“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.
Funnily, the reference to the Black Death makes me hopeful. Although the society of that time did collapse, civilization as a whole did not. For some, it will mean suffering and death. For others, opportunity to improve their lives.
Same now. The old mega-nations – China, India, and the EU – have experienced disruption. India, being less vulnerable to panic at the sight of people dropping dead in the streets, is poised to perform better than China, which has been in a poorly managed and precarious situation for some time (high public debt load, an ogliarchy in charge of the public economy, and too many young men, with no hope of finding a mate).
The EU is a hot mess. I expect it to deteriorate into open chaos relatively soon.
And the USA? IF Trump is re-elected, we may yet jump-start the economy, and bounce back from the edge of the volcano.
Otherwise? CW 2.0, war in the streets, and a LONG time of poverty, control by warlords (Chicago and Detroit may not notice the difference), coupled with complete meltdown of retirement and IRA funds. I’m 69 (no jokes, please) and would likely have to move in with family.
CW 2.0 is on the planner for next year, no matter who gets elected.
Definition of optimist : They’ll wait til January.
It didn’t collapse, but the feudal system couldn’t survive the labor imbalance. How will our system fail?
What is really weird is that so far most people are just stoically going on like nothing is happening. Tens of millions of people are out of work but as long as they have entertainment and free “money” flowing into their bank accounts to pay for stuff, they seem content. 30 years ago there would have been riots in the streets by real people instead of soyboys LARPing as revolutionaries but today, nothing.
At some point this will break. People aren’t made to sit inside watching Netflix all day. The population is growing more unstable each passing hour and the millions of already unstable people are starting to snap already. Add in skyrocketing violent crime and an upcoming election and our forecasts of widespread collapse at the end of the decade seem incredibly optimistic.
The lending thing is ominous, I was reading about it last night ( https://www.zerohedge.com/markets/its-now-virtually-impossible-get-bank-loan-lending-standards-soar ). I used to work in banking and given the new credit standards I wouldn’t have much to do as a bank manager these days. Back in the last collapse banks quietly stopped lending, especially commercial lending, so our commercial lenders would come in, grab some coffee and read the WSJ in the offices all day until it was time to go home. I may have to break my own rule and read Vox Day’s take to see what he has to say.
Whatever happens, things are coming to a head.
I didn’t like that either even though I’m not a big fan of debt. In 2008, the behavior was similar, and it was in 2008-2009 I changed my perspective and learned about Zerohedge and others.
Also not a big conspiracy person, but I think how interesting it is that so many states are closed for business, and now access to credit has been largely cut off 90 or so days before the election. It’s almost as though some very wealthy people want the hard left to win.
The population is growing more unstable each passing hour and the millions of already unstable people are starting to snap
My husband told me today, that he read about a woman who was irritated by the slow service at a fast food joint, so she went home and paid someone to go back to the place and shoot the guy behind the counter.
People are being driven nuts.
That’s a great link. And Netflix is in big debt, but I think they’re far more stable than Disney is at this point.
Economically speaking, it’s sure been fun buying mountains of cheap crap made by overseas wage slaves making pennies instead of American Minimum Wage, all fueled by the worldwide petrodollar ponzi scam started by Nixon in the 1970s. But you either believe in math or you believe in magic. If you believe in math, you know someday it’s all gotta end. Someday is here.
https://www.investopedia.com/articles/forex/072915/how-petrodollars-affect-us-dollar.asp
https://www.investopedia.com/financial-edge/1011/how-the-triffin-dilemma-affects-currencies.aspx
For all his failings, Trump is the personification of those who want to Stop The Globalists and so started a trade war with China to try and eject them from their deeply embedded role in our economy. What choice did he/we have? It’s “damned if you do / damned if you don’t” time. Starting a trade war with China at this late date is like trying a Hollywood Hail Mary To Save The Day by attempting to quote “blow it the f*ck out into space”…
…only the American financial situation is so bad that we never even had a spacesuit to put on during the attempt. Oops.
Of course, this latest blood and leeches attempt to right our economy is largely in the rear view mirror and overwhelmed by COVID-19 and BLM. Regarding China, we may sadly still get the chance to “nuke them from orbit as the only way to be sure…”
Closing fun fact – The United States printed more money in June than in the first two centuries after its founding. Last month the U.S. budget deficit — $864 billion — was larger than the total debt incurred from 1776 through the end of 1979. This is all about epic levels of currency debasement. What a great time to be alive! But so sad that we have to depend on the Russians to report the truth to we Americans…
https://www.rt.com/business/496719-us-economy-dollar-falling/
The only chart that matters:
https://www.marketwatch.com/investing/index/dxy/charts
A brief aside on a different tangent. Everybody needs to be aware of the concept of “phoney war”. There is a growing belief among economic commentators that we are in just such a blissfully unaware state regarding future storms.
When people have been talking for months about V-shaped recoveries, and suddenly the Fed announces that a third of the economy / GDP has just vaporized…. THAT’S when you start wondering if you have been in the phoney war stage.
https://en.wikipedia.org/wiki/Phoney_War
What keeps popping up as I think about this is that I have zero confidence in any of the numbers. Trying to quantify something like a trillion dollar GDP made up of billions of individual transactions, how accurate is that? Or unemployment figures. I probably show as unemployed because I don’t have regular wages but I work a ton. It seems like a completely made up figure to give economists something to talk about on talk shows. Really, what can you trust from government agencies. We can already tell they are fudging the numbers on coronavirus deaths, so what is the real number?
Yes, and the stock market is the biggest reflection of that . . .
Yup, money printer go brrrrrr.
But you can’t print gold or silver . . . .
You can’t print gold or silver… but you can have it confiscated by the State, or stolen by thieves (but I repeat myself). There is an important difference between the two, though. The State may compensate you with fiat as it seizes your metal, while thieves will be happy to take any loose fiat you have lying around, and possible your life as well. Gold is fine, though, for people who can keep it in a Fort and have an army to defend it.
The 33% reduction in GDP is on an annualized rate. We actually only lost 12% of the economy last quarter.
But the governors are working hard to make the rest of the year look just as good!
I figured it based on that rate, but applied it to the whole six months.
This deflation is pretty hard core. GDP way down. United Soviet Republic largely shut down, no haircuts (grrrr). Velocity of money (how quickly money moves from one set of hands to another) is at the lowest point seen since the 1960s when the Fed started keeping good statistics. Doesn’t do any good to print money if it’s going to sit in one’s closet.
There is a major wealth gap problem because the middle class have been eviscerated by the outsourcing of manufacturing and labor. The richest 10% cannot consume enough to keep the other 90% going. A lot of the printed money disappears into the 10%’s closet and stops circulating.
Gold goes up for many reasons. Deflation is one. Why? Because when the return on “safe assets” is essentially 0%, might as well put money into the scarce asset with no return instead of the “safe assets” that can be printed at will.
Gold also goes up because of uncertainty. Our collective crazy act is being watched around the world. The US is clearly unstable and the odds of CW 2.0 are pretty good. Our best shot at avoiding a cataclysm is a massively lopsided election victory one way or another to avoid a disaster and the odds of this are low.
I agree. Like McChuck said, CW2.0 is on the table regardless of who wins. What does that make all those $100 bills in Iran worth?
When the crash hits and hyper-infation sets in, expected to be about next Winter, the Schumer Will Hit The Fan.
Yes, putting many back to work will help delay the crash, but there is no way to avoid a crash without rapidly reducing the debt owed by the Treasury on its outstanding T-Bills.
Maybe Trump will get re-elected and pull a sizeable number of Repubs into the Congress and can begin to re-write the onerous programs and socialist handouts
But I believe it will be too late…… it is already too late.
See this article by Fred Reed, a retired Washy DC newspaper reporter who does not particularly care for Trump but likes his effect on business: https://www.unz.com/freed/its-gonna-blow-be-a-miracle-if-it-dont/
When the crash hits and hyper-infation sets in, expected to be about next Winter, the Schumer Will Hit The Fan.
Yes, putting many back to work will help delay the crash, but there is no way to avoid a crash without rapidly reducing the debt owed by the Treasury on its outstanding T-Bills.
Maybe Trump will get re-elected and pull a sizeable number of Repubs into the Congress and can begin to re-write the onerous programs and socialist handouts
But I believe it will be too late…… it is already too late.
See this article by Fred Reed, a retired Washy DC newspaper reporter who does not particularly care for Trump but likes his effect on business: https://www.unz.com/freed/its-gonna-blow-be-a-miracle-if-it-dont/
Hold on there, 173rd. This is a family blog, so be more careful about dropping “the S-word”! I prefer the phrase “when the manure hits the spreader”, because that’s something that I’ve actually seen. When a manure-spreader is in action, we’re talking “tons per acre”, and it covers everything that’s not quick enough to see it coming and get out of the way.
https://www.totalrentals.ca/img/hagedoorn-manure-spreader.jpg
How well would that work on big city streets? Asking for a friend.
Thanks for the pointer to the Fred Reed article. It’s thought-provoking, but I think there’s more insight to be gained from some of the extended responses to it. Years ago, I read that an uprising in the Black community is unlikely, because any time a young Black man looks likely to make trouble for the community, a dozen old Black men would calm him down. They know how badly outnumbered they are. But maybe those wise old men are no longer with us.
The older black men of today were the black Panthers and Crips/Bloods from decades past. With the police standing down, there is no one left to keep young blacks in check and they are reverting back to the natural state.
Well that’s awkward:
https://www.cdc.gov/plague/images/CasesbyYear_barchart_2000-2018.jpg
Heh!