Without the multiple trillions in stimulus share prices would have been at a fraction of where they are now.

And then the question is how much longer that pretty much blind market support can continue. Well, it won’t be infinite. Because that would bankrupt nations too fast even for Wall Street’s international banks, but more importantly because those same banks are not making nearly enough money in the present set-up. And that’s the clincher.

But apart from what the Fed wants or doesn’t want, the fact remains that it has been instrumental in blowing the bubbles of the Dow and S&P to unforeseen heights. And that this has happened because through time investors started believing the Fed has their back. Countless ‘experts’ today will tell you that if markets start falling tomorrow, the Fed will step back in.

Really? To what end? If that were true, they might as well never have tapered. Because if anyone knows how the Fed has distorted the markets, it’s the Fed itself. So for all I know, they may simply think they’re done distorting. And that they can sit back and watch the, after all inevitable, collapse unwind.

Inevitable because the alleged progress and recovery we’ve seen since US QE started brings tears to your eyes when you look past the partly massaged and partly plainly made-up numbers that go into GDP and jobs reports. Wipe off all the lipstick from the American pig, and you’re left with no more than a handful meager slices of diet bacon.

The Fed knows this, I know this, and now you do too, but many investors don’t seem to be catching on. They are, instead, talking about the probability of a recession. But that’s not what lies ahead. We’re well, and fast, on our way to a deep depression. Nothing cyclical, unless perhaps you’re talking Kondratieff’s 70-year cycles.

Recession is a useless discussion by now. The US is a painted pig, the EU needs to let countries go or they’ll go to war, Japan hung its head in a noose for Halloween and China has its 32nd consecutive month of falling factory-gate prices.

Lower oil prices may for now hide some of the pain, but even that is too much for Japan, because of the deflationary effect of even less consumer spending. And it’s that lack of spending that’s everyone’s worst enemy. But you can’t solve that with central bank stimulus. The formerly rich world is loaded with burger flippers, food stamps and underwater homes, and that means less, not more, spending.

And we all know, though perhaps not by how much, that all ‘formerly rich’ governments have historically unequaled spin doctors on their payroll, so the real numbers across the board are much much worse even then what we are ‘allowed’ to know. And what we do know is already awful once you sweep away the propaganda. You’re only going to be OK as an investor if the Fed continues to hold your hand and lead you softly through the ups and downs. You really think they will?

Recession? In your dreams.

Home Forums Are You Expecting A Recession?

This topic contains 8 replies, has 9 voices, and was last updated by  Dr. Diablo 4 years, 8 months ago.

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  • #16471

    Russell Lee Columbia Gardens outdoor amusement resort, Butte, Montana Aug 1942 The folks at Bloomberg put this piece up today with the intriguing titl
    [See the full post at: Are You Expecting A Recession?]

    #16472

    Variable81
    Participant

    “Nothing cyclical, unless perhaps you’re talking Kondratieff’s 70-year cycles”

    I thought that’s what we were talking???
    Or at least Martin Armstrong style Economic Confidence Model cycles. Or Strauss-Howe Fourth Turning style… turnings.

    Plus, you really can’t blame your average Joe for not expecting something to happen that’s never before happened in their lifetimes (just in books that they don’t read, or movies that gloss over the true suffering of deflationary collapse) – as typical worker bees, they simply don’t seem to have the prudence and/or imagination to accept what’s on the horizon (pardon me if that sounds a bit elitist, but I honestly believe a large part of society either cannot comprehend the idea of “collapse” – or can comprehend it, but actively seek to deny/suppress it).

    Besides, trying to avoid such a catastrophe (or convincing others to try to avoid said catastrophe) may be wrong-sighted on our part; it may be nature’s way of culling the wheat from the chaff, so to speak. And that may just be what this overpopulated, unrealistic, materialistic, consumption-driven world needs…

    Then again, it’s hard to know what’s right and what’s wrong in a world gone so bonkers.
    Now back to my regularly-scheduled over-consumption…

    Cheers,
    GBV

    #16474

    Ken Barrows
    Participant

    One has to admire, if detached, how the system keeps going. If you told me at the beginning of 2014 that the S & P would be up about 11% on November 10th while oil prices would be down about 20%, I’d would have laughed. Stock and bond prices are all that TPTB have got left. It may have a while to run, but when it goes, that’s when it gets interesting…and scary.

    #16475

    Professorlocknload
    Participant

    “Deflationary Collapse?”

    I’ll take the “Other” on that. Or maybe a choice between two “Others.”

    A “Stagflationary” long, drawn out slow death, or a typical “Hyperinflationary Depression.”

    Of course, in the case of the latter, the end result would be, the currency is destroyed, along with all debt based upon it. A default of a different feather, but still a default.

    Only reason “D” happened in the Big One was, there was gold, against which the dollar was marked. There were limits to the quantity of “Credits” that could be created. This time around, there are no such boundaries, only the imagination.

    TPTB allowing an increase in purchasing power, Deflation, ie; direct default? While the Central Banks are still running things? Fat chance. It would be suicidal.

    Still, War will let them off the hook, so that is the ultimate scenario anyway it’s sliced.

    #16476

    william
    Participant

    Most of every cent of every product on the market is represented by taxes, then by markup. Of course on the books the economy looks ok even when you buy those $1 shirts from China. On every good shipped in there is a duty charge and sales tax and fuel tax and a processing fee. The largest benefitor is government followed by middle men.

    All the money spent on the goods little goes to paying for the actual process of making it and even less goes to the raw materials. Our economic system does not currently fairly represent the real cost of goods nor apply fair wealth to the actual production of the goods.

    I still don’t see how with all the printing of money that it will not devalue money. If I was in charge and could use the new print economics system I would have fun with the idiocy of the whole idea. If printing money is so good then lets print off the debt. Double whammy QE and free up money for the needy (government). I could then even lower taxes. What is the worst that could happen? ;>

    #16477

    jonabark
    Participant

    Raul, could you describe some possible triggering events for this kind of lurch into depression? Also how much of the economic power arrangements are ‘stabilized’ by the US military, and is that stability eroded by the consequences of recent wars or is it reinforced? Finally how soon could the proverbial feces make contact with the ventilator?
    By ‘stabilized’ I don’t mean something good, but basically a sense that the ultimate backup for the Dollar and the exercise of US political and economic power is the ability to destroy or cripple competitors with no meaningful accountability.

    #16480

    Tulsatime
    Participant

    If debt is borrowing from the future, we have reached the end of time.

    #16488

    John Day
    Participant

    @jonabark,
    Here is something about the $US and empire and the workings of global reserve currency, which speculates about a transition to SDRs in the next financial crisis.
    The petrodollar has been “defended” against Iraq, Iran, Libya, etc, by devastating them, destroying their “demand” for oil, and everything else.
    The US military is certainly a “big stick”.
    You see what you see, oily-carrot, deadly stick. It’s the empire.
    How do empires collapse?
    Really big power and money is spent every day on preparing for every scenario.
    We won’t likely get the answer here, until about the time everybody else does, because the empire is trying with vast computational ability, threats, spies, bankers, to keep the power.
    https://philosophyofmetrics.com/2014/10/28/something-sdr-this-way-comes/

    #16489

    Dr. Diablo
    Participant

    Wait–you can’t have it both ways: if the oil price goes UP that’s bad for the economy, but if it goes DOWN, it’s bad for the (Japanese) economy too? Seriously? So all events at all times are bad for the economy and nothing’s good? Then you know you’re reading a doomer site.

    High oil prices have a variety of effects, one of which is a “tax” on consumer spending, but also has(had) the effect of sharply increasing demand for US Dollars, and increases price inflation, but not economic motion even measured in faulty dollars, because without higher wages, the money spent on oil is simply borrowed from some other part of the budget. Side-effect of making shale oil appear functional. Emphasis on “appear”.

    But low(er) oil prices do have the opposite effect: they would increase other retail spending, in Japan or elsewhere. –Except that consumers have apparently tried to pay off debt instead, which Abe doesn’t want to allow. Why? Because the banks are a cartel, and the “product” of that cartel is debt. If debt declines, or even stalls, they are no longer selling “product.” This is compounded by how each asset is valued in order to become collateral for further borrowing, i.e. “Leverage.” 20:1 leverage gone through several iterations might be 200:1 leverage systemically. Then a 0.5% drop in value of the collateral — that is to say, “deflation”, or “price deflation” — leads to a run on the system and its collapse. I doubt they are blind to this.

    This is why asset values cannot fall and debt cannot be reduced. But it’s not a measure of the oil prices: it’s a measure of how any and all inputs to the system are ratcheted into a one-way bet through collateralization and financialization.

    Dropping oil prices? Consumers paying debt? It just changes the system: it’s not better or worse. Lower prices always help the consumer–that is to say the little people, the unimportant masses, the ones we don’t care about; while decreasing the wealth of the financialized wealthy. That’s why booms cause income equality and Depressions cure them. Sadly. So obviously the whole system–created by and for the wealthy–is going to fight tooth and nail to defend their wealth rather than let it return to the pockets of the productive, the workers, and cure the mind-bending income disparity. On the downside, unfortunately, because of that leverage and collateralization that sort of “fix” is likely to happen suddenly and disruptively, for the common people as much as anyone.

    So short-term it might be “bad”, but long-term it would clear the economy, restore markets, and restore prosperity to the masses.

    On the other hand, long-term, what we are doing now is far more acutely “bad”, because it causes a collapsing economy, broken markets, income and power disparity, and therefore poverty, misery, and mass death.

    I would argue what we have now is far worse than what we’d have in an honest market, but because it’s slower, we accept worldwide destruction and mass murder. So if low oil prices are “bad” in both conditions, but different timescales, maybe it’s also “good” in both conditions, but different timescales?

    But let’s be honest about which is which when we talk about it. A thing and its opposite cannot be the same.

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