Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Silver Price Trend Forecast - 29th Jan 20
The "Everything Bubble" Just Burst. Here's Why - 29th Jan 20
Trump vs Cortez - Clash of the Titans - 29th Jan 20
Why Palladium Is on a Tear - 29th Jan 20
The Platinum Breakout & Bull Market of 2020 - 29th Jan 20
Coronavirus Infection Spread and Deaths Forecast 2020 - Video - 28th Jan 20
Is an Accommodative Fed Bullish for the Stock Market? - 28th Jan 20
Trillion-Dollar Stock Market Cap Club - 28th Jan 20
Corona Virus Wuhan Global Pandemic 2020 Deaths Forecast and Market Consequences - 28th Jan 20
Palladium Surges above $2,400. Is It Sustainable? - 27th Jan 20
THIS ONE THING Will Tell Us When the Bubble Economy Is Bursting… - 27th Jan 20
Stock Market, Gold Black Swan Event Begins - 27th Jan 20
This Will Signal A Massive Gold Stocks Rally - 27th Jan 20
US Presidential Cycle Stock Market Trend Forecast 2020 - 27th Jan 20
Stock Market Correction Review - 26th Jan 20
The Wuhan Wipeout – Could It Happen? - 26th Jan 20
JOHNSON & JOHNSON (JNJ) Big Pharama AI Mega-trend Investing 2020 - 25th Jan 20
Experts See Opportunity in Ratios of Gold to Silver and Platinum - 25th Jan 20
Gold/Silver Ratio, SPX, Yield Curve and a Story to Tell - 25th Jan 20
Germany Starts War on Gold  - 25th Jan 20
Gold Mining Stocks Valuations - 25th Jan 20
Three Upside and One Downside Risk for Gold - 25th Jan 20
A Lesson About Gold – How Bullish Can It Be? - 24th Jan 20
Stock Market January 2018 Repeats in 2020 – Yikes! - 24th Jan 20
Gold Report from the Two Besieged Cities - 24th Jan 20
Stock Market Elliott Waves Trend Forecast 2020 - Video - 24th Jan 20
AMD Multi-cores vs INTEL Turbo Cores - Best Gaming CPUs 2020 - 3900x, 3950x, 9900K, or 9900KS - 24th Jan 20
Choosing the Best Garage Floor Containment Mats - 23rd Jan 20
Understanding the Benefits of Cannabis Tea - 23rd Jan 20
The Next Catalyst for Gold - 23rd Jan 20
5 Cyber-security considerations for 2020 - 23rd Jan 20
Car insurance: what the latest modifications could mean for your premiums - 23rd Jan 20
Junior Gold Mining Stocks Setting Up For Another Rally - 22nd Jan 20
Debt the Only 'Bubble' That Counts, Buy Gold and Silver! - 22nd Jan 20
AMAZON (AMZN) - Primary AI Tech Stock Investing 2020 and Beyond - Video - 21st Jan 20
What Do Fresh U.S. Economic Reports Imply for Gold? - 21st Jan 20
Corporate Earnings Setup Rally To Stock Market Peak - 21st Jan 20
Gold Price Trend Forecast 2020 - Part1 - 21st Jan 20
How to Write a Good Finance College Essay  - 21st Jan 20
Risks to Global Economy is Balanced: Stock Market upside limited short term - 20th Jan 20
How Digital Technology is Changing the Sports Betting Industry - 20th Jan 20
Is CEOs Reputation Management Essential? All You Must Know - 20th Jan 20
APPLE (AAPL) AI Tech Stocks Investing 2020 - 20th Jan 20
FOMO or FOPA or Au? - 20th Jan 20
Stock Market SP500 Kitchin Cycle Review - 20th Jan 20
Why Intel i7-4790k Devils Canyon CPU is STILL GOOD in 2020! - 20th Jan 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

What to Expect in Our Next Recession/Depression?

Economics / Great Depression II Dec 19, 2019 - 02:48 PM GMT

By: Raymond_Matison

Economics

Over the last several years numerous highly respected money managers and other economic writers have been warning investors about a coming recession or depression.  However, few have been willing to describe as to what we may actually experience going through such an economic period. 

Of course it seems a daunting task to foresee the future.  To predict how technology may change our lives years from now is admittedly impossible, because such change seems to be taking place at an exponential rate, and we have little past experience as to how modern technology changes society, life style, or culture in a reliable way.  Projecting how we might live ten years in the future from an economic perspective is not that challenging – particularly since this rate of change is relatively slow and such events have been experienced in numerous countries over hundreds of years.  As a result, it is not impossible or even particularly difficult to foresee many of the important changes that we could expect to see from the onset of the next recession/depression.


Since the founding of the Federal Reserve System in 1913 our economy has been increasingly managed by its monetary policies.  Government’s fiscal policy management has also evolved with application of new or modern economic theories, and collection of economic statistics. Government sets down a list of targets and levels for achievement, and then charges agencies to manage for the attainment of such goals. When government agencies intervene to manage, manipulation may be the more accurate description of the form of “management”.  But manipulation is a form of management. 

Economists define a recession as two consecutive quarters where growth in the economy as measured by GDP is negative.  A depression is more severe than a recession, although its severity doesn’t have to increase, but it definitely lasts for a far longer time period.  These statistically based definitions may not be that helpful to non-economists who do not follow economic statistics.  Besides, such determinations can only be ascertained with certainty months after the fact, as all economic statistics are collected and analyzed with a significant time lag.  A simpler, more helpful and meaningful definition would be to say that recession/depression both are simply periods when the government’s desired policies for economic growth and civilian wellbeing are failing.  At such a time, government agencies as the Treasury Department, the Federal Reserve Bank, Financial Stability Oversight Council (Plunge Protection Team), are not able to manipulate that economy or financial markets to their desired goals, and the populace experiences job, income, debt repayment, retirement, and other financial difficulties.

Since the Breton Woods conference in 1944 setting the dollar as global reserve currency, there have been ten business cycles, wherein the average recession has lasted ten months.  If one were fortunate enough to have a job during a recession, not having been laid off, that person may go through recession without even realizing that he was in one.  It is only those unfortunate people who have lost their job and income who experience the real tragedy of a recession. It is not so with a depression.  Depression may last for years, and the economic contraction is far more severe affecting a large percentage of the population. In the one acknowledged depression of the last century in the 1930s, unemployment rates at times exceeded 30%, and although the depression lasted for about a decade, it took over thirty years for the nominal stock market prices to rise to their pre-depression levels.

Means to peek into the future

To prognosticate our economic future, first we need to identify what are the present goals of our government and its agencies from a monetary, fiscal, and geopolitical policy perspective.  Then we need to identify and understand what would be the consequences on us of government failing to manipulate the economy towards its stated goals.  So, what exactly have been some of the well-advertised or recognized economic goals of our government and its agencies over the last several years?

  1. To keep interest rates low, (in order to maintain the cost of servicing our national debt low and sustainable)
  2. To weaken the dollar, (such that it promotes increased exports, and reduces the real cost of our national debt)
  3. To accelerate product price increases to at least 2%, (such that our economy as measured by GDP can be seen to be growing adequately)
  4. To keep unemployment low, (such that citizens can be kept off unemployment benefits, welfare, and have income to pay federal income taxes)
  5. Keep stock, bond, and derivative markets from declining or crashing, (in order to promote a faulty trickle-down economic theory, which increases income disparity)
  6. To keep the price of gold depressed, (a rising price undermines belief in the soundness of our fiat dollar currency)
  7. Maintain global economic and geopolitical control or leadership. (Elites will oppose any challengers as they believe it to be singularly our “manifest destiny)

Low interest rates

Interest rates have been declining since the early 1980s, for over thirty years.  Such rates were near zero five years ago, when the FED in 2016 started to raise them.  This brought about market instability and criticism from our President such that the small periodic interest rate rises by the FED have now been arrested and are being reversed starting mid-year 2019.

Interest on our national debt for the 2020 fiscal year is budgeted at $479 billion.
A normalization of interest rates to historic levels would raise the interest cost of servicing that debt more than double and likely exceed $1 trillion.  This would be very negative for the economy and it would increase future budget deficits requiring increasing debt which decreases the purchasing value of our fiat currency.

In a future recession/depression the historical management of low interest rates by the Federal Reserve Bank would fail – that is, interest rates would rise.  The FED would not be able to control interest rates which would seek a higher level based on global risk assessment - perhaps high enough to foreclose further corporate economic growth or development.  In a significantly higher interest rate scenario a multitude of industries would be adversely affected including building trades, housing, and all capital intensive industries. Individuals and families would not be able to obtain debt or credit, and find it increasingly difficult to service existing indebtedness leading to possible financial default.  Government would also find raising debt levels problematic.

Weakening the dollar

President Trump has criticized Chairman Powell of the FED that our dollar is too strong relative to other foreign currencies.  A higher-valued currency makes it more expensive for foreigners to buy American made products.  Contrariwise, if the dollar is weaker, or cheaper, when compared to other currencies, our exports rise improving our international trade account.

Unfortunately, improving export results by weakening one’s currency is known by all nations, and as a result all nations are competing from time to time by weakening their own currencies.  In this sequential weakening of foreign currencies, no one wins in the long term – but it creates what has been called “a race to the bottom” – where all currencies are weakened.

Since our dollar is the reserve currency of the world, it is the choice currency for international investors in which to seek refuge when various economic headwinds threaten their currencies.  As a result global threats make the dollar stronger.  However, domestic policy failures, in addition to foreigners gradually decreasing their preference for U.S. currency due to devaluation risk, will ultimately lead the dollar to become weaker – that is, far weaker than our policy makers prefer.  It is that time when the risk of continued dollar weakening would create a loss of confidence in the dollar, which in turn could precipitate major reduction in the purchasing value of our currency.

In a future recession/depression, a major weakening of the dollar would make all goods far more expensive to consumers, particularly imported goods.  Accordingly, weaker dollars will not be able to help support the “consumer-driven” economy, and already fragile economic growth would be further diminished.
 
Accelerate price increases

The manipulators of our economy would like to see product prices increased by at least 2% per year.  That is an unsuspectingly a high rate of inflation, as one dollar’s purchasing value declines to just twelve cents over one’s lifetime of 72 years. However, a 2% rate of price inflation would improve an important statistical measurement, that of GDP rising nominally by 2% or more. This price increase has been a stated goal of the FED, one which they have failed so far to achieve in the last half dozen years. 

The economic definition of inflation is that of an increase in our money supply. In this regard the FED has far exceeded the 2% target, but it has not resulted in commensurate price increases.  The reason for this failure is that the FED has purposefully kept this increase in the money supply contained and restricted to that of the nation’s banks which in turn have funneled it to the investment markets, or deposited with the Federal Reserve Bank rather than general bank funds lent to individuals or business.  Therefore, financial markets are booming while consumer prices have remained constrained.

In a recession/depression it is likely that prices may actually initially decline further because a slowing economy may reduce jobs and incomes such that aggregate consumer purchasing power is reduced, prompting business to reduce prices as a means to increase sales. However, attempts to stimulate consumers with additional money printing will eventually devalue the money and increase prices by unexpectedly and uncontrollably large amounts.
 
Thus, as our economic managers initially fail to increase prices, they will take actions which will amplify both inflation and price increases by dramatic amounts.  In our coming recession/depression the value of our money will decrease, and prices of products will accelerate to troublesome levels.  Hence consumers will be negatively affected by price increases, and income of those employed will purchase fewer goods, slowing overall economic growth.
 
Keep unemployment low

Our President has taken great pride in the fact that the overall rate of unemployment is low, and that its individual racial and ethnic components are historically low.  When the rate of unemployment starts to rise, and the number of new jobs decline, that will be the signal that managers of our economy are failing.  They will not be able to keep unemployment low regardless of monetary or fiscal policy initiatives. 

Thus, when the next recession/depression is upon us, the rate of unemployment will rise to uncomfortable levels – impacting severely those who were previously working but are now unemployed.  They will have lost their jobs, incomes, livelihood, and become dependent on government – which itself is losing the ability to help. 

Our high technology economy with modern and efficient production facilities, increased robotics, and use of artificial intelligence already produces all the goods and agricultural products that advanced societies need – with a four day work week.  No, not the four day, ten hour day version, but simply a four eight hour work week.  That is the way to keep everyone employed, and maintain their skills.  Presently that work week plan is not being considered by our capitalist corporatists, as it does not seem to squeeze enough out of people’s labor when compared to desired corporate profits.  This view is very shortsighted, and an important reason why capitalism is failing, while socialism is in ascendancy.

In our future recession/depression, as the confluence of high interest rates, reduced value of our fiat currency, rapidly increasing prices of goods and services, and rising unemployment reinforce each other, the results on the nation and its individual citizens will be pronounced and terrible.  Unfortunately when this cycle gains momentum, it will remain dominant for a number of years. 

Financial markets

Arguably, even as the most advanced economy of the world, America has had a great and rising income disparity between the rich and poor now for over five decades.  The wealthy own stocks and bonds, while the middle and working class and the rest have an overabundance of debt, loans, and constricting credit – the servicing and repayment of which reduces their ability to save, which ultimately goes as income or capital gains to that 0.1% of the population.

Our financial markets do not reflect and have not been reflecting the actual dynamics of our economy, but rather the pre-announced actions of the FED’s monetary policy.  Fundamental indicators of the status of our economy have been upstaged by bank bailouts, Plunge Protection Team, actions of the Open Market Committee of the FED, declining interest rates, quantitative easing, repo markets access, forward guidance, and other false market stimulants.
 
All financial markets, stocks, bonds, financial futures have been manipulated to extraordinary bubbles such that they will burst with a vengeance and will destroy with equanimity all fiat based financial fortunes, and modest savings alike.  Multi-year market declines together with a long recovery period may easily span more than a decade. 

We are at the precipice of such a decline, which will continue to be fought off by all the awesome power available to oligarchs who control corporate America, bankers who control actions of the FED, and elites in politics and government who control fiscal policy, as well as their counterparts in the developed world.  Given global similarities in central bank policies, and their close interconnectedness, their common demise is essentially guaranteed.  That looks to be more serious than a global recession.

In their view, the financial market bubble must be maintained at all costs, because its bursting will unleash multi-year pain and suffering to the citizenry of such magnitude that it will open floodgates of anger, hate and revulsion of those in control to cause them fear for their own lives.  Market bubbles will either burst or deflate significantly.

One important element of people’s wellbeing has not been taken into account here, because it has not been expressed through government or central banking as a goal.  The middle and lower class have various forms of government mandated or corporate retirement programs which are invested in our financial markets.  Their present funding is inadequate, and a market decline would destroy these pensions. See: Market Decline Will Lead to Pension Collapse, USD Devaluation, and NWO.  http://www.marketoracle.co.uk/Article65715.html

In a recession/depression this universally acknowledged financial mega-bubble will burst or deflate dramatically.  But it will not just deflate to the norm, but rather its momentum will reduce prices far below the norm before it tends to readjust to a justifiable valuation.  This period and its pricing will be long and painful to all.

Depressing the price of gold

Coal miners used to take canaries down into coal mining shafts to test for the presence of carbon monoxide, a deadly gas to humans.  Such poisoned air killed the canary early, but saved many coal miner’s lives.  Durable, indestructible gold is the “canary” of a poisoned economic system.  When the price of gold rises in terms of fiat currency, it is a signal that the systemic manipulations in currency and economy are becoming poisoned.  This is the important reason why the price of gold has been, and will continue to be suppressed – for as long as it is possible by the systemic manipulators.  The illusion must be maintained that our currency is not poisoned, and the system stable.

For those interested in finding supporting information on this suppression activity can easily find it with a few clicks on their computer search engines.  Suffice it to say here, that banks have paid criminal fines, some traders have been convicted, but the suppression of gold’s price is so critical to our fiat currency creation system that it will continue until the system blows up, or government itself reprices gold as it did in 1933 and 1971.  As a result, earnest calls by traders that gold is ready to break out should always be tempered with the knowledge that banks and government are active in its price suppression.

Gold is the antidote to our poisoned economic environment.  Central banks have disparaged gold for decades, yet they themselves are now buying it, as it is the ultimate bank reserve asset. Foreign countries are buying large quantities of gold, and taking direct possession of it, rather than entrusting it to some foreign, single storage facility.

In a future recession/depression the amount of fiat, paper (or digital) currency will have expanded multiple times.  The value of it, and its ability to purchase goods or services, will necessarily decline by inverse proportion.  Some ownership of gold or silver by individuals for their financial wellbeing is about as important as it is for a person allergic to bee stings to have an epinephrine auto-injector, or to have an antidote for poisonous snake bites in their medicine cabinet.  Their actual use may be infrequent, but their immediate availability invaluable, and possibly life-saving.

Maintain global economic and political hegemony

After WWII, the United States was acknowledged as having the most powerful military and the strongest economy in the world.  Because of its strong stand against communism and socialism, it also was admired for its moral righteousness in defending self-determination and liberty.  Steadfast around the globe, it would covertly replace socialist foreign leaders not to its liking.

Ultimately military wars in countries such as Vietnam, Afghanistan, Iraq, Kosovo, Serbia, and Syria, as well as financial or political confrontations in in countries such as Egypt, Libya, Chile, Nicaragua, Ukraine, Venezuela, and Bolivia came to represent more than just replacing suspected leftist leaders.  It came to represent that America had abandoned America’s founding principles of non-intervention, and instead embraced a later faulty principle of “manifest destiny”.      

Smaller countries did not want to be vassal states to the U.S. but sovereign and independent in action. Thus over the last several decades this increasing resistance to America’s hegemony is being increasingly challenged by coalescing countries around the globe.  They seek freedom from U.S. control, and dollar dominance.
 
In the next recession/depression America’s grip on global hegemony will be visibly slipping, with a multipolar global decision-making process ascending.  The dollar’s dominance as the global reserve currency will continue to recede, the consequence of which will be a much weaker dollar, increased loss of purchasing value, and growing and national debt issues.

Coherent picture of our near-term future
Having considered some important goals of our leaders and their institutions, their implementation and success or lack thereof, we can now consider their combined effect on our collective near-term future.  We can see the future!  High interest rates, depreciation of the currency, increasing product prices, increasing unemployment, dramatically declining financial markets, increase in the price of gold, and America’s further displacement from its economic and political unipolar hegemonic position is in our near-term future!

Manipulation of monetary policy has been going for decades, which has turned increasingly strident in the last twenty years.  In the last several years this destruction has been abetted by fiscal policy – that is, running large and increasing budget deficits as a means to manipulate business activity.  These budget deficits have and will continue to rapidly increase our national debt, increase its servicing costs, require additional money expansion by the FED, which will more rapidly debauch the currency.  Now that monetary and fiscal policies both are firing their heavy artillery, the question of whether we are to expect a recession or a depression is also answered. 

The difference between recession and depression can be distinguished by severity and duration.  A short and mild period of preceding economic manipulation and distortion leads to a recession, which similarly requires a relatively short period for recovery.  Contrariwise, a long and persistent period of manipulative money expansion, credit escalation, interest rate suppression, income disparity, decade-long national debt bloating, and decline in the purchasing power of the dollar all lead to the longer and more severe alternative.   So this is where we are, and where we are heading.
Avoiding bias in predictions

When one makes severe predictions of recession or depression, it is extremely important to not be influenced or blinded by some bias.  We all have bias and blind spots.  For example, those in the hundreds of millions asset class and beyond can only conclude that all things economic are great – for that is their experience.  Medical professionals who have reliable, good-paying but demanding jobs are likely to see our economy as OK.   Millions of clerical employees whose earnings are not keeping track with mounting expenditures likely see their lives as challenging.  Persons struggling with their auto loan taken out to pay for the used car needed to get to work at a gas station or grocery store understand that their job is always at risk of termination, and life is a continuing struggle, for they do not have enough money to pay for their next unexpected expenditure or medical emergency.  Those who have not had an income-producing job for a while are dependent with diminishing hope of a better future.

To avoid or at least reduce the risk of bias we must revert to the impersonal statistical data collected by government and other agencies established for that purpose.  While the government and media will crow the positive economic and business news, we can reduce our own bias by asking a number of questions: 1) is it true that interest rates are at or near historic lows which deprive savers from earning interest, 2) is it true that the purchasing value of our dollar has declined substantially (remember that a 1971 dollar has the purchasing power of just $0.12 today), 3) is it true that Social security and pension funds are substantially underfunded which will not be able to deliver on their promises, 4) is it true that an income disparity has suppressed common worker earnings - now for almost five decades, 5) is it true that financial markets by any rational measure are drastically overpriced, and risk major value reappraisal, 6) is it true that despite claims about a strong market and economy, the FED has been using persistent stopgap financial measures and practicing crisis monetary policy over the last decade,  7) is it not true that the FED just announced a one-half trillion dollar liquidity injection program for banks to be implemented over the next month to avert what they define as a potential “year-end repo problem”, 8) is it true that national economies in Europe are nearing recession while China’s, India’s, and other emerging country growth are rapidly decelerating, 9) is it true that our global economic, banking, and trading system today is more interconnected than ever, 10) is it true that foreign countries are reducing their dependence on the dollar currency seeking new trade alliances and creating new payment systems, 11) is it true that America’s global hegemony is being challenged by counties seeking their independent course of action, rather than simply being dictated to by the U.S.?

If the above premises are true, then our personal economic bias is low, and our prediction objective.  While there are many other cogent questions to ask which will affect our economy and our financial markets over the next several years, the preceding questions suffice to inform the already long-trended path which we have been on, which will lead us to experience the future that our leaders by their past actions have laid out for us.  In trying to evaluate our future without bias, it is also important also to keep in mind by what rules our political leaders operate.  In a moment of truth, during the Eurozone debt crisis Mr. Jean-Claude Juncker, the European Commission president stated “When it becomes serious, you have to lie”.  It is precisely because many of our real economic, financial, debt, and societal changes have been in place for a long number of years, and have been obscured by politicians, government officials and media, that we should surmise that we are to experience far more than a simple recession.  Can that future evolve without the disruptions implied?  He real answer is no. But, what do you think?  How much longer can the manipulators maintain the delusion?

Raymond Matison
Mr. Matison was an Institutional Investor magazine top ten financial analyst of the insurance industry, founded Kidder Peabody’s investment banking activities in the insurance industry, and was a Director, Investment Banking in Merrill Lynch Capital Markets.   He can be e-mailed at rmatison@msn.com

Copyright © 2019 Raymond Matison - All Rights Reserved


Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilizing methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules