What Hath The FERAL Reserve Wrought?

The FERAL Reserve needs to answer the Clue Phone, as it is ringing louder than ever.  The stock market is crashing, and the Sahm Rule recession indicator is currently flashing red.  The broader economy itself is not crashing--yet--but at least a mild recession seems to be already baked into the cake at this point.  

The Fed's overzealous crusade against inflation has ultimately jumped the proverbial shark a while ago.  They hiked interest rates too high and stubbornly kept them too high for too long, creating a stagflationary quagmire as a result.  Inflation began to fall on its own once the pandemic-induced global supply chain crisis was resolved, and also the geopolitical issues abroad (war, sanctions, etc.) were less intense for the USA than initially thought, no thanks to the interest rate hikes, which only deepened the quagmire in the long run. 

We have been saying for a while now, and will say it again:  the Fed absolutely MUST cut interest rates yesterday, full stop.  An emergency rate cut of 100 basis points (aka one full percentage point) is clearly indicated for this situation to prevent the worst case scenario from unfolding.   

Don't say we didn't warn you!

UPDATE:  Looks like the stock market has recovered from the correction for now.  But our point still stands regardless.  And inflation is basically defeated for the time being.  Cut interest rates NOW!

Hey FERAL Reserve: Cut Interest Rates NOW!

The FERAL Reserve still has yet to cut interest rates, and despite the Dow Jones recently hitting 40,000, the risk of recession is apparently growing by the day.  And after falling dramatically from its 2022 peak of 9% once the pandemic-induced (more like lockdown-induced) supply chain issues and shortages got resolved, inflation currently remains stubbornly stuck in the neighborhood of 3%.  Because Jerome Powell is too stubborn to cut rates, thus keeping us trapped in a quagmire.  Hello, stagflation!

A recession is probably already baked into the cake at this point, and thus is probably too late to avoid entirely.  Granted.  But the Fed can still at least delay the onset, reduce the length and severity, and promote a speedier recovery IF they would deign to cut rates yesterday.  And even just delaying the onset by a quarter or two would likely postpone it until after the November election, reducing the odds that the Donald would win again. 

Too Late To Avoid A Recession, But Let's NOT Make It Worse!

It looks like it is too late to avoid a recession at this point, as some degree of one is already baked into the cake at this point.  Not only are there several big headwinds right now (rising oil prices, rising insurance rates, record-high credit card debt, student loans coming due, Congressional dysfunction, and the prospect of a government shutdown), but the FERAL Reserve has obstinately kept interest rates high at a Fed Funds Rate of 5.25%.  While it may not seem high by historical standards, combined with their Quantitative  Tightening and record-high levels of debt throughout the economy, it can easily feel like the double-digit interest rates of the late 1970s and early 1980s.  Aside from oil (thanks to Russia and OPEC) and a few other things, which interest rate hikes are utterly useless and even counterproductive against, the recent inflation has already been largely defeated, and may soon turn to deflation.  Which sounds great in theory, but in practice is anything but.

While it is most likely too late to avoid a recession at this point, the very least the Fed could do is cut interest rates yesterday and end Quantitative Tightening to avoid an even worse recession or depression.  Don't say you haven't been warned.

UPDATE: As of September 30, the government shutdown was averted, but the issue was really just delayed by 45 days via a stopgap funding bill.  Additionally, as of early October, crude oil prices began falling but diesel fuel remains stubbornly high for a number of reasons such as a refinery crunch.

"Too Big To Fail" = Too Big To EXIST

Once again, the issue of "too big to fail" is in the foreground, as we have obviously learned NOTHING from the last financial crisis.  If there is ANY lesson that we must NEVER forget, it is this: "too big to fail (or jail)" is really too big to EXIST, period.  And here is what we absolutely MUST do going forward:  give all banks and corporations large enough to have "systemic risk" (that is, where them failing would literally bring the whole economy down) a choice between the following menu of options:

1. Pay a prohibitive 90% marginal tax rate on all profits beyond the first billion, or,
2. Break up into smaller, unaffiliated banks or companies, similar to what anti-trust laws require for monopolies, or,
3. Full nationalization by the federal government, and (if already failed or failing) replacing the entire board of directors.

That's it.  That's the ONLY real solution. 

Of course, we also need to bring back the Glass-Steagall Act and pass a financial transactions tax and repeal the safe harbor provision of bankruptcy law and regulate derivatives better and stuff like that.

So what are we waiting for?

The Progressive Case For Reopening America (And Never Shutting Down Again)

Recently there was an article titled "The Left-Wing Case Against Lockdowns" that explains in detail why genuine leftists and progressives should oppose extending these coronavirus lockdown policies.  It basically echoes what we at the TSAP has been saying for weeks now, namely that these policies have not aged very well and are doing more harm than good in the long run. And the empirical evidence actually bears this out:  non-lockdown countries are generally outperforming lockdown countries on average, and within the USA, non-lockdown states have also been outperforming lockdown states in terms of coronavirus case and death rates per capita.

The supposed effectiveness of lockdowns (compared to far less extreme restrictions) in terms of slowing or stopping the spread of coronavirus has been called into serious question lately by more recent studies.
Such studies have found there is at best no correlation, and perhaps a perverse effect between the two defining features of hard lockdowns (stay-home orders and closures of all non-essential businesses) and COVID-19 cases and deaths per capita after other factors such as less-extreme policies are accounted for.  The benefits are thus nothing more than a statistical mirage that does not stand up to scrutiny--much like the supposed benefits of the 21 drinking age vis-a-vis DUI deaths in the long run.

Meanwhile, the collateral damage (economic depression, inequality, poverty, alcohol and other drug abuse, domestic violence, child abuse, loneliness, poor mental health, delayed medical treatment, etc.), which also kills people too by the way, continues to mount with each passing week of lockdown, making an utter mockery of practically all progressive and even basic humanitarian priorities.  And that's to say nothing of the civil rights and liberties, as well as community cohesion, that progressives generally support.  It seems that the "cure" is quickly becoming far worse than the disease as time goes on.

(And that's just for the affluent countries.  For poorer countries, the collateral damage will most likely be at least an order of magnitude worse and deadlier.)

As for the disease itself, here is what we already know:  The horse has already bolted long ago, the train has left the station, the genie is out of the bottle, and herd immunity is ultimately inevitable at some point (if we're not already there in some places).   That is the only way the pandemic will finally end for good, since any effective vaccine or miracle cure will most likely come far too late.  Fortunately though, the true infection fatality rate is revealed to be far lower than was originally believed, and most likely somewhere between seasonal flu and pandemic flu (though still nothing to, um, sneeze at of course).

Thus, whatever the original merits of these sweeping, medieval-style quarantines (unprecedented on such a large scale and for such an extended period of time), there is really nothing "woke" or progressive about extending them any further than yesterday.  It is no longer "merely" about lives versus livelihoods anymore, but increasingly about lives versus lives.

So what would a progressive reopening plan look like?  At the TSAP, we believe that the following schedule should be the case:

Phase 1:  End of stay-home orders and "bubbles", and gatherings of up to 10 people permitted.  Construction, manufacturing, and select retail reopened with restrictions, with priority given to small businesses. Masks required in all public places where six feet of distance cannot be maintained.  Parks and beaches reopened with restrictions.

Phase 2:  Gatherings of up to 20 people permitted.  All retail stores reopened with social distancing and 50% occupancy restrictions.  Restaurants, but not bars, reopened with 25% occupancy restrictions.  Masks required for all employees and customers of reopened businesses whenever practical.  Select places of amusement reopened with restrictions.

(Somewhere around this point, reduce the six-foot rule to three feet, in line with the World Health Organization's recommendation of one meter distance.)

Phase 3:  Gatherings of up to 50 people permitted.  All retail stores reopened with social distancing and some occupancy restrictions.  Salons, barber shops, and other "hands-on" businesses along with gyms and fitness centers reopened with strict hygiene standards and occupancy restrictions.  Restaurants reopened with 50% occupancy restrictions, select bars reopened with 50% occupancy restrictions and table service only.  Nightclubs and casinos remain closed.  Places of amusement reopened with restrictions.  All schools and educational facilities reopened, and all daycares and camps reopened as well regardless.  Some professional sports leagues at least partially resume, without the fans of course.

Phase Out:  Gatherings of up to 100, then 500 people permitted.  Everything including nightclubs and casinos reopened, albeit with some occupancy restrictions.  Bar service now permitted.  Mask wearing is now voluntary, except on public transit and for employees of higher-risk businesses, where it will remain mandatory at least at first.   Six-foot rule is now just a common-sense and non-absolute guideline rather than a hard and fast rule.   Hand and respiratory hygiene still taken as seriously as ever.  All schools and educational facilities reopened, period.  Professional sports leagues fully resume, without fans until at least Labor Day, then fans very gradually reintroduced to stadiums/arenas.

Each of the first three phases will last two weeks (or one week each for both Phases 1 and 2, if the onset of Phase 1 happens to be delayed until June 15 or later), while Phase Out is indeterminate but will likely last for 90 days or more.  Ideally, Phase 1 would not have begun until a state is at least two weeks post-peak, but after June 1st states may not have the luxury of waiting any longer to begin reopening (if they wish to avoid irreversible economic damage and a long-term depression).  If during any phase there is any resurgence in disease there should be a further pause between moving to the next phase, but otherwise full steam ahead with no backtracking after June 1st.

(Any reimposition of tighter restrictions after June 1st should be limited to the local level only, not statewide or nationally.)

Indoor gatherings, which are riskier than outdoor gatherings, should probably have a tighter limit.  For example, thet could have a cap of 10 people indoors vs. 50 people outdoors for Phase 3, or 50 people indoors vs. 500 people outdoors in Phase Out.

At all phases, mask and sanitizer kiosks should be available everywhere, and/or there should be a Taiwan-style free mask rationing app available for everyone.  And Taiwan-style temperature checks to enter most places should prevail through the first three phases and much of Phase Out as well.  (Hey, they must be doing something right over there, and with no lockdown or shutdown either.)

And while we clearly need to scale up testing and contact tracing, quite frankly the time to do that was weeks if not months ago, and we can no longer afford the luxury of time at this point.  We will simply need to make do with what capacity we have right now and in the immediate future, even if we have to do it the Japanese way of focusing mainly on the larger clusters instead of every single case out there, which is far less resource- and labor-intensive.

As for vulnerable populations (elderly, immunocompromised, and/or those with underlying health conditions), the lockdowns have utterly failed to protect them, so extending the lockdowns will not benefit them at all.  Rather, they should be encouraged (but not forced) to stay home as much as possible and avoid crowds during Phase 1 and 2 (and possibly 3), and nursing homes should continue to ban visitors or allow only one designated visitor per family during at least the first three phases of reopening.  And for the love of all that is good, immediately stop discharging still-contagious hospital patients into nursing homes!  Shame on any policymakers (New York, I'm looking mainly at you) who thought that was somehow a good idea!

The TSAP also supports a far more robust stimulus that includes Universal Basic Income and Medicare For All, and the rest of Rodger Malcolm Mitchell's Ten Steps to Prosperity.  We also support expanded unemployment benefits, expanded Social Security, and a Green New Deal.  And of course the HEROES Act.  It is not too late to prevent the greatest depression the world has ever seen--but only if we both reopen reasonably soon and implement such programs sooner.  It is NOT an either-or.

Also, it should really go without saying of course, but we at the TSAP do NOT support any sort of reckless behavior, rioting, violence, or death threats against Governor Gretchen Whitmer of Michigan or any other governor or government official regardless of how much we dislike their policies.  We hereby denounce and condemn such behavior, period.  Peaceful protests which follow proper health and safety precautions, fine, but anything else has no place in our movement or any other movement worth its salt.

UPDATE:  The TSAP does NOT support Trump's Fourth of July military parade or any other parade, campaign rally, or mass gathering of similar size at this time, as it is really far too soon and thus very, very ill-advised.  We believe that even the best-performing states and localities who appear to be almost out of the proverbial woods in terms of the pandemic should still do their darnedest to avoid gatherings of more than 50 people before July 4, and more than 500 people after that until at least Labor Day at the earliest.  The deadly lessons of the 1918 flu pandemic loom large.  But if we must have a second wave, which Dr. Fauci himself claims is somehow (but hopefully not) inevitable, frankly better it should happen in the summer when the virus is less virulent than in the fall or winter, and as a bonus, those Trump supporters who will be earning Darwin Awards will thus "thin the herd before" they can vote in November.  Unfortunately, these fools also put others at risk as well--they should at least be wearing masks to protect others even if they don't care one iota about themselves.  (At least it won't fall on the conscience of progressives this time.)

JUNE UPDATE:  It looks like several states are seeing spikes in COVID-19 in recent weeks following reopening.  While some of it is due to increased testing, the very large spikes in Texas, Arizona, Florida, California, and some other states also show increases in hospitalization rates*, so at least some states are seeing real increases.  And those are generally the ones who reopened before even reaching their peaks, while California's early flattening of their curve seems to have merely delayed the bulk of their infection burden.  And interestingly, Georgia had not seen any real spikes until very recently, despite being the first state to reopen.  Meanwhile many states, most notably New York and New Jersey, have not seen any spikes at all despite increased testing and massive protest rallies in recent weeks.  Both were among the first states to have mandatory mask requirements, and were also the earliest and hardest-hit states.

(*Even the increase in hospitalization numbers may be less than meets the eye.)

Thus, it may not even be due to the timing and pace of reopening at all, but rather due to how many people are wearing masks, and simply that states that were hit harder earlier, the epidemic has largely run its course, while the states that started with milder outbreaks simply still have a ways to go yet.  And overcrowded bars and nightclubs seems to be the biggest culprits in the new hotspots lately.

It is notable that death rates are still dropping nationwide despite the apparent surge in daily cases to new record highs.  Even in the new hotspot states, deaths are generally low and flat or declining, and even Arizona's death rates are still following the same old slow-burn pattern they had before reopening despite being the fastest-growing state in terms of positive test results lately.  Most new cases are coming from younger people (under age 35), a possible reason for the apparent decoupling of infection rates from death rates, and suggesting herd immunity likely occurring sooner rather than later.  Or perhaps we have learned (often the hard way) better ways to treat the disease, thus saving more lives.  Or the virus itself could simply be getting tired and losing its "mojo" after circulating so much for so long.

Also, here is another good article for any anti-lockdown leftist or progressive.  And another.

Reborn On The Fourth Of July? (Updated Part Deux)

A little gallows humor:  What do Julius Caesar and America as we knew it have in common?  Both died on the Ides of March (March 15).  That date was, indeed, roughly when America began to shut down to one degree or another.  But will America be reborn on (or before) the Fourth of July?

There is much debate lately about how and when to ease lockdown/shutdown restrictions and re-open the country for business.  Unfortunately, neither side seems to do nuance very well if at all.  Opening up everything or nearly everything all at once overnight would of course be reckless and cavalier, risking a resurgence of the virus (and associated deaths) and eroding much of the progress that has been made thus far.  But continuing the status quo indefinitely (or even simply taking too long to ease restrictions) is also not very wise either since that will do irreversible economic damage and likely will still not conquer the virus entirely.  Thus, if we wait too long, there may not be anything left to re-open by then, at least for small businesses.  And that's to say nothing of the adverse consequences to civil rights and liberties, mental health, and community cohesion as well.

(And you know, slopes are much, much slipperier than they appear, as Orwell spins in his grave.)

The supposed effectiveness of lockdowns (compared to far less extreme restrictions) in terms of slowing or stopping the spread of coronavirus has been called into serious question lately by more recent studies comparing those locations that had lockdowns and those that did not, or differed in the timing.  The results strongly imply that the observed declines in COVID-19 deaths (and thus the number of infections three weeks prior) was actually driven by the more moderate social distancing measures that were in place earlier, not the lockdowns, based on the timing.  And if there somehow was any extra effectiveness of the most extreme measures such as lockdowns, it is most likely only a short-term effect that eventually reaches a point of diminishing returns after which the "cure" really DOES become worse than the disease.

In other words, lockdowns early enough (and long enough) in the curve to successfully suppress the disease are unnecessary since more moderate measures apparently work just as well when done that early, while belated lockdowns are apparently worse than useless in terms of total excess deaths.

Perhaps the much-maligned Swedish mitigation strategy of moderate social distancing (not to be confused with the mythical "do nothing" strategy) really isn't so crazy after all?  The train has clearly left the station long ago for a suppression strategy to work at this point, and herd immunity is ultimately inevitable at some point in most countries (including the USA), if we're not already there in some places.

And support for reopening is clearly NOT just for right-wingers and fringe folks, by the way.   An even stronger left-wing and progressive case can also be made for ending the lockdowns sooner than later as well.  Keep in mind that Sweden is largely run by progressives, and even their self-proclaimed "conservatives" are still largely to the left of most American Democratic Party politicians today.

Thus, a careful and gradual but fairly speedy easing and re-opening is what is called for, in order to minimize the damage from both the pandemic itself as well as from the restrictions in place to suppress it.  The timing should vary by state and locality as well as exactly which types of restrictions to be eased and which types of businesses to re-open.  It would probably be best for all states to wait until at least two weeks post-peak (whichever is later) before making any major changes (though baby steps can and should be taken sooner).  Some states have already peaked in early to mid-April, others in latw April to early May, while others will not peak until well into May.  Hospitals would also have to not be overwhelmed as well (fortunately, very few are).  And testing would at least ideally be significantly ramped up along with contact tracing and individual quarantining--which should have been done weeks or even months ago--as well in order to move forward into the later stages of reopening.

(Though at this point, large-scale testing and contact tracing would probably best be put in the "wouldn't that be nice?" category rather than decisive.)

And of course we need a far more massive stimulus, and the Ten Steps to Prosperity that Rodger Malcolm Mitchell recommends.  Because even if we re-opened tomorrow, consumers will still be too cautious to come roaring back right away, and the damage is already done.  Especially a significant and permanent UBI, which would cure even the worst depression a lot sooner than not implementing a UBI.

Mitchell also recently wrote an article noting that reopening can be done a lot sooner, safer, and more cheaply simply by requiring everyone to wear masks in public (at least when practical to do so) and provide such masks for free to everyone via kiosks.  And with a little bit of nuance added to the mix, this seems to make the most sense of all for now.

Trump's latest guidelines for reopening are surprisingly reasonable now, likely because he finally consulted with experts rather than just going with his gut as usual.  But his administration is really lagging on providing coronavirus testing kits, which would clearly hinder any reopening strategy.  So they really need to speed that up.  It was, after all, due to the Trump administration's recklessness and negligence that this pandemic got so far out of control here in the first place, and it is estimated that up to 90% of the deaths could have been averted had they acted sooner and not screwed up so monumentally.

Thus the TSAP recommends that all states gradually lift lockdowns and partially reopen by Memorial Day (with many states doing so in early May) and fully lift all significant restrictions (except perhaps for restrictions on very large gatherings of, say, 500+ people) by the Fourth of July at the latest.  While some outlier states like Georgia rushed the reopening process (though interestingly, it still did not turn out to be the disaster that was predicted), most states are being cautious to a fault right now in terms of reopening, and you really can't blame them in the current climate of fear.

At the local (county and municipal) level, some hotspots may choose to still maintain tight restrictions or reimpose them in the event of a resurgence of the virus, but these restrictions should be exactly that--local.  In a similar vein, states may also impose modest, New Rochelle-style "containment zones" or "red zones" where local outbreaks or large clusters are observed.  As we move past the initial crude "sledgehammer" phase of suppression and into the more refined management phase, we need to be careful in how we calibrate such measures to avoid doing more harm than good in the long run.

As for school closures, that should really be decided locally for the most part.  While school closures are known to work very well in the short term in slowing the spread of infectious diseases in general, the longer-term effects are unknown, and children and teens seem to be at relatively low risk from this virus as well as not a particularly significant vector for spreading it to adults.  While some evidence strongly suggests that temporary school closures early in the epidemic curve have helped to flatten that curve (even if only indirectly to reduce the number of adults infecting each other), it remains unclear how long such benefits can last (likely not very long).  Some countries like Iceland, Denmark, and Taiwan have already reopened schools with no evidence of resurgence of the disease, and Sweden never closed them at all for children under 16.  Certainly they should at least plan on reopening in September at the very latest absent evidence of a large second wave of the disease.  And the usual summer school programs and even summer camps should be seriously considered as well.  At the very least, daycares (if not schools as well) should be opened yesterday, as it is really the only way to get the economy going since so many of American's workforce are parents of young children.

Regardless of the effectiveness (or lack thereof) of lockdowns, simply going straight from red to green overnight would be utterly foolish, since it's really still too soon to safely encourage a massive influx of tourists when the "all-clear" signal is given.  So we should thus go from red to orange, then yellow, then green, and we really only need a few weeks (not months) of orange and/or yellow in between.   And even green does not preclude very mild restrictions and common-sense precautions as well.

We have already flattened the curve.  Now let's keep it flat, without also flattening the economy as well.

UPDATE:  It should really go without saying, but we at the TSAP do NOT support any sort of reckless behavior, rioting, violence, or death threats against Governor Gretchen Whitmer of Michigan or any other governor or government official regardless of how much we dislike their policies.  We hereby denounce and condemn such behavior, period.  Peaceful protests which follow proper health and safety precautions, fine, but anything else has no place in our movement or any other movement worth its salt.

The Stimulus: Too Little, Too Late--But Still A Good Start

The much awaited stimulus package finally passed Congress and was signed into law by Trump yesterday.  While it is a good start, it is far too little and far too late to prevent a coronavirus recession, let alone recover from it--but it may just be enough to prevent or delay it from turning into a full-blown depression.  Hopefully, at least.

First, the FERAL Reserve fired their "bazooka" and cut interest rates to 1% and then to zero, restarted QE, and even cut the reserve requirement to zero as well.  The stock market still crashed.  Then they pledged unlimited cash assistance (via bond and asset buying) to any banks who may need it, a sort of QE on steroids or "UBI for the rich".  The stock market continued to tank, though ultimately seemed to reach an (interim) bottom after declining about a third from its mid-February all-time high.  Then Congress belatedly realized the need for fiscal stimulus, as the FERAL Reserve's measures really only shore up Wall Street and generally fail to "trickle down" to Main Street.  And now the FERAL Reserve is essentially out of ammo in terms of monetary policy.

The CARES Act, the third and most notable of the three coronavirus-related stimulus bills passed so far, among other things bails out businesses big and small, gives relief money to hospitals, expands unemployment benefits, and most famously, gives a one-time $1200 per person to most adults and $500 for children.  The whole package is $2.2 trillion dollars total  While good, this is still unlikely to be sufficient.   Rodger Malcolm Mitchell estimates that we need as much as $7 trillion in newly created dollars to really fix things for good.

What really needs be done are Rodger Malcolm Mitchell's Ten Steps to Prosperity, starting with abolishing FICA, implementing Medicare For All, and implementing Universal Basic Income (UBI), all paid for with new money creation.  We also need a Green New Deal and to improve our public health infrastructure as well.  Also, we at the TSAP believe that we need to pass an Act of Congress adding another, much more effective tool to the Fed's toolbox:  QE For The People, in which the Fed would deposit newly created money directly into the bank accounts of every single American.  This can be done in existing bank accounts, via debit cards, and/or by giving everyone with a Social Security number or ITIN an account at the Federal Reserve.  The latter was actually recommended by an author at The American Conservative of all places, who even described it as similar to UBI, showing that this idea is not just for leftists anymore, but rather transcends the entire political spectrum.  QE For The People will be far more effective than QE for the banks, since it works to stimulate the economy from the bottom up and middle out, not from the top down.

Also, the federal government should use its power of infinite money creation to purchase (at several times the market value) ventilators, masks, PPE, hospital beds, and any other essentials in short supply now, and distribute them for free.  And it would literally cost taxpayers nothing.  And yet, it took a crisis of such massive  proportions to finally and belatedly force the government's hand to even grudgingly give Americans free testing, paid sick leave, and modestly expanded food assistance in the first two stimulus bills.  Now is NOT the time to be cheap!

And lest anyone grouse about the National Debt, keep in mind that our Monetarily Sovereign federal can just print (or more accurately, keystroke) the money.  Yes, really.  That is what it means to be Monetarily Sovereign.  Money is just a simple accounting entry nowadays, so make the entry and be done with it.

Yesterday.

And if Fitch or Moody's or S&P threaten any credit rating downgrades for the USA, let them do what they will.  Then we should #MintTheCoin (i.e. a multi-trillion-dollar platinum coin) and call their bluff.  Problem solved.  Done, done, on to the next one.

It's not only about saving the economy from ruin, but now it's also literally a matter of life and death at this point.  Seriously.  So what are we waiting for?

UPDATE:  As of April, the Federal Reserve apparently has also begun helping Main Street as well as Wall Street, and taking unprecedented steps to do so.  Not quite full QE For The People yet, but hopefully it will eventually pave the way for it.  It's like they finally realized that a fully functioning Wall Street cannot really exist for long without a fully functioning Main Street.  After all, a purely FIRE economy cannot exist without an actual physical economy to back it up.

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. 

When Will The Trump Bubble Burst?

With impeachment now a foregone conclusion, the trade war still ongoing and damaging the economy, and Trump generally making a mess of things, people are wondering, when will the stock market bubble finally burst?  Like a dog on a leash, it eventually has to snap back to reality sometime.  All the corporate stock buybacks in the world or FERAL Reserve machinations will not be able to postpone it forever.  As history has shown, what goes up, must come down.  And the bigger they are, the harder they fall.

The massive federal "deficit" spending (which to be honest, is really a non-problem for a Monetarily Sovereign government like ours) from 2018 onwards is of course fueling the economy right now in spite of Trump's general wrecking-ball economic and non-economic policies.  More federal "deficit" spending = more money supply = more growth dollars = more economic growth, as a general rule.  But eventually even that will not be enough to stop the damage being done by Trump's recklessness, especially since so much of that new money creation is going to the where in least needs to go (into the hands of the rich and mega-corporations, Wall Street instead of Main Street.  Especially if the Republicans decide to actually start cutting Social Security, Medicare, Medicaid, and other vital programs while cynically using the "deficit" hysteria as a cudgel.  Yes, they will actually have the chutzpah to try that at some point.

You can really only do so much damage before papering over it no longer works anymore.

How To Prevent--And Cure--The Next (Or Any) Recession Or Depression (Updated)

With a recession likely coming later this year or next year at the latest, it is important to realize the causes so such recessions can be cured or even prevented in the first place.  Enter Rodger Malcolm Mitchell, the guru of Monetary Sovereignty, penned this important and timely article.

He notes that every single recession and virtually every depression in history has been preceded by a cut in federal deficit spending, or worse, a federal surplus.  That is not coincidence, since cutting the federal deficit slows the growth of the money supply, and surpluses actually shrink the money supply, all else being equal.  (Federal deficit spending = spending new dollars into existence.)  A growing economy requires a growing supply of money, and when the money supply fails to keep up with the demand for money for too long, the economy reacts by shrinking.  Thus, barring a truly massive increase in private debt (i.e. more money lent into existence by banks), deficit cuts ultimately result in recessions and surpluses result in depressions or at least really long and deep recessions.  And recessions and depressions can only be cured by increasing the money supply dramatically, typically by increasing federal deficit spending.  That's it.

And this makes perfect sense, since GDP is literally nothing more than a money measure.  To wit, GDP = Federal Spending + Nonfederal Spending + Net Exports.  Kinda hard to grow that without sufficiently growing the money supply as well.

Everything else is basically a sideshow, but that said, sometimes sideshows can be significant too.  Take the current Trump Trade War, for example.  This lose-lose, negative-sum game would have been recessionary by now had it not been for the massive growth in the federal deficit occurring at the same time, and eventually it may still cause the next recession in spite of the deficit.  But if the Republicans decide to cut federal spending because of manufactured deficit hysteria, that will cause a far worse recession or depression, on top of the consequences of the trade war.  And Wall Street recklessness can indeed cause financial crises, which of course can have knock-on effects on Main Street as well, as we have seen numerous times already.  Though even that is most likely due to the fact that stock market crashes--or any other asset price crash--will shrink the money supply, all else being equal.  And that is especially true when there is a "credit crunch" where banks suddenly refuse to lend as much as before, as we have seen in the wake of both the 1929 and 2008 stock market crashes (but not 1987).

What about oil and gasoline prices?  True, 10 out of the past 11 recessions have been preceded by sharp increases in fuel prices.  And that makes sense in a country in which oil is the lifeblood of the economy.  But even this is more nuanced than one may think.  Neither increases in interest rates alone nor increases in fuel prices alone seem to be enough to cause a recession by themselves unless such increases are truly extreme, which is very rare.  But the simultaneous combination of significantly large increases in both (that is, a sharp hike in the Fed Funds Rate by more than 2.00-2.50% AND at least a doubling of crude oil prices within a year or two) appears to be sufficient to cause a recession.  Of course, given how rare it is for recessions to not be preceded by cuts in deficit spending, it is not clear if sufficient deficit spending can be enough to prevent an oil-induced recession while interest rates are also hiked to prevent or cure inflation.  But at the very least, increasing federal deficits will cure such recessions once the inflation dragon is defeated.

The Fed recently cut the Fed Funds Rate by 0.25 percentage points (25 basis points), while noting that there would not likely be any more cuts this year.  And the stock market lurched downward upon that announcement, and lurched down again the following day thanks to Trump's further escalation of the trade war, and yet again following China's predictable retaliation.  Cutting interest rates is basically like pushing on a string, and in any case it may be too late to fully prevent the next recession that is largely induced by Trump's trade war.

Overall, we know what causes virtually all recessions and depressions.  That means we also know how to prevent and cure them as well.  That is, when recession hits, or ideally before it hits, we should increase federal deficit spending, or at least refrain from cutting it.  It's really not rocket science.

How To Prevent--And Cure--The Next (Or Any) Recession Or Depression

With a recession likely coming later this year or next year at the latest, it is important to realize the causes so such recessions can be cured or even prevented in the first place.  Enter Rodger Malcolm Mitchell, the guru of Monetary Sovereignty, penned this important and timely article.

He notes that every single recession and virtually every depression in history has been preceded by a cut in federal deficit spending, or worse, a federal surplus.  That is not coincidence, since cutting the federal deficit slows the growth of the money supply, and surpluses actually shrink the money supply, all else being equal.  (Federal deficit spending = spending new dollars into existence.)  A growing economy requires a growing supply of money, and when the money supply fails to keep up with the demand for money for too long, the economy reacts by shrinking.  Thus, barring a truly massive increase in private debt (i.e. more money lent into existence by banks) deficit cuts ultimately result in recessions and surpluses result in depressions or at least really long and deep recessions.  And recessions and depressions can only be cured by increasing the money supply dramatically, typically by increasing federal deficit spending.  That's it.

And this makes perfect sense, since GDP is literally nothing more than a money measure.  To wit, GDP = Federal Spending + Nonfederal Spending + Net Exports.  Kinda hard to grow that without sufficently growing the money supply as well.

Everything else is basically a sideshow, but that said, sometimes sideshows can be significant too.  Take the current Trump Trade War, for example.  This lose-lose, negative-sum game would have been recessionary by now had it not been for the massive growth in the federal deficit occurring at the same time, and eventually it may still cause the next recession in spite of the deficit.  But if the Republicans decide to cut federal spending because of manufactured deficit hysteria, that will cause a far worse recession or depression, on top of the consequences of the trade war.  And Wall Street recklessness can indeed cause financial crises, which of course can have knock-on effects on Main Street as well, as we have seen numerous times already.  Though even that is most likely due to the fact that stock market crashes--or any other asset price crash--will shrink the money supply, all else being equal.  And that is especially true when there is a "credit crunch" where banks suddenly refuse to lend as much as before, as we have seen in the wake of both the 1929 and 2008 stock market crashes (but not 1987).

What about oil and gasoline prices?  True, 10 out of the past 11 recessions have been preceded by sharp increases in fuel prices.  And that makes sense in a country in which oil is the lifeblood of the economy.  But even this is more nuanced than one may think.  Neither increases in interest rates alone nor increases in fuel prices alone seem to be enough to cause a recession by themselves unless such increases are truly extreme, which is very rare.  But the simultaneous combination of significantly large increases in both (that is, a sharp hike in the Fed Funds Rate by more than 2.00-2.50% AND at least a doubling of crude oil prices within a year or two) appears to be sufficient to cause a recession.  Of course, given how rare it is for recessions to not be preceded by cuts in deficit spending, it is not clear if sufficient deficit spending can be enough to prevent an oil-induced recession while interest rates are also hiked to prevent or cure inflation.  But at the very least, increasing federal deficits will cure such recessions once the inflation dragon is defeated.

Overall, we know what causes virtually all recessions and depressions.  That means we also know how to prevent and cure them as well.  That is, when recession hits, or ideally before it hits, we should increase federal deficit spending, or at least refrain from cutting it.  It's really not rocket science.

Ruh Roh. The Yield Curve Just Inverted

Yesterday, on March 22, 2019, the yield curve inverted for the first time since 2007.  Specifically, the spread between the 3-month Treasury and the 10-year Treasury has flattened and then flipped:  short-term yields are now higher than long-term yields, the reverse of what is normally the case.  It is a leading indicator of a coming recession, since it basically means that investors are becoming so bearish that they would rather lock in current interest rates as they expect rates to drop significantly in the near future rather than continue rising further.  And since it typically precedes the onset of a recession by 6 to 18 months on average, it means that the odds of a 2019 or 2020 recession are looking very, very likely.

And while the stock market seemed to be rebounding from the December mini-crash of 2018, it now seems to be once again teetering on the edge of the Big One, the coming Crash of 2019.  And with Trump's tariffs and resulting trade war really starting to bite hard recently, leading to GM and Ford both announcing layoffs, and American soybean farmers getting creamed, things really don't look so hot right now.

In Bernie we TRUST, in Trump we RUST.  Tired of "winning" yet?  Hey, American Brexit, now do you finally Regrexit?

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.

The Real Cause of "Secular Stagnation": Extreme Inequality

Much has been made of the concept of "secular stagnation", namely, that the current and future long-term potential for economic growth has slowed dramatically compared with the not-too-distant past.  Larry Summers defines it as "a prolonged period in which satisfactory growth can only be acheived by unsustainable financial conditions".  And at least since the Great Recession, the data do indeed seem to bear this out.  Most notably, for decades now the American economy has been requiring lower and lower interest rates to get the same effect in terms of boosting aggregate demand, the sine qua non of economic growth.  One can even argue that, relatively speaking, the United States will have had a whopping "lost two decades" of growth from 2000-2020.

But why is this happening, exactly?  Some blame demographic changes, particularly population aging, as one of the causes.  But while this theory may be at least partially true, it only seems to explain, at most, one-third of the trend of secular stagnation.  Others blame the decline in EROEI (Energy Returned on Energy Invested) as cheap and easy fossil fuels are increasingly less readily available than in the past, as well as the planetary limits to growth.  That is indeed true in the very long run at least, and all the more reason to end our inane and insane addiction to growth for the sake of growth, the ideology of the cancer cell which eventually kills its host, by the way.

But in the relatively near term at least, the biggest elephant in the room by far in terms of the causes of secular stagnation would be the extreme level of economic inequality in this country that is now back at Gilded Age levels.  Or should we say, at banana republic levels these days.  The top 1% controls roughly 40% of the nation's wealth, the top 20% controls roughly 90%, and the bottom 80% is left to fight over crumbs.  Wages have lagged behind the cost of living for decades despite exponential increases in technological progress and resulting increases in labor productivity.   The oligarchs at the top took nearly all of the gains.  And the rest of us simply cannot afford to keep spending enough to keep the economy going without digging ourselves deeper and deeper in debt.  Eventually, something has to give, since there is not enough aggregate demand, and increasing debt clearly cannot be sustained forever.

Thus, a more accurate definition of "secular stagnation", would be, in the words of the Economic Policy Institute, "a chronic shortage of aggregate demand constraining economic growth".  They really hit the nail right on the head here.  After all, one person's spending is another person's income, by definition, and any business without enough customers will clearly not stay in business for long.

Which, by the way, was also one of the causes of the Great Depression and the long period of secular stagnation that followed until WWII.  The Roaring Twenties also had similarly extreme inequality as well, along with a wildly unregulated financial system.  And we also had a trade war from 1930-1934, which further deepened the Depression.  The only real difference now (aside from the levels of debt today) is the Feral Reserve's monetary policy, but even that will run out of ammo very fast (as interest rates are already low) unless their methods are truly overhauled to accomodate today's realities.

But what about in the long run?  Well, the Keynesian punch line to that is, "in the long run, we are all dead".  Seriously, though, an inequality-induced chronic shortage of aggregate demand not only reduces actual economic growth in the short run, but also reduces potential growth well in the future as well.  That is because less demand today leads to less business investment tomorrow, degrading the economy's productive capacity over time and thus leading to significantly less growth in the long run as well as the short run, creating a vicious cycle and downward spiral.  Hoarding such ludicrous amounts of wealth at the top of the pyramid clearly has serious consequences for the economy and society, and with much larger effect sizes than originally thought.

Thus, policies designed to tackle economic inequality would be beneficial in this regard.  In addition to more progressive taxation of both individuals and corporations (like it was before Reagan) and/or the Universal Exchange Tax and/or Georgist taxation on natural resources, that would also include things like Universal Basic Income (UBI) as well.  And nationalizing the Feral Reserve to make it a truly public national bank that creates money interest-free would be even better still, since usury (interest) and debt-based currency are essentially the biggest weapons of the oligarchy.  Problem solved.

At the very least, in the meantime, we need to raise the minimum wage to $15/hour to give the lowest-paid workers a boost, which will also have a positive spillover higher up the wage scale.  Also, macroeconomic policy (both fiscal and monetary) should seriously prioritize very low unemployment over very low inflation, since tight labor markets have long been known to give workers much more bargaining power relative to employers. And labor unions also need to be revitalized as well.  Yesterday.

So what are we waiting for?

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 2019 at the very 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%.  Since then, the FERAL Reserve has raised rates five more times, most recently on March 21, 2018 to 1.50-1.75%, and many more hikes are on their way.  And combined with Trump's new trade war against China, that may have been enough to finally lance the massive bubble--make that the festering BOIL--that the stock market has been in for years now.  And since they now have a little bit of room to cut it--if they don't wait too long to do so--they probably seriously think that they can somehow engineer a soft landing if (and that's a VERY big "if") that is even possible at this point.  But not much room, really.

But many of the central banks of the world are still 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 (!) by 2016.  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 to suggest that such a move will be beneficial in the long run, 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 (unless the Trump tariffs really begin to bite). 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 was just two years ago seriously debating the legality of negative interest rates, 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 1929 or even worse.  And the silly idea of negative interest rates really needs to be abandoned as well.

More fundamentally, of course, we need to nationalize the FERAL Reserve to make it a truly public national bank that creates money interest-free, and take the power back from the big banks.  Ellen Brown has written books about that very subject.  In the meantime, though, the aforementioned recommendations would still work in the near term.

But let's be brutally honest here.  What we are really witnessing these days is the slow and painful death of a woefully 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 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.