Hello Again! Now Where Do We Go From Here?
Its been quite a while since I posted my thoughts on the economy.
So long, that there is a good chance that some percentage of my original PaperEconomy blog readers from back in 2006 are already dead!
Oh well... as Keynes noted "In the long run we are all dead" so why not try to read the macroeconomic tea leaves and attempt to discern some "signal" from the "noise" of this nutty world while we wait out the inevitable cold hand of the Reaper?
First, I thought I might take a moment to recap a bit...
I started this PaperEconomy back in 2006 in a fit of therapeutic rage (...something like scream therapy but with a keyboard and on the web) while working through the frustrations of my own housing situation and the bubbly times we were all living through back then.
It was very obvious to me in 2005 - 2006 that we were at a pivot point... the housing market had topped and the massive bubble was about to burst, likely bringing the whole of the economy with it including all the attendant collateral damage.. recession (maybe even depression), unemployment, crashing prices, fire, brimstone!
I truly did (as my pseudonym implies) sell my home at the "top of the market" though there were other circumstances that prompted that sale other than simply a seriously committed bubble trade.
In the years following the economic collapse, I continued to blog and watch the housing market evolve and eventually, in 2010, I bought a new home at what turned out to be pretty close to the "bottom of the market" in my area, though again, there were other circumstances that prompted that purchase... you can only wait on the sidelines for so long!
Throughout the years of blogging about housing and the macro-economy, I developed a pretty clear sense of my own position on economic matters and a better ability to communicate that position.
Generally speaking, I like to think of my views as that of a Austrian-economic realist living in a post-Keynesian hellscape replete with decades socialist and state-ist malfeasance, fraud and mal-investment.
But unlike many an economic "perma-bear" or doomsayer, I don't have any inherent ingrained philosophical reason to be pessimistic about the course of the economy... my pessimism, as I see it, is rooted in the basic "realist" understandings that human organizations are no less human than the constituent humans themselves (i.e. you have both the wisdom of the crowd as well as the madness), and that, over the course of the last 100 years (or so) we have allowed the sophistry and pomp and circumstance of our central planner overlords (both the Fed, Federal Government, and Globalists) to plan so much that they planned us all into a position where the path of least resistance leads to doom or at least a major wash-out reckoning.
From that perspective, I was able to get a lot of things right back in mid-oughts but I did also get some major points wrong.
So what did I get so wrong?
While I correctly predicted the oncoming train-wreck that was the 2008 economic crisis, I thought that this event would be the seminal event of our lives... a second "Great Depression" leading to a period of deflation so substantial that only a major reformation of our monetary and political system could address.
Clearly, I seriously underestimated the power of the "full faith and credit" of the the Federal Reserve, the U.S. Federal government and the Globalist central bankers and planners.
As the collapse ensued (in the U.S., Europe and across the globe more widely), month by month and year after year, it was met with a steady stream of monetary depravity with central schemers bailing and printing and pumping the scale of which has never been seen in human history.
This on-going debasement of all that is real and true and honest, continued, largely unabated throughout the 2010s and only popularly fell out of the news cycle (likely to the great relief of central banks) with the election of Donald Trump, when the ascendance of this political firebrand completely overwhelmed the media and the collective zeitgeist.
Still though, the Federal Reserve continued its recklessly accommodative policies, pumping, printing and quantitatively easing like there were no tomorrow, all ultimately with the explicit purpose of serving to artificially support the housing market, grossly inflate the stock market and, probably the most fundamental distortion, directly financing the Treasury in what can only be seen as the final metamorphosis of our system into a zombified and degenerate faux-economic con-game.
Even after only a mild attempt at re-normalization of the Federal Funds rate between 2016 and 2019, the Fed had to reverse course after barely reaching about 2.5%. Clearly, the now highly rate-sensitive economy could not even withstand a moderate withdrawal of monetary stimulus.
During the fall of 2019, the Fed was even working to assuage concerns about tumult in the "repo market", and clearly retreated back to projecting a on-going accommodative policy when, in the face of the COVID-19 debacle, it abruptly gave up on any normalization charade and reset the Federal Funds rate back down to the zero-bound.
So, my primary oversight, as I currently see it, was really just one of timing.
I still hold that we are hurtling headlong to a fundamental wash-out epic economic reckoning, but the now older and (hopefully) somewhat wiser me knows that predicting this type of event, even to the precision of years, is folly.
There is no Nostradamus and the last thing anyone really needs in this hyperbolic world is someone making up timed predictions just for the sake of of righteousness.
Going forward, I'll attempt to simply interpret the latest economic events and present my thoughts on where we are and where we may be going, particularly with respect to my overall thesis as stated above.
So, with that background context out of the way, let's take a look at the current picture to start our conversation about where things may be heading for the economy.
Not only is the recent bout of inflation not transitory (as Fed Chair Powell recently admitted), it is more than likely totally un-tethered, coming NOT only as a result of recent, COVID-era disruptions and emergency money creation, but as the sum total of ALL the reckless malfeasance and money creation that ensued since 2008.
The system is absolutely primed with hot money leading to epic levels of mal-investment... a fact that is easy to see simply by observing such recent manias as the Robinhood-powered meme-stocks, the tens of thousands of cryptos (with the special exception of bitcoin), NFTs, and now a new, absolutely absurd, housing market mania.
As for stocks, it seems pretty clear at this point that we are now well into a bear market with NASDAQ peaking last November, and the S&P and Dow peaking in early-2022.
Similar to the 2007 and early 2008 period, the jig is up on stocks, the bear pattern has taken over and all we have to do now is wait for the bottom to simply drop out.
This is a particularly troubling moment for this type of stock market selloff given that 70 million Baby Boomers are now closer to their 60s and 70s where many will simply not have enough time left on this planet to wait out another major market downturn and certainly not the will or ability to replenish their losses.
This new stock market route will not be like the last one in one very important way though... there will not be some magical Federal Reserve prestidigitation that can magically be just whipped up to get things rolling again.... this time the market will have to bottom and (eventually) heal and mend of its own merit, a process that could take considerably longer (.. please refer to Nikkei 1990 to today) than anyone now expects.
Housing will likely be the next shoe to drop... but let's make that the topic of the next discussion.
Best to all!