Some readers may recall this original article – a “thought experiment”, really – regarding various preparedness scenarios facing us at the time. Check it out for reference. The following reflects much-needed updated thoughts on the subject. – HT
Updated Thoughts – as of November 2012
Probably ought to have considered doing annual updates to this series. So anyway, here we are two years further down the road. What’s happened, what’s still happening, and what’s likely to happen?
What’s happened: (1) A fully developed tragic/comic game of “kick the can”, in which the too-big-to-fail country’s and banks have continued to get lots of more-or-less free monetary assistance for their help propping of the appearance of stability in the sovereign debt market. (2) The continuing accrual of record-setting levels of new debt, nearly $2.5 trillion (in two years) in the US alone along with the continued, unimpeded, growth of assorted unfunded liabilities several orders of magnitude greater. (3) Supposed marginal improvement in unemployment, largely garnered on the basis of more and more folks simply leaving the workforce, often as not entering the disabled workforce, or accepting part-time jobs. (4) Continued decline in household income. (5) Continued increase in core inflation for food, energy, and fuel. (7) Much touted improvement in home values, generally limited to lower tier properties being purchased by investors for rental purposes. (8) Increasing political unrest and military action in Europe and the Middle East. (9) Surprising resilience in corporate earnings, largely achieved through cost-cutting, downsizing, etc.
What’s Happening Now: (1) More of the same, only “doubled down”, as evidenced in the just completed election. This was an affirmation not of the Obama regime’s actual successes (which are rather few), but of the desperation of that growing class of people increasingly dependent on government support. As it was in FDR’s day, hungry people don’t vote for a sustainable future, they vote for their next meal. Elsewhere there is growing evidence that (2) corporate earnings have about peaked, (3) a confrontation between Israel and Iran may now be increasingly imminent and unavoidable, (4) US energy policy won’t be substantially changed, much less improved, (5) US debt will continue to accrue more-or-less unabated, and (6) Ben Bernanke will continue to head the Fed.
What’s Likely To Happen?
In the context of the original “thought experiment”, nothing has markedly changed my views on the road ahead. On the one hand, it’s reasonable to observe that the expedient default “extend and pretend” policies have, in fact, materially altered the rate of change, if only at the expense of casting the destination in slow-curing concrete.
In other words, having covered my bets with a “convergence” call in the prior forecast, I get to also go with more of the same, with heavy weighting on the “collapse”, “conflict” and “control” factors.
Collapse: In my opinion, economic collapse is now all the more likely. It’s (mostly) just math, after all, with confidence sprinkles. This latest election was won largely on the basis of promises that, patently, unarguably, cannot be kept. (For what it’s worth, it was also lost on the basis of somewhat less of the same sort of promises, but now, that’s water over the dam.)
More critically, raising taxes will reduce both growth and, in the end, revenue. Making the rich poorer will not, in the end, make anyone else, especially the poor, the least bit richer. Limiting our growth prospects, rather, only increases the likelihood of still more deficit spending and correspondingly necessary currency manipulation. Regardless of liberal redistribution schemes, the poorest among us will see whatever benefits they receive swept away through core inflation.
We’re sitting in the midst of a demographic/debt time-bomb that only worsens over the next decade. Without growth, we don’t have a prayer. While the Fed will continue to adroitly manipulate interest rates, to the best of their ability, we’re in the middle of a lethal game of currency/debt chicken with Europe and, ultimately, China. Energy markets, we might add, will become an increasing problem…but, perhaps, first for Europe. In any scenario I’m able to imagine, the downward real economic growth spiral can only be met with increasingly opaque and desperate currency manipulation. This path never, ever, ever ends well.
Conflict: As noted above, Israel and Iran take top honors on this stage and, for what it’s worth, is more-or-less baked in the cake, as it were. Still, they’re not the only game in town and, speaking historically, all of the above noted economic issues typically lead to other forms of global conflict, ranging from trade wars to real wars. Throw in a few critical resource issues (food and energy) and you’ve got a real mess on your hands. Along with quite a few noted experts in foreign policy, I’m completely mystified by Obama’s mysterious handling of all things Muslim and Middle Eastern, moves that would seem, in the long run, to favor (intentionally or not) theocratic-fundamentalist regimes. We might all wait, with bated breath, to discover the real meaning of his “having more flexibility” with Putin after the election. Increasing budgetary constraints, notably on “discretionary” (i.e. defense) spending here in the US might also have a bearing on the outcome.
Control: What can you say about this? We’re living in a world where food stamps and other means-tested entitlements, legalized marijuana, gay marriage, domestic surveillance & drone deployment, along with government control of the private economy (including the housing market) are ascendant. Counterbalanced with increased regulation and/or taxation in virtually every corner of the erstwhile “land of the free”, from tobacco to sodas, from work licenses to business taxes, from automobile fuel efficiency standards to travel restrictions, from homeland security measures to diminishing private property rights, it’s rather hard to find less control, that is, unless you want to get stoned and join the ranks of the “disabled”….or, as they say in Texas Hold ‘Em, go “all in”.