“Mommy, why are you making civilization collapse?” – Futurama
HC pointed out this picture. How could I resist?
Last week it was announced that the Gross Domestic Product (GDP) of the United States collapsed. If you’re not aware, GDP is simply a measure of how much PEZ® is produced in the economy of a country. Okay, it’s not just PEZ©, other (lesser) goods and services are included, too. Call it a rough guess at how well the economic machine in the country is working.
“Collapse” is a word that gets overused by the news media. They want to pump up your fear so you’ll click on their article and give them $0.000043 per click. They don’t make much money at $0.000043 per click, so they need a *lot* of clicks (87,209) to pay for their daily soy latte. The best way to get that many clicks? Either scare people, or provide nudity. Or, if you’re Kamala Harris, do both at the same time.
In this case, however, the use of the term “collapse” is entirely appropriate when 32.9% of the economy disappears. And that dismal number is after an unprecedented borrowing and spending. The US had a GDP of about $20 trillion in 2018. This year, so far, there has been about $5 trillion in extra spending and balance sheet expansion.
So, $10 trillion in half a year, reduced by the 32.9% lowering in GDP takes us to $7 trillion or so. That’s how big they’re saying the economy is. That’s bad. But if you subtract out the $2 trillion in “stimulus” funds that takes you down to $5 trillion.
Borrow a million dollars, and the bank owns you. Borrow a billion dollars, and you own the bank. Borrow $26.6 trillion dollars? You are the United States.
Even if NONE of the Federal Reserve’s® balance sheet where they sprinkled money into the stock market got added to the GDP figure, we’re talking a 50% reduction in the economy in real terms.
50%.
Half.
The economy isn’t an economy at this point – it’s a smoking crater. Well, it would be a smoking crater if there was enough money to pay for the smoke. Yet the Fed™ had pumped enough cash into the stock market to keep it at near record highs. Me? I avoided that and bought a warehouse full of chicken soup stock cubes. Now I’m a bouillonaire.
The solution to our economic crisis from the Left is to keep sending checks to everyone. As I’ve mentioned before, that’s the Weimar Republic mentality. “We can print money and send it to people, that’s all we need to have a functioning economy.” It’s the post-economy economy. All we have to do is make PowerPoints® for each other and wait for our Leftybux payments and then we can go down to the grocery store where the food mysteriously appears each month.
Wish someone would have mentioned that.
If we were going to just send money to a few people to pay for their rent, it would probably work out okay. We’ve been printing money for years and giving welfare based on debt for fifty years. Heck, hundreds of people in town are getting unemployment right now, I even know some. I guess I finally have some friends with benefits. But that’s not good for the economy.
The result is stunningly predictable. As I said before, we’d see deflation, and then inflation. Deflation isn’t universal. Some parts of the economy are working, some aren’t. Inflation has shown up first in food and things people need. Eventually, even toys, say balloons, will show inflation. Inflation will show up later everywhere.
But not yet.
What is showing up is that people in the rest of the world are starting to do the same math that I did up above. How many years can a country’s primary production be debt and expect the rest of the world to ignore that? Well, in the last six months, gold is up 30% and silver is up nearly 50%. Part of that is to be expected – uncertainty driver up precious metal prices.
The Mrs. was yelling at me last night. Thank heavens! That reminded me we were out of duct tape.
In the last two months, however, the United States dollar has dropped by 5% versus a basket of currencies called the USD index. That means that people are liking the USD less, because they see the weakening of the economy. It’s bad enough that my tattoo of $100 bills on my hips is now a waist of money.
It’s tempting to think that all the stuff is there to restart the economy. And in many cases it is just sitting there. The restaurant that closed down is still physically there. The stoves and ovens are there. The refrigerator is still there. But the need for it isn’t there. People have less money to go out and eat, so there’s less of a need for restaurants. Heck, even our best fancy restaurant with a pork theme had to close. I’ll miss Swine Dining.
A growing economy is a virtuous cycle – new business spawns new business. A shrinking economy is a vicious cycle – each job lost at that restaurant has ripples further down the economic chain – the waitress can’t make rent if she doesn’t have a job that generates tips.
Banks have stopped (in many cases) loaning money. Why loan cash you have into an environment where interest rates are at 3.3% in an uncertain economy? Vox Day pointed out this disturbing story showing a collapse in bank lending (LINK).
Yes, collapse is the right word. I’ve long been on record that the economic system of debt-based welfare could only last for a certain amount of time. I had picked 2026 or 2027 before it folded up the tent, and given that markets can stay irrational for a long time due to inertia, pushing into the 2030’s was reasonable.
I had an irrational fear of a speed bump. But I’m getting over it.
Watching a complex system fail always provides unexpected consequences. The system has been headed toward failure for years. Without the extraordinary efforts of 2008, it probably would have collapsed then. I think it was far closer to collapse than most people were aware.
The downside of putting off a system failure is that the pressure from the underlying causes keeps building up. When it inevitably finally does fail, it fails spectacularly, and much worse than if failure had happened earlier. When huge failures happen, sometimes civilization doesn’t recover for hundreds of years.
We have seen, again and again, the concept of systems becoming irrelevant. Sometimes, it’s technology that makes them irrelevant the way that the combination of the Internet and Wal-Mart® has destroyed tens of thousands of small stores. The Black Death altered the economic balance of Europe, and destroyed feudalism while kick-starting the Renaissance.
I hope Covid-20 is different than Covid-19. I hate plague-rism.
What will our current crisis lead to? The end of Globalism? A world without debt? Free PEZ?
It’s hard to say. But the birth of any new civilization is painful.
Not as painful as having to admit they want a soy latte, but painful.