Lies only work for so long and then all hell breaks loose.
A reader writes that the recession I have warned about has failed to materialize. He is right which scares me more. I wrote before about "rubber band theory" - that when you stretch reality with fiction, it snaps back eventually. And the more you stretch the truth, so to speak, the worse the snap-back will be.
I started this blog back in 2008, when the world was recovering from the real estate market crash of 2008 - the worst crash since 1929. What caused this crash? Lies, plain and simple. Real estate prices were jumping 20-30% a year and even professionals in the business couldn't figure out why - and didn't expect it to last. "We can only hope for a soft landing" they said, hoping prices would just freeze for a year or two to let the market catch up - or maybe decrease slightly. Instead, nearly overnight, they dropped like a bomb - over 50% in some places.
Truth caught up with the lies. And the lies were nothing-down liar's loans with "optional payments" and variable interest rates or balloon payments. Everyone wanted to get in on the deal, just as they wanted to get in on gold and "crypto." Whatever happened to the gold and silver bugs, anyway? All that talk of $5000 an ounce went away very quietly. Sure, the price went up - so did the price of everything else. But the average investor hardly got rich from it, in fact, most lost money at it, when mean old reality kicked in.
Nearly two decades later, much has changed while remaining the same. People are still using lies to manipulate markets - and politics - but the rise of social media has extended the reach and power of liars by a factor of 100 or more. Someone posts a rumor on Facebook and, like the old game of "telephone operator" it gets amplified and mangled until people actually believe that immigrants are eating pets (and they are also getting free government handouts, which causes one to wonder why they would eat pets, but let's not let logic ruin a good story, right?).
Real estate is once again wildly overvalued, based of speculative values based on AirBnB rental income, even as more and more municipalities outlaw such rentals in residential neighborhoods and as interest rates went up. "Stonks" are bid to the stratosphere, for tech companies (and I use the term "tech" loosely!) that have never made a profit and have no plans to. Stocks are becoming little more than a vehicle for scamming greedy retail investors who hope to strike it rich. Meanwhile, the people manipulating stock prices rake in the dough - aided and abetted by our obsession of being online.
But a recession? Not yet, although every major retailer and manufacturer is trimming their sails - laying off employees and cutting back on expenses, to maintain profit margins to appease investors and the C-suite. Software companies were first to lay off, followed by many manufacturing companies. The latest is PwC (poor Mr. Waterhouse, reduced to lower case and italics no less!) is laying off 5000 people. Perhaps they are replacing them with "AI" - wouldn't that be an audit nightmare?
I thought or hoped that our overheated economy would pull back with a "soft landing' years ago, but CoVid stepped in, throwing a wrench in the works and delaying the inevitable. Post-CoVid spending goosed the economy further, along with free money and low-cost or no-cost interest rates. So, the rubber band stretches more and more, and the snap-back is going to get worse and worse. The national debt is now a staggering $35.5 Trillion or nearly $100,000 per citizen today, skyrocketing in recent years as the graph above illustrates. I'm not sure how I can pay back my share, how about you?
You can be sure if Kamala Harris is elected, the GOP will dust off the "debt clock" they've kept hidden during the Trump years, and demand cuts in Federal spending just at the time such spending would prime the pump out of recession. Wash, rinse, repeat.
Maybe we are doomed to go through these economic cycles. I noted time and time again that fiscal memory of most Americans extends about 18 months or so. A year-and-a-half after filing for bankruptcy, the average American is down at the car dealer, signing papers on a new "luxury" SUV for only $80,000 on a 16% note.
I guess this is just part of the human condition. I only wish it weren't so!
