How To Recession-Proof The Economy

With the coronavirus now officially a pandemic, and the stock market in freefall, recession (if not depression) fears are rapidly mounting.  But what if we were to tell you that not only depressions, but also nearly all recessions, are fully preventable?

Sounds crazy, but keep in mind that before John Maynard Keynes and his groundbreaking economic policies came on the scene, depressions were once a regular occurrence in the USA and globally.  Since 1945, we have not had a single full-blown depression, though we have come very close many times.  And even the Great Recession was a near-depression due to not being Keynesian enough, and implementing unnecessary austerity.  Thus, the next logical step would be to do the same for recessions, and use the power of federal Monetary Sovereignty to prevent them before they start.  Yes, we really can do that.

Almost every recession or depression is fundamentally caused by a shortage of money.  That is a proven historical fact.  So the solution is to make sure the money supply (via federal "deficit" spending as well as monetary policy) grows fast enough to keep up with and allow for a growing economy, and make up for shortfalls caused by any contractions in business activity due to internal or external shocks.

So what to do this time around?  For starters:

• As a stimulus, give everyone at least $1000 cash immediately, no strings attached.  Repeat a few months later if necessary.
• Implement paid sick leave and paid family leave, yesterday.  For ALL workers.
• Provide emergency cash to businesses struggling due to the pandemic.
• Put a moratorium on all evictions and foreclosures during the pandemic.
• Do NOT make any cuts to healthcare, food stamps, unemployment benefits, or any other parts of the social spending budget.  Instead, expand them, yesterday.
• Invest massively in free testing for coronavirus, and in research and development for treatment and a vaccine for this virus.
• Resolve shortages by using federal funds to actively incentivize production of any essentials that are in short supply.

Longer-term, implement Rodger Malcolm Mitchell's Ten Steps to Prosperity, starting with abolishing FICA, implementing Medicare For All, and implementing Universal Basic Income for all.  All of which would be paid for by new federal money creation.  Talk about priming the pump!

We have a choice, so let's make the right one.  Whether it's recession or disease (or both in this case), the old adage certainly applies:  an ounce of prevention is worth at least a pound of cure. 

The Crash Of 2020 Has A Silver Lining

Looks like the long-overdue Crash of 2020 is finally here, with the novel coronavirus panic being the catalyst that finally popped the truly massive stock market bubble--scratch that, BOIL--that was several years in the making.  And there does not appear to be a firm bottom in sight yet.  And shhhh!--don't even talk about the even bigger derivatives bubble yet.  In other words, this can get real ugly real fast!

(And not even the FERAL Reserve can delay the inevitable for much longer, it seems.)

But as bad as it gets, better that it should happen several months before the 2020 presidential election rather than after.  A big crash and/or recession before the election would virtually guarantee Trump's defeat, and by extension (hopefully) Bernie's victory.  And so would finally mark the end of America's 40 year failed experiment with neoliberalism, that was started by Reagan and self-destructed by Trump.  Bookended by two unlikely "dark horse" yet celebrity candidates, Reagan and Trump, that both cut their teeth in Hollywood before entering politics late in life, and who both said they would "Make America Great Again" (right!), this will be the end of an era--or more accurately, the end of an ERROR on January 20, 2021.  Then we can finally pick up where we left off in 1980 when Carter almost won re-election but for the Reagan campaign's October Surprise dirty tricks (a conspiracy theory that actually turned out to be true, by the way).  Yes, you read that correctly.

And thus, America's long, dark night of the soul will finally be over.  Not just the past four years, but the past 40 as well.  That is, of course, only if enough Americans actually get off their butts and VOTE--not just in the general election, but also in the primaries as well.  The basket of deplorables will sure as hell vote regardless, so all progressives and even the fence-sitters need to get out and vote as well.

What Will Cause The Next Big Crash of 2018-2019? (Updated)

There is a recent article by Matt Taibbi in both Rolling Stone and Common Dreams that predicts a looming economic disaster due to three colliding problems.  And those three problems are as follows:  1) FERAL Reserve monetary tightening, both in terms of raising interest rates as well as the more subtle but significant Quantitative Tightening (QT), 2) Trump's tax cuts depending on unrealistically high economic growth to "pay for themselves", and 3) Trump's tariffs and the resulting trade war.  And the collision of all three together will not end well, according to Taibbi, and he is probably right for the most part.

But even these are mere sideshows compared to the very biggest underlying root cause of the next looming crash, even if one or more of these problems are in fact the proverbial spark that sets off the financial powder keg.   So what is this underlying powder keg, exactly?  Well, it is the mother of all stock market bubbles, artificially inflated by corporations buying back their own stock to manipulate share prices.  And famous economist Ted Bauman predicts that when it finally bursts, any day now in fact, the market will quickly plummet by 70% or more, causing a crisis that makes 2008 and perhaps even 1929 look like a walk in the park by comparison.

Recently, it looks like the stock market crash of 2018-2019 has already begun in earnest, with Trump's off-the-rails Twitter tirades and his chaos-manufacture in Washington including his stupid government shutdown being the primary catalysts.  Also, the FERAL Reserve raised interest rates yet again.  And it looks like the market has quite a way to fall still, after the worst Christmas Eve ever in history and the worst December since 1931.  The proverbial boil has now effectively been lanced, but the pus is still oozing out at a rapid pace, with much more to follow.

So how did we get here in the first place?  The story begins in the 1920s, when corporate stock buybacks were all the rage, and in fact caused the 1929 Wall Street crash.  The Great Depression soon followed.  In 1934, this highly manipulative practice was rightly outlawed, and the ban remained in effect for nearly half a century until the Reagan administration lifted this ban in 1982 as part of Reagan's deregulation platform.  And since 2010, stock buybacks have accelerated dramatically, artificially inflating the stock market numbers and lulling hapless investors into a false sense of security.  And the recent Republican tax cuts have only accelerated this trend even further (since corporations now have even more money with which to buy back their stocks).  That's right--"trickle down" theory is a myth.

And what goes up, must come down, and the bigger they are, the harder they fall.

Don't say you weren't warned.

What Will Really Cause The Next Big Crash?

There is a recent article by Matt Taibbi in both Rolling Stone and Common Dreams that predicts a looming economic disaster due to three colliding problems.  And those three problems are as follows:  1) FERAL Reserve monetary tightening, both in terms of raising interest rates as well as the more subtle but significant Quantitative Tightening  (QT), 2) Trump's tax cuts depending on unrealistically high economic growth to "pay for themselves", and 3) Trump's tariffs and the resulting trade war.  And the collision of all three together will not end well, according to Taibbi, and he is probably right for the most part.

But even these are mere sideshows compared to the very biggest underlying root cause of the next looming crash, even if one or more of these problems are in fact the proverbial spark that sets off the financial powder keg.   So what is this underlying powder keg, exactly?  Well, it is the mother of all stock market bubbles, artificially inflated by corporations buying back their own stock to manipulate share prices.  And famous economist Ted Bauman predicts that when it finally bursts, any day now in fact, the market will quickly plummet by 70% or more, causing a crisis that makes 2008 and perhaps even 1929 look like a walk in the park by comparison.

So how did we get here in the first place?  The story begins in the 1920s, when corporate stock buybacks were all the rage, and in fact caused the 1929 Wall Street crash.  The Great Depression soon followed.  In 1934, this highly manipulative practice was rightly outlawed, and the ban remained in effect for nearly half a century until the Reagan administration lifted this ban in 1982 as part of Reagan's deregulation platform.  And since 2010, stock buybacks have accelerated dramatically, artificially inflating the stock market numbers and lulling hapless investors into a false sense of security.  And the recent Republican tax cuts have only accelerated this trend even further (since corporations now have even more money with which to buy back their stocks).

And what goes up, must come down, and the bigger they are, the harder they fall.

Don't say you weren't warned.  On the bright side though, if the crash occurs before the November 6 election, it will essentially guarantee that the predicted Blue Wave will be a Blue Tsunami, washing away the current vile Red Tide of Trump and his sycophantic Republican lackeys, no matter how much GOP cheating occurs (and surely there will be plenty).

How to Prepare for the Next Big Crash

As we have noted in the previous article, the risk of the next big economic crash continues to loom larger than ever before, and it is most likely too late to actually prevent it from occurring entirely.  That's not to say that there aren't things that should be done to prepare for it to make it less catastrophic, though.  Back in 2014, the TSAP had predicted that a crash would occur within a few short years, and we had written an article then discussing how to prevent it before it occurs or at least take the edge off of it, while ending the previous economic "stagpression" for good.  We also reiterated such ideas in 2016 as well, the year for which the insightful Thom Hartmann predicted the epic crash that was his book's namesake.  (Being off by two years or so is still fairly accurate in our book.)  And we should note that these things would indeed help take the edge off of the next looming financial crisis as well.

Two things come to mind right away:  1) a Universal Basic Income Guarantee for all, an idea that is LONG overdue, and 2) Quantitiative Easing for We the People in general (as opposed to the banks, which only benefits the ultra-rich) by injecting newly-created money directly into everyone's bank accounts and/or via debit card.  Additionally, we need to better regulate the Wall Street casino so such a crisis could never, EVER happen again, and also JAIL the banksters who caused the crisis (instead of bailing them out) like Iceland did.  A complete debt jubilee would be even better still (in general, but especially for student loans), but even the things we just mentioned are a fairly tall order for a government who is bought and paid for by the banksters/oligarchs.  While other things need to be done as well in the long run, such as critical investments in infrastructure and education, the aforementioned measures would go a long way towards fixing our soon-to-be-ailing economy.

Those are the things that should be done at the government level, of course.  At the individual level, there is really not much one can do except get OUT of the stock market while you still can, and take at least most of your money OUT of the big banks (before the "bail-ins" begin) and put it into smaller banks, credit unions, or even under your mattress.  Or even in a big, brown bag inside a zoo (what a thing to do!)

The Crash of 2018?

Despite the fairly rosy economic reports, the next financial crisis, recession, or perhaps even depression is most likely already baked into the cake at this point.  It is not a matter of if, but WHEN, and just how bad it will be.   In fact, we are overdue for one.  And the beginning of the slump will be one of those things that will only be noticed in hindsight, as was the case last time ten years ago.  And this one may very well make 2008 or even 1929 look like a walk in the park.

The positive economic numbers mask a rather dismal underlying reality just beneath the surface:  wages lagging behind the true cost of living, and (not coincidentally) unsustainable record-high levels of consumer debt.  This time the debt increase is not primarily mortgages (though there is plenty of that too) but is now mostly student loans, along with that perennial, decades-old papering-over-declining-wages tool: credit cards.  In fact both are a result of a problem decades in the making:  reverse Robin Hood economics has robbed from the poor, gave to the rich, and torpedoed the middle class as the real economy has been systematically hollowed out since Reagan.  And the debt has become a way to artifically and temporarily sustain ever-increasing consumer spending (and thus economic growth) despite stagnant or declining wages for the bottom 80% of Americans--and eventually even that becomes insufficient, and the house of cards collapses.  That is the powder keg, just waiting for a spark to set it off.  And practically any sort of "black swan" event could serve as the spark at this point.  Here be dragons.

The stock market is a bubble.  Scratch that, it is a big, festering BOIL just waiting to be lanced.  The recent "correction" in early February is a warning, followed by a return to "normal" before the Big One happens sooner or later.  If Trump goes through with his plan to start a trade war, that will likely trigger the crash, as will any further increases in FERAL Reserve interest rates.  But it looks like a crash is coming, one way or another.   So don't say we didn't warn you.

How to Prepare for the Next Big Crash (Part Deux)

As we have noted before, things are really not looking good for the global economy this year.  Whether we actually experience another financial crisis on the order of 2008 or even 1929 (or worse) is a matter of debate, but the time to prepare for such a scenario is yesterday.  At the very least, another recession is inevitable at this point by 2017 at the latest, since no economic expansion has lasted much more than eight years straight in this country (with the notable exception of 1991-2001 that lasted exactly ten years).  Granted, the expansion from July 2009 to the present mostly benefited the rich, and until around 2014 practically entirely benefited the rich, but it was still technically an expansion of the economy even if the growth was largely uneconomic in practice.  And expansions can only go on so long before a contraction (i.e. recession or depression) inevitably occurs--it's just a fundamental truth of the business cycle.

One thing is for sure--things are very different this time around at least in terms of monetary policy.  At least in 2008, interest rates were well above-zero, and could be cut to stimulate the economy (or, more accurately, stop or slow down the hemorrhaging).  When that proved to be futile, then the Feral Reserve and many of the world's other major central banks resorted to "quantitative easing" (i.e. creating money out of thin air and giving it to the banks directly).  In late 2014, the USA tapered off and ended its QE policy, and in December 2015 ended its zero interest-rate policy by raising the Fed Funds Rate to 0.25-0.50%.  But now, the central banks of the world are starting from zero or close to zero--and some banks including the European Central Bank and the Bank of Japan have even resorted to negative interest rates recently.  That means they are effectively charging depositors for the "privilege" of depositing money, and effectively paying borrowers to borrow money, which basically turns the world of finance upside-down.  Such negative rate territory is uncharted waters, since until a few years ago no country has ever dared to do such a thing.  And there is currently no evidence that such a move will be beneficial, and may in fact turn out to do more harm than good overall.

So monetary policy basically needs a new set of tools and a new game plan to deal with the next crisis, whenever it occurs.  The Feral Reserve and the other central banks of the world are basically still using an outdated playbook.  In the near-term, two things need to change yesterday.  First of all, they need to abandon interest-rate targets altogether for the time being, and instead focus on targeting the growth of the overall economy.  Like Paul Volcker did in 1979-1982, but done in reverse since the "inflation dragon" is not the problem this time.  Secondly, implement Quantitiative Easing for We the People in general (as opposed to the banks, which only benefits the ultra-rich) by injecting newly-created money into everyone's bank accounts.  Granted, the latter measure would probably require an Act of Congress to allow it to occur legally, but as the Feral Reserve is currently debating the legality of negative interest rates in the future, I'm sure they could find some sort of a loophole to allow it in an emergency such as a massive financial crisis.  And of course fiscal stimulus would likely be necessary as well, in additional to much needed reforms to regulate Wall Street and the big banks (a law that rhymes with "brass seagull" comes to mind, as well as a financial transactions tax and better regulation of the shadow banking system), but those two changes to monetary policy would go a long way towards preventing the next recession/crisis from turning into another 2008 or worse.  And of course the silly idea of negative interest rates needs to be abandoned as well.

But let's be brutally honest.  What we are really witnessing these days is the death of an obsolete system, one that has been kept on life support for many years now.  And eventually we will have to pull the plug on it, sooner or later.  It's just a matter of time.

How to Prepare for the Next Big Crash

As we have noted in the previous article, the risk of the next big economic crash continues to loom large, and it may be too late to actually prevent it from occurring entirely.  That's not to say that there aren't things that should be done to prepare for it to make it less catastrophic, though.  Back in 2014, the TSAP had predicted that a crash would occur within a few short years, and we had written an article then discussing how to prevent it before it occurs or at least take the edge off of it, while ending the previous economic "stagpression" for good.   And we should note that these things would indeed help take the edge off of the next looming financial crisis as well.

Two things come to mind right away:  1) a Universal Basic Income Guarantee for all, an idea that is LONG overdue, and 2) Quantitiative Easing for We the People in general (as opposed to the banks, which only benefits the ultra-rich) by injecting newly-created money into everyone's bank accounts.  Additionally, we need to better regulate the Wall Street casino so such a crisis could never happen again, and also JAIL the banksters who caused the crisis (instead of bailing them out) like Iceland did.  A debt jubilee would be even better still, but even the things we just mentioned are a fairly tall order for a government who is bought and paid for by the banksters/oligarchs.  While other things need to be done as well in the long run, such as critical investments in infrastructure and education, the aforementioned measures would go a long way towards fixing our ailing economy.

Those are the things that should be done at the government level, of course.  At the individual level, there is really not much one can do except get OUT of the stock market while you still can, and take at least most of your money OUT of the big banks (before the "bail-ins" begin) and put it into smaller banks, credit unions, or even under your mattress.  Or even in a big, brown bag inside a zoo.

Is the Crash of 2016 Upon Us?

A few years ago, Thom Hartmann wrote a book called The Crash of 2016:  The Plot to Destroy America.  And recent events suggest that book is even more presicent than we originally thought:

• Economic inequality remains at historically high levels, and history has shown that high levels of inequality are virtually always followed by a massive stock market crash and a deep recession or depression, as infamously happened in 1929 and 2008.
• The stock market has been artificially high (a bubble) for a few years now and the Dow Jones dropped from a high of over 18,000 to below 16,000, most of which in the past month alone.  The drop has actually been faster that the same period in early 2008.
• The Feral Reserve's quantitative easing (QE) ended in late 2014 and their zero-rate policy ended in December 2015, both of which have been artificially propping up the stock market. 
• The stock bubble was also fueled by corporations buying back their own stock and/or cannibalizing their workforces, for the most part.  And that clearly can't go on forever.
• We still have not yet fully recovered from the previous crisis and depression. 
• Rich Dad famously predicted in 2010 that the stock market would crash in 2016 thanks to ERISA, which mandates that retirees start taking money out of IRAs (and thus out of the stock market) by age 70 1/2 at the latest.  And guess what age the first Baby Boomers turn this year?  You guessed it!
• Industrial production dropped in the fourth quarter of 2015, which historically predicts at least a recession in the near future.
• There has been concern that China's recent economic weakness will affect us as well.
• Recently, a key trade indicator, the cost of shipping "dry goods" (Baltic Dry Index), has dropped to historically low levels, and history has shown that index to be a bellwether of the global economy.  This would actually predict a worse crash than 2008.
• Oil prices have been plummeting since mid-2014, and this has been hurting oil companies' profits.  And apparently the banks have made some pretty bad bets on that.
• And finally, the real kicker:  Thanks to the Wall Street casino remaining poorly regulated, the same derivatives bubble that caused the Crash of 2008 is now bigger than ever, and all it would take is one default in just the right place and it will burst, with severe consequences.

So given the above facts, there is good reason to predict a massive financial crisis and stock market crash in 2016, one that, as Thom Hartmann predicts, would make 2008 and even 1929 look like a walk in the park.  Now it is entirely possible that such a thing will not occur, or will be much milder than he predicts.  But the risk that he is correct seems to be growing every day now.

Oh, and by the way--there appears to be no "safe haven" for money this time.  Commodities are doing poorly, and as Ellen Brown has repeatedly noted for years now, the big banks supposedly have a plot to confiscate our deposits via "bail-ins".  Thus, FDIC would basically become a dead letter in practice, and the resulting bank runs would undoubtedly deepen any financial crisis.  Not to say that the Feral Reserve won't bail out the banks again, but there is still such a risk.  Caveat emptor, and caveat lector as well.