Thirteen Reckonings Hanging in the Balance

The NASDAQ slipped below 8,000 this week.  But you can table your reservations.  The record bull market in U.S. stocks is still on.

With a little imagination, and the assistance of crude chart projections, DOW 40,000 could be eclipsed by the end of the decade.  Remember, anything and everything’s possible with enough fake money.

Still, we consider DOW 40,000 to be about as probable as having a dinosaur step on our car as we drive to work today.  More than likely, a return to DOW 10,000 will first grace the front page of the Wall Street Journal.

In the interim, while still in the delight of this “permanently high plateau,” we’ll turn our attention to another equally suspect record that’s presently unfolding with imperfect precision.  If you haven’t noticed, the current economic expansion’s approaching its own record duration.  At 111 months and counting, this economic expansion is closing in on the post-World War II record of 120 consecutive months of growth that occurred between March 1991 and March 2001.

If all goes according to plan, by July of 2019, this economic expansion will enter its 121st month.  Amazing!  Certainly, this should equate with a marvelous, MAGA episode of economic betterment for all.  How could a decade of economic growth result in anything less?

Alas, the world of fake money is a world of strange and seemingly impossible things.  It challenges the mind and twists all aspects of the human world with the rigorous duplicity of a Supreme Court confirmation hearing.  What to make of it?

Real Trouble

Without question, this long run of economic growth is unmatched in its resulting disparity.  The upper crust has been served by it quite well.  Paper wealth, in the form of rising stock and property prices, has concentrated upward in the hands of the noblesse.  The balance sheets of the wealthy have never looked so good.

But down in the valley, where the pavement’s worn thin and the residential dwelling units are packed dense, a different reality presents itself.  Here is the reality that the 2008-09 recession never really came to an end.  Where incomes have stagnated and well-paying jobs, the kind that can support a family, are sparse.  On top of that, large segments of the population have become hooked on government sponsored opioids.

Yet this disparity between upper and lower class, including a diminishing middle class, has occurred during a near record period of economic expansion.  Somehow, the fat years didn’t leave much meat on the bone for wage earners to gnaw upon.

Of course, the real challenge, the one that’s just around the corner, is the turmoil that always appears at the worst possible time.  When the boom ends, and the bust begins, chaos reigns down with exacting rigor.  That’s when the real trouble arrives.

Moreover, the real trouble arrives at the precise moment when the liquidity of credit withers to a bone dry wishing well.  That’s when stock and real estate prices, which are now priced with no connection to the underlying economy, collapse.  That’s also when paper wealth vaporizes faster than you can say Jack Robinson.

Corporate and consumer debt, which has accumulated over the last decade far beyond its capacity to be repaid, will go bad all at once.  Then, as the layoffs rise, consumer confidence – the last fortification against a recession – will roll over in short order.

At the same time, a certain clarity will be administered with efficient precision…

Thirteen Reckonings Hanging in the Balance

One of the notable facets of the political climate of the USA is the lack of agreement on what the facts are…and how the economy should function.  Should it be a hands off laissez-faire economy?  Should there be more regulatory intervention?

Then there are the questions of direct transfer payments and policies of currency debasement.  On these questions, Republicans and Democrats appear to be equally inconsistent.  Any remaining semblance of a philosophical operative has been watered down like a cheap 3.2 beer.

The populace, for that matter, also can’t get its story straight.  Their demands and desires of government always change with the direction of the wind.  Still, we suspect these conflicting demands will be reckoned during the next credit crisis and economic collapse.  Thus, what follows is a partial list of reckonings – thirteen of them – that are hanging in the balance:

1. Everyone calls for smaller government, as long as their entitlement payments are not restricted.
2. Everyone distrusts the government, until the economy contracts and they need a federal bailout via a cheap interest refi.
3. Everyone says they’re for free trade, before (not after) their job’s offshored to China or Vietnam.
4. Everyone disparages Made in China products, except when they can buy them at Walmart or Costco at everyday low prices.
5. Everyone wants safe and state of the art infrastructure, as long their taxes aren’t raised to pay for it.
6. Everyone despises inflation, except when it’s inflating their stock portfolio or the price of their home.
7. Everyone derides the ills of government deficits, until they’re faced with the prospect of fiscal austerity.
8. Everyone favors a trade war, as long as it doesn’t jack up the price of flat screen televisions and iPhones.
9. Everyone loves green energy, but only at the expense of their neighbor.
10. Everyone believes in universal healthcare, before (not after) they have to go see a doctor.
11. Everyone loves cheap credit, but only up to the point where it provokes a mass debt default.
12. Everyone relishes government sponsored pharmaceuticals, until their family, friends, and neighbors start dying from them.
13. Everyone wants this, but they also want that…though only if it’s on someone else’s dime…and on, and on.

The point is, when everyone goes broke and the economy slows to a standstill, the people and the politicians will squawk and shriek in unison.  They’ll demand for the government to ‘do something,’ up until the moment the fake money system dies.

After that, things will become especially unpleasant.

Sincerely,

MN Gordon
for Economic Prism

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