A Recession Is Coming
Here we go again. Recession is part of a normal economic cycle, but some downturns are far worse than others. 2008 was bad. The next recession is going to be worse. Here’s why I believe that and when I think the next crash will arrive.
I don’t like the way things are stacking up. The stock market is racing upward with no apparent limits. Consumer confidence is at record high levels. The rich are getting richer and they want more. The national debt is growing and the President, Congress (at least the Republicans in Congress), and a big chunk of the American body politic all believe in the fantasy that tax cuts will grow tax revenue. The administration wants more money for the military despite our already insane level of spending on “defense”. We face a serious threat from North Korea and we have the least competent President in our history to deal with that issue. And have you noticed that the imaginary currency, Bitcoin, has increased in value from a few cents to $11,000 in 2 years? The crypto currency is drawing vast ‘investment’ into its cyber sewer.
There are 3 things that will take us into a serious recession within the next 2-3 years.
- Over confidence in our economy and failure to see cracks in the global economy
- Over confidence in our democracy and the current administration
- Over confidence in our military
Let me briefly explain each item.
We have a lot of confidence in our economy. There seems to be a general public consensus that the economy is fine and getting better. But why do we believe this? Confirmation of that belief is all around us. The stock market is soaring. Everything we see in the news indicates that businesses are exploding with growth. Amazon is selling more than ever and this looks like another record selling season is ahead. True. But do we see the hidden part of the story? Amazon’s growth is fed by the decline in brick and mortar store sales. Do a Google search to see the number of retail stores that are failing this year. The numbers and the names will shock you.
But that’s not all there is to worry about. Look at the powerhouse businesses. Google and Facebook? These companies derive value not from making something. Their value comes from you. When you use Google to find something or Facebook to rant about politics, you create a valuable piece of data that can be sold. I won’t drift off into the subject of privacy, but pay attention to which companies get the most press. Are they making anything? Making stuff adds value to an economy. Yes, digital properties have value, but they are easily copied and stolen. Uber and Lyft are pressing down on taxis. Airbnb is pressing down on the hotel industry. Amazon’s consumption of Whole Foods has put price pressure on the quality foods category. Walmart put downward pressure on the grocery market category. Sure, these things initially are great for consumers. Ultimately, however, those savings equate to lost jobs.
And speaking of lost jobs. Look at the merger mania we’ve seen over the past few years. Every category will soon be controlled by 1 or 2 dominant players. This kills consumer choice. Having less competition also adds more fragility to the economy.
Finally, look at the richest people in the country. Their wealth is growing at astronomical and obscene rates. Is Mark Zuckerberg worth nearly $100 BILLION dollars? Bill Gates, who announced he was giving his money away when he was worth a mere $10 billion is now worth $90 billion. The rich all around the world are getting richer. We have a billionaire President who has picked a billionaire cabinet. And you think this clan is there to help you? The passage of the Trump tax plan ought to alert you.
Look too at the insane rise of Bitcoin. Who is making the money on that runup? You? Hardly. And what’s the attraction? Think about it. Bitcoin allows the ‘spender’ to make safe, secure and totally undocumented transactions. You read that right. Want to buy $1 million worth of heroin from a foreign country? No problem. Want to make huge investments and pay no tax on the gains? Bitcoin to your service. Small wonder the value is skyrocketing. This is a very bad sign of what lies ahead.
Number 2, is the over confidence in our democracy and the current administration. I did not vote in this past election. Neither Clinton nor Trump met my standard as capable of being President. I was glad that Trump defeated Clinton as we will hopefully be able to impeach Trump. I believe we must think twice before taking pleasure in a President who “breaks all the rules”. I want the Constitution to prevail not the antics of an incompetent apprentice in the office of President. How will this lead to recession? As confidence in our government around the globe falls, our status drops. The dollar which today is the world’s ‘safe’ currency is losing confidence by the day. Should the dollar be abandoned as the go to currency for safety, the value of Treasury Bonds will fall which will push the rates up. As the rates on our debt goes up, the percentage of the U.S. budget needed to make debt payments will increase. Do you want to pay higher taxes in order to cover the interest alone on the debt? And who collects that interest? Most of our debt is held by foreign countries. Imagine seeing half of your taxes going to China. It’s possible. The point is, the current administration is failing while we fiddle. If the Trump administration collapses in this time of strict partisan politics, what will happen? And if Trump gets another Supreme Court pick? The courts are the final arbiter of freedom. Remember that when you look at the potential of a court stacked by a billionaire.
This Republican tax bill is a clear path to recession. To put a purely symbolic victory on the board, Trump and the Republicans are playing a very dangerous game with the economy. Make everyone, well, mostly everyone, happy with a tax cut. The tax cut raises the debt, but we won’t care, we got a tax cut! But wait! If the tax cut fails to add revenue and the deficit goes up, surprise! We get the biggest tax increase in history without so much as a vote in Congress. Neat. Taxes go up, no one to blame but ourselves.
Finally, number 3 on my list. Indeed, I respect, with reservations, our military. I agree that we need a strong military to defend the country. I also believe we are spending far too much on our military and getting far, far too little in return. We spend over $600 billion on defense and yet we cannot seem to win a war. Afghanistan is a mess that we have been fighting, stupidly, for 16 years. (Since 2001) Do you remember why we invaded Afghanistan? We made a mess of Iraq under military command and faulty civilian oversight. I cannot decipher what we are doing in Syria. And our military relationship with Saudi Arabia is creating misery on an epic scale throughout the middle eastern region. Look at the disaster in Yemen.
Why pick on the military? We are headed toward a serious showdown with North Korea. I hope, but doubt, that our political generals are up to the task of real war. Should war break out with North Korea, you can bet that our economy will be shaken.
To me, the perfect storm is forming. The markets are over heated. Our confidence level is too high. Our government is not competent to deal with the big issues and it’s going to be tied in knots over coming indictments. Debt will bloom. That’s enough to put us in recession within 2 -3 years. But if we must deal with North Korea in a military way, boom, bad news.
Is there hope we might avoid recession? Maybe. If we can get the entire Trump administration out, including Pence, and if the Republicans and Democrats would then come together in the interest of the country, maybe could avoid an economic crash.
What to do?
Reduce your own debt. Don’t invest in schemes. Pay off your bills, own your home. Those are always wise policies, right? Get your business out of debt.
Chris Reich, TeachU
I don’t like bringing you bad news. If you prepare for the next recession, you will be less impacted. That’s what I want. We’re headed into some rough times. I don’t want to finance those who would bring our economy down. I support those of us who build our own living through our own hard work.