…the Everything Bubble and Everything Collapsing
There has been a lot of talking going around about the “everything bubble” and everything collapsing. What exactly does that mean? What it means is we are most likely experiencing a bubble in several sectors of the economy. We’ve had real estate bubbles before and stock bubbles before, but what we are experiencing now appears to be a combination of a real estate bubble and stock bubble. Combine that with the fact that interest rates have no where to go really but up, and that means there will be downward pressure on existing bond prices. They will have to be sold at a discount to compensate for the fact that future interest rates will most likely be higher.
Most Americans have the majority of their wealth in 3 things. Their home, stocks, and bonds. So a triple collapse could be devastating to the average family. Potentially wiping out most or a large portion of their wealth. Most of the professionally invested “smart money” has already been pulled out of the stock market. Meaning the market risk now rests mostly now on many middle class small time investors. Many people believe we have already seen the market’s peak. We are most likely already in a bear market or at the very least the tippy tail of the bull market. It is just going up and down right now in a wave as more people take profits and then others continue to invest slow and steadily driving it back up a tiny bit until more people take profits.
When people start more substantial profit taking in January to avoid having to pay the taxes for another year that action alone could already be the catalyst to start a major downward economic spiral. That’s assuming we even make it that far without a collapse.
If we make it one more year without a downturn that would mean we are currently in the longest period of expansion in American history. Our economy is cyclical. It expands and it also contracts. That’s is just simply how it works and why we call it a cycle. A very long period of expansion could easily be followed by a very brutal depression. What we are potentially looking at is an L shaped recovery too. That is what happened to Japan decades ago and they have essentially never recovered.
Assuming we do experience a stock market collapse then who is going to keep investing to help push the market back up over time? It certainly won’t be millennials—most of them are broke and literally have no money to invest. It probably won’t be the baby boomers either, as now as we have crossed a friction point where your average baby boomer has now reached retirement age—with only more and more to follow suit. They will need to be pulling money out to live. So counting on them to keep putting more and more money into the system is most likely not going to happen. So who’s going to save the market? I have a hard time believing Generation X, roughly 80 million people, is going to be able to handle the entire burden alone.
We could also be potentially facing a period of dreaded stagflation. That is to say high inflation, low demand for goods and services and high unemployment. Lower demand could easily come from more and more people simply not having they money needed to purchase goods and services.
Automation is going to reduce the jobs for working people. Why is someone going to pay someone an hourly wage for 8 hours daily when for a one time fee a robot can be purchased and it will work 24 hours a day 7 days a week 52 weeks a year on electricity alone. We already have a lot of the technology needed to implement this. Granted there will need to be a robot repairman but chances are one person will be able to service an entire crew of robots.
What can very likely happen is when the collapse does come many of the people that will be laid off will probably never be hired again. It simply will make more financial sense to purchase robots than to pay for human labor.
Meanwhile the government seems to be under-reporting inflation. That’s my observation based on just looking at prices. Real inflation seems to be rising at a lot higher rate than reported and has been for some time. That also keeps the amount they have to pay out on programs like Social Security a lot lower. As Social Security is supposed to be inflation indexed. A smaller number shown for inflation means way less benefits have to be paid out over the long haul. Considering congress has already spent all the Social Security money and replaced it with IOU’s there is a large incentive for the government to misrepresent the actual inflation numbers.
High inflation would be expected after we have been going through a major expansion with the government printing more and more money to encourage the economy along. It is simple logic if more and more money is simply printed out of thin air then the overall value of that money should drop and it will take more of that money to buy goods (inflation). So that’s a fourth factor that could easily affect wealth. So even people with money sitting in the bank could be hit hard as that money becomes progressively worth less and less. Global demand for the petro dollar could easily also decline as the majority of the world (except Trump) move forward on green energy. Also, new ways of clearing international transactions could also negatively affect the dollar. Our national debt is only going to increase as Republicans just gave the richest people and corporations an unfunded tax cut creating an even larger defecit and causing our national debt to balloon.
About the only promising thing that the government keeps pointing to is the low unemployment rate. This is true they are showing a low number, but I also currently believe that number to be basically meaningless. First off many people have given up even looking for work. They are consequently not reflected in that number. The actual number of working-aged men not working is way higher than it should be. Secondly most of the “jobs” being created are low paying minimum wage jobs that most likely won’t even pay that person’s basic bills and many will probably end up on different forms of public assistance to get ends to meet. So if anyone can explain to me how more people working low paying jobs that don’t even cover their own bills is going to bring about prosperity then I’m all ears… It is simply not possible as that would defy all logic. That type of financial slavery doesn’t bring about prosperity. It just mass produces and spreads the poverty around. They can help the economy based on what… their spending? Certainly not when they can’t even afford their basic bills let alone discretionary purchases.
There will come a point when a universal basic income will become a necessity. As Amazon style businesses pull more of the money to the top and continue to automate jobs. Everyone else will be left to fight over less and less jobs and resources. That will be about the only way that will keep the poor from eating the rich. That’s also why there has been articles lately about wealthy neighborhoods wanting to have a private police force. It is to keep YOU out once you’ve been laid off, realize your job will never return, and you become increasingly desperate and without any resources. People do strange things as they become more and more desperate. Also the rich neighborhoods then will claim they shouldn’t have to help support police in the poorer neighborhoods with massive amounts of poverty and unemployed people as crime just goes up and up.
We could have a government run Newer Green Deal. That would bring about some temporary job relief. However, I do not see that as as a permanent solution. Even if we take that step we will still have to have to deal with the rising inequality and the development of dynastic wealth in this country. We need to stop allowing the rich to get around paying a death tax and effectively passing all of their wealth on their heirs. A high death tax encourages people to spend and not hoard money. If people know the government will tax away most of their wealth when they die, they are far more likely to spend money than hoard it. This creates opportunity for others to earn that money as well and we could have a more viable economy that way. We also need to have high taxes on corporations that use robot labor instead of human labor. If a company replaces 10,000 workers with robots they should have to pay an automation tax to help support those 10,000 displaced workers.
Are you prepared for a quite possible dive in stocks, real estate, bonds, and to have any money in the bank slowly eaten away by inflation? My guess is the overwhelming amount of Americans aren’t and will be taken by surprise.
by Chris Madsen