Authored by Charles Hugh Smith via OfTwoMinds blog,
Does anyone really think The Everything Bubble can just keep inflating forever?
What do I mean by a profoundly shattering recession? I mean, a systemic, crushing recession that can’t be reversed with central bank magic, a recession that only deepens with time. The last real recession was roughly two generations ago in 1981; younger generations have no experience of a profound recession, and perhaps older folks have forgotten the shock, angst and bitterness.
A profoundly shattering recession leaves tremendous damage and pain in its wake. Millions of people who reckoned their position was secure get laid off, businesses that looked solid melt into air, large corporations flip from hiring thousands to firing thousands, and everyone on the edge of insolvency gets a hard push over the cliff.
Profoundly shattering recessions feed on themselves in a self-reinforcing dynamic: the first domino could be a supply-shock, or a decline in demand due to credit exhaustion. Since businesses have cut everything to the bone in the past decade, there are no buffers left: layoffs begin immediately, and those layoffs further reduce demand as households have to tighten their belts to survive as even those who escape the first round of layoffs find bonuses and overtime have been slashed.
Since the problem isn’t high interest rates, central banks reducing rates or pushing them into negative territory only reveals their impotence. If negative interest rates boosted the real economy, Europe and Japan would be experiencing rapid expansion instead of stagnation.
Layoffs, the failure of central banks and soaring fiscal deficits trigger a drop in consumer and investor sentiment which feeds back into declining sales and profits, which then trigger more layoffs as businesses must cut expenses as revenues crater.
Clearly, there is no benefit to households or enterprises to this self-reinforcing recession. The benefits are structural: financialization, the parasite that has eaten our economy from the inside, will collapse along with the mountains of debt that fueled it.
Zombie corporations and local governments that have been insolvent in all but name will finally go bankrupt, clearing the system of their dead weight. Economies supporting zombie entities are sacrificing their capital to keep insiders afloat, which leaves less capital to invest in increasing productivity, which is the only way to increase broad-based wealth.
The Everything Bubble will finally pop, stripping the system of phantom speculative wealth and fictitious capital. Price discovery will once again be possible, as all the central bank-inflated bubbles will deflate and real demand and supply will set the price of assets.
Once central banks have been revealed as powerless, the quasi-religious belief in their omnipotence will dissipate, and people will finally start dealing with the Gilded Age excesses of the past 20 years. Common sense limits on financial predation and trickery will gather support, and tricks like corporate buybacks will be outlawed or restricted.
If capital can’t earn a low-risk return, then it can’t flow to productive uses.Once central bank manipulation fails, capital might demand a yield, and in doing so, it will start a beneficial cycle in which speculation will no longer be enabled and rewarded by zero-interest rates or negative rates.
Only those enterprises and households with productive uses for borrowed capital will reckon the interest costs are worth the risk of taking on debt. The bloated, parasitic banking sector will implode, and what’s left of it will return to its proper role, a thin, regulated sector of the economy stripped of political power.
All the cartels and monopolies that depend on debt will implode: banking, higher education, and ultimately national defense and sickcare, which depend on federal borrowing to fund their predatory pricing.
The U.S. economy needs a re-set if it is to lift all boats, and the sooner the re-set occurs, the sooner we can dispense with all the cronyist intervention, self-serving manipulation and exploitive distortion that’s turned our economy and society into a speculative casino that only benefits a few insiders and those who know how to rig the game in their favor.
A profoundly shattering recession requires patience, fortitude and an awareness that the sacrifices demanded will be worth the pain if we rid our society of at least the top layer of financial and political parasites and predators that have corrupted our economy, our governance and our society.
Does anyone really think The Everything Bubble can just keep inflating forever? Surely nobody’s that deluded.
The global economy is destabilizing, and we’re about to discover there is no way to halt a profoundly shattering recession. We have a once in 80 years opportunity to right the ship before it sinks into oblivion.
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This is a fallacy. The Recession of 2008 (which continues to this day – for many folks) I thought would lead to cutting the government – instead the government grew even more. The Federal Reserve will just print more and more money. The Too-Big-To-Fail banks and businesses will get bailed out.
I think Dodd-Frank replaced bail-outs with bail-ins.
Americans will beg for greater centralized economic planning.
I graduated high school in 1980. I worked in the Houston oil refining business for a couple of years just as the boom busted.
I was paid to stay on with the failing company (lowpaid lab technician then) as they ” reorganized. I watched them syphon off what they could prior to bankruptcy.
Boy, when that oil price crashed, it took the industry by surprise. Early Reagan administration. Twenty five percent unemployment in the oil industry.
I packed and moved to Florida with Aunt Martha. Then back to college and then….joined a branch of the military.
Those were lean years for a lot of young people like me. A lot had changed in our culture, most of which blindsided me head on.
Funny thing? I got an 80 dollar check years later when the bankruptcy settled. Ten cents on the dollar.y two weeks severance pay. Haha ..ten bucks an hour was a lot for a 20 something in the 80s. I was taking it in!
Paid later. Taxes woke me up.
Isn’t that back when mortgages were like 18% and savings accounts paid like 6%?
Civil unrest, martial law, dormant emergency executive orders, FEMA camps, Death camps, Georgia Guidestones prophecy coming true. Since of course voting has not solved these problems and nor can it. Gun up muther fuggers. Soviet style red flag laws are coming from the Trump administration as he reinstated the Pentagons 1033 program to arm the police to the teeth, you will be simultaneously disarmed.
Take your meds.
Meds? Why he might well be right and I’m no gun nut but it seems obvious where all this is headed NO
No
balance the budget, use national resources to pay off the debt, flat tax rate, for fucking everyone, low as it can go and you may save the economy, enjoy the good times
Split up the US into territories and fuck all our creditors.
Still busy as a 1 armed wallpaper hanger. Economy is rockin in Maryland.
Columbka?
AACO
“Once in a 80 year opportunity”…..
Fuckin aye Charles, fuckin aye.
I don’t know, quite a few people were shattered by the 2009 recession. I recall a small family restaurant outside Cleveland, the owner told me she put an ad in the paper for part time dishwasher. The next morning she had nine people lined up outside the door, one was an engineer and one had worked for NASA, some were crying they were going to lose their house without the job. I don’t think she was quite okay after that. I know I’m nowhere near a personal financial recovery, I’m making less that half of what I did in 2008 and that’s after spending thousands to go back to school. The upside is I don’t have much left to lose anymore.
KaD,
Sorry to hear that, you put up a lot of good stuff.
Best to you!
Yeah, boy have I ever been there. I lost my job in 75 and after nine months without work I had to go back to school for a masters degree. I got to spend 50 cents any way I wanted on my birthday that year. It was tough times for sure. But going back to school was the best thing I ever did. It got me out of that dead end that I was in and opened up a whole new career. You too will make it through this. Don’t be afraid to invest in your own future.
Same with me Laid off in 1981 and went into business for myself Never looked back That said America today is much worse off than back then. iMO
Same here and it’s coming again only worse I fear
Our corporate and political culture are systemically and irredeemably corrupt, our popular culture is the very definition of moral, ethical, and social corruption. Self-delusion rules the day and degenerate lunacy stalks the land.
Debt and the financial slavery that comes with it hangs over the nation like a fat, black, lightening-streaked storm cloud pregnant with ruin. When the storm breaks, it will descend on the nation with a speed and viciousness that will change the country forever. It is nearly upon us and anyone with eyes to see and ears to hear knows it.
CHS’ “profoundly shattering recession” is, perhaps, an understatement of what is coming. Though a return to sanity sometimes requires a hard smack to the face, what awaits America is likely more akin to a severe beating with a pick handle. There will be blood and broken bones. The nation will be spitting out broken teeth for years to come. It will not be pretty. If we survive it, there can be a new beginning…If we survive it.
There is no way out, but through. Time is almost up.
“If we survive’, is right. This 4th Turning will be a Muther and it could end up very badly. The younger generations (born after 1965) support socialism at a much higher percentage than the older ones. That is not a good sign. We could be forced into a rerun of Russia 1917 but this time a lot of us won’t go without a fight. The problem with that is someone like China might think about attacking while we are fighting each other.
Unless it digitally solidifies “the top layer of financial and political parasites and predators that have corrupted our economy, our governance and our society”?
Then what?
And, somehow, methinks the “profoundly shattering recession” will, in actuality, be a blood-sucking, ass-fucking depression.
I totally agree with that. In fact, as some have said above, we have most likely been in the first stage of a depression for the last ten years. The only exception I take to PCR’s piece is that he assumes that the parasites will be the ones who suffer. I don’t think I can recall a single instance of the parasites suffering through a recession. It is we who do the suffering for them.
Recessions CAN present some great opportunities if you’ve been smart enough to prepare for them by getting out of debt and saving up cash and precious metals Trust me I know from 1992
I started in 1995… Saving those nickels and dimes eventually adds up.
Fast forward to today, when in what in retrospect may be seen as a watershed moment in exposing just how “political” the Federal Reserve always has been despite repeated lies by various officials claiming otherwise, none other than former Goldman chief economist and the former head of the NY Fed, Bill Dudley, after looking at the chart above and having realized that the Fed is underwriting Trump’s trade war, made a “modest proposal” in a Bloomberg op-ed in which he advised Powell to take a political stand against enabling Trump’s trade war, and potentially go so far as to push the economy into a recession to prevent Trump from getting reelected!
https://www.zerohedge.com/news/2019-08-27/bill-dudley-shocker-ex-ny-fed-president-urges-feds-powell-prevent-trump-re-election
This posting is as theoretical as Libertarianism. In reality, where the rubber meets the road, it never works as planned.
Already a large portion of the upcoming generations are embracing Socialism…and that is during the times of plenty. Do you really think they will abandon Socialism for true free market capitalism when the poo hits the fan? What about the Vote Harder crowd? If they are scared enough they are going to vote for whomever promises everything will be OK.
Reality is, it’s not going to be OK. Not Doom Porn bad but more like the real depression our grandparents lived through and survived. We are all going to lose wealth when that time comes but those who are resourceful and prepared, aka makers not takers, will come through just fine and prosper on the other side.
My experience is that a young person’s socialism lasts until they get a job and then their first paycheck. “What are all these deductions for? Why am I paying this much in Social Security, when it’s very unlikely to last until I need it? I’ll pay THIS MUCH every two weeks until the system collapses, then lose it all? What do you mean Congress can ADJUST my benefits down to zero whenever they want, that’s MY money in MY account, isn’t it? And all this other stuff: income tax withholding? Medicare? Unemployment insurance (depending on state)? State tax? LOCAL tax, just for living in Shitholetown? How much of this will I ever see again?”
All sorts of things that never mattered before suddenly matter when its YOUR money leaving YOUR pocket to benefit someone else, with no choice or negotiations possible. Lots of socialists lose it when they are FORCED to pay for the poor, the unfortunate, and the political machinery out of THEIR hard-earned wages. THEN they suddenly understand why THEIR parents raged against the (political) machines. And socialism loses its luster when they see how it actually works.