The Great Recession Blog
by David Haggith
In 2015, I wrote about The Great Recession 2.0 that was coming upon us. I called it “The Epocalypse” to signify an economic apocalypse that would be epic in scale and that would begin a new epoch on earth — a turbulent time of global economic collapse. It described my overarching vision of our journey ahead.
By “vision,” I don’t mean some kind of mystical enlightenment, but the broadest view of the coming economic collapse I could paint at the time. I grasped its global breadth correctly, but what I didn’t foresee was how the end would expand through time in repetitions like a recurring nightmare — where each cycle of failure and recovery becomes shorter but more intense than the last, like waves pounding the beach in a surreal nightmare where each crest arrives more rapidly and fiercely than the last … like time is being compressed until the recurring events blur into one big rush of a tsunami flooding inland.
The following is an introduction to a series of Patron Posts (at least two) in which I’ll be exploring this seemingly endless collapse, the first of which will be published tomorrow. Our economic demise has has hit us in jolts where various stock market crashes or corrections have come at the points where I said the market would crash, but have not initially been as severe as I thought; yet each has been steeper and deeper than the last with shorter times in between.
The reason the event became prolonged like this was that central banks went to far greater extents than I ever imagined they would in their repetitive recovery efforts. Each time they tried to back out of the recovery they believed they had created, they backed out of their backing out more quickly because of how rapidly their recovery failed when their support was withdrawn. That, in itself, tells you how destructive the original collapse would have been, as envisioned, if central banks had not gone through such an elaborate cycle of ever-greater and more-inventive efforts to avoid the increasing pain that re-emerged each time they removed their artificial life support. They are torturing the patient to death with their life support mechanisms, rather than letting the natural economic cycle of death and rebirth take place.
To be fair to myself, I did say the Epocalypse would not happen all at once and even that parts of it would be quite a ways down the road, but I envisioned more of a slowing train wreck than a crushing force of faster and faster cycles. I think it is now time to revisit my view of the Epocalypse as an even larger cycle of ruination on the heals of repair crashes over us.
I last revisited it in 2020 as we were deluged by the COVIDcrisis, taking note that…
Things did not go as badly as I said they would back in 2015, but only because the Fed did not go as far as it had led the world to believe it would go [in backing out of its recovery plan]; and everything I said about what would happen in the economy was predicated on what the Fed said it was about to do. Now that the Fed finally did go that far (in 2018), all of that is coming back around to where I think it is time to revisit my descriptions of the Epocalypse, while bringing the scenario up to date with current events.
The endless waves of tribulation
Major parts of the Epocalypse did happen after both periods when I was writing about it: We saw the worst January plunge on record in 2016 (the month I gave for the market’s crash), but the market did not fall 20%. Then the stock market crashed a full 20% due to Fed tightening at the end of its “Great Recovery” project in the fall of 2018 when the Fed proved it can never tighten (with the whole year playing out as I said it would). We barreled straight from that into the Repocalypse of 2019 (the great Repocrisis between banks, which I had predicted for the second half of the year due to the Fed’s tightening that would imperil financial institutions). That only grew worse until the Fed went back to full QE (just as I said the crisis wouldn’t end without returning to full QE because the Fed cannot tighten so must put back all the money it had removed). Then we dove straight from that into the steeper and deeper COVIDcrash of the stock market in March, 2020, (which I indicated in January, 2020, was “imminent” and which gave the Fed the “permission” it needed to launch back into all-out QE again). At that point, we fell directly into the nation’s shortest recession with the steepest most staggering plunge in GDP ever (made short again due to the greatest QE in history being joined by the federal government’s support in the form of massive bailout programs for all industries and first-time-ever huge amounts of helicopter money). Every recovery required more strain, more power applied. After a short-lived burst of glory from all of that new money and from sudden economic reopening, we slid in economic meltdown toward a covert recession few saw coming in the last few months of 2021 as the Fed merely tapered its QE, which it had to do because we were roaring back into the hottest inflation since the seventies and early eighties (which I had also assured everyone was coming). That gave rise to bond vigilantes and a slow stock market crash that has taken two major indices down more than 20%, and now the world is facing a global crisis due to Putin’s War and the greatest economic sanctions of all time!
Do you see where I’m going with all of that? From the time when I said the Epocalypse would begin, it’s just been one damned thing after another literally … as in each event has the qualities we would associate with some form of economic damnation — pestilence (COVID), wide social unrest (BLM, Antifa, Yellow Vests, etc.), war in Europe worse than anytime since World War II (with many talking of World War III and outright threats of nuclear missiles) and now likely famine in many parts of the world and economic breakdowns all over the globe, as I’ll lay out in the first Patron Post in the series. So, even though the Epocalypse did not hit in quite shock-and-awe manner I projected, the events have been a relentless cascade of the kinds of major crises I described, and it is still far from going away.
The extraordinary financial efforts made to recover from each of the crises only goes to prove how severe they would have become if not for epoch financial rescues by central banks all around the world. You can judge the size of the crash that would have happened by the scale of the effort it took to prop it up and by the need to redo those historic rescues in continuous cycles because the rescue efforts, mastodon-sized as they are, never leave us in a recovery that can endure for even a year when they withdraw their support.
When former Fed Chair Janet Yellen infamously proclaimed at the end of the Fed’s Great Recovery that we’d never see another financial crisis in her lifetime, I joked that I guess she didn’t expect to live long. Since then, we have gone from crisis to crisis to crisis.
When I first wrote about the Epocalypse all the way back in 2015, I explained the situation this way:
To understand why this global economic collapse will be even worse than the Great Recession, you also have to understand that we are still in the Great Recession. This is what the big, giant heads [on television] don’t get. What we are about to experience is merely how deep the Great Recession really is once all the props have failed.
You see, as result of trillions of Fed dollars, we not only did not feel how deep the Great Recession would have become, but times have been extraordinarily good financially; however, this drug-induced euphoria got its high from massive hits of Fed QE, requiring larger doses every time just as I said would be required due to the Law of Diminishing Returns. Eventually the Fed could not do the lifting on its own, so the federal government had to join in with all of its muscle.
As I explained in a series of articles I called “Downtime,” which I syndicated to newspapers like The Hudson Valley Business Journal before I began this blog, Fed life support was the only thing keeping the patient alive. The Fed created a codependent economy to which I said, as soon as you remove life support, the comatose patient will begin to die. It has proven out that, every time the Fed has removed life support, the patient has declined to such ill health that the Fed had to rush back in with greater life support.
The debt trap
While my failure to see how this would grind on for so many years is a bit humbling, its also evidence of just how much the Great Recession wants to swallow us into an ever-deeper belly. We are never able to escape its gravity because we chose a course of pushing our problems ahead (“kicking the can down the road,” we often heard). We avoid the extremely hard political work of resolving the problem by filling them with mountains of money; but the material for those mountains of money has all been dug by creating pits of debt.
That has been my central thesis from the beginning: You cannot solve a debt problem with more debt; you can only prolong it.
The central flaw in this group thinking is that economies can be built over ever-expanding holes of debt. One would think the error of such thinking would be self-evident — as it is hard to build anything structurally secure over an ever-expanding hole — but clearly it is not self-evident, for the world has stormed down that path to peril hand-in-hand, singing gleefully all the way. The Fed and its fan dandies have engineered a recovery by digging out the biggest hole of debt the world has ever seen. And that’s one very good way you know this depression is going to be the worst the world has seen. Just look at the conglomerated size of all the national debt holes dug around the world.
The central bankers’ solution to building over an increasingly gaping maw of debt was to hang the entire economy from an ever-expanding balloon of money created out of thin, hot air. The problem with that is that the air only stays hot for as long as you continue fueling the fire that heats it, which they fueled by digging out more and more of the coal underneath it. You keep fueling the economy to keep it afloat, but you keep digging the hole deeper and wider that is the reason you have to fuel it and keep it afloat in the first place.
This is the point at which common sense should tap anyone on the shoulder and say, “Uh, what are you doing?” It would seem self-evident that you cannot superheat the money supply forever, and that the whole rigged economy will start to fall into the expanding hole as soon as the fuel gets turned off; but, then again, it would seem self-evident that you cannot create enduring prosperity out of ever-expanding debt.
Apparently it was not.
As I have said from the start of this blog, the belly of the Great Recession has only been propped up temporarily. There has been no recovery, for recovery would require building a new and secure foundation to replace the one that crumbled out from under us, but we are resting on a patched version of the same flawed foundation that led to economic collapse in 2008 and 2009. The Paul Krugmans and other big-name economists of this world recommended that we solve a crisis that was fundamentally a debt-created problem by creating vastly greater debt, but we also solved a housing crisis by recreating a housing crisis. We’ve continued the same mortgage-backed securities built of low-quality mortgages … and we’ve managed to get housing prices right back to the stratosphere they were in before the last collapse. We have learned absolutely nothing.
You see, ending all the free money, assures inevitable collapse of the hot-air-balloon-sized Everything Bubble. We saw that when the Fed last tried, and it is now trying it again at a time when its efforts will be further plagued by Putin’s War and all the wartime sanctions imposed to lay siege on Russia.
From my first predictions of the Epocalypse that I tied to the Fed’s first tightening, we have lived in a constant state of crises, and now we have entered another. I cannot say, as Yellen did, that it will be the last in my lifetime unless I wish to cut my life short.
The recession upon us
So it is that, having just finished my series on the Everything Bubble Bust prior to Putin’s War, I already need to look at how Putin’s War and the resulting wartime sanctions will magnify what I’ve written because this is where we already are:
“Over time, the three biggest factors that tend to drive the U.S. economy into a recession are  an inverted yield curve,  some kind of commodity price shock or  Fed tightening,” said Ed Clissold, chief U.S. strategist at Ned Davis Research. “Right now, there appears to be potential for all three to happen at the same time.”
Number 2 could be seen when I wrote,
This global embargo is happening right at a time when we were also already about to see the collapse of the Everything Bubble because the Fed and other central banks were entering a time of their fastest, greatest moves from easing to tightening ever seen. Now we have to factor in how all of these sanctions — not just oil but the Everything Sanctions — combine to make the economic collapse I have been predicting even worse.
At that point, we had already seen massive commodity price shock over the previous six months, made worse by the present sanctions; and now #3 is here as the Fed has started actual tightening with its first interest-rate hike. Each of those are said to be enough to start a recession by themselves, but we had not quite seen the one thing that is the Fed’s best predictor of recessions — #1, the inversion of the yield curve. However, we were very close:
The U.S. Treasury yield curve has collapsed to near inversion — a situation when short-term rates exceed those with longer tenors, which has often preceded a downturn.
Since that statement was written a few days ago, we have already seen two points of the curve move into inversion (see points highlighted in yellow below), meaning bonds at those maturity durations trade at higher interest than later durations, which are supposed to have the higher interest to compensate for the greater risk across more time and events. In a recession, however, it is assumed the risks become more immediate, so rates at the front end of the curve rise. In the past few weeks, as the taper ended Fed control of the curve and the sanctions began and the Fed started tightening, the front end of the curve shot up to look like this:
Goldman Sachs, in a display of its brave forecasting ability, says the probability of a recession in the next year is now 35%. I would say they are financial cowards or just blatantly dishonest (like the Vampire Squid was back in 2008), and I would put the probability of a recession starting in this quarter at 95% because the yield curve is inverting now. As I’ve already stated several times, we could expect the yield curve inversion to be the late arriver to the party this time, entering after recession already began because the Fed froze it out with two years of absolute yield-curve control which it has only just finished backing out of.
The journey before us
I will write about how the wartime sanctions magnify the collapse I’ve already laid out in a two-part (maybe more) Patron Post because I also promised my next Patron Post would lay out how the war and all the global sanctions will likely bring profound shifts in the ‘world order,’ altering and accelerating the path toward globalization and control. I’m going to save all the stuff about how all of this changes and moves globalization forward for part two because there is so much to say just on how it amplifies the trials of the Epocalypse.
So, this brings us to a revision of the Epocalypse that I once saw for the collapse of the Everything Bubble in light, accelerated by Russia’s Imperial aggression so close to NATO nations and within a country that considers itself European because of how all the sanctions that have come in response will speed up the collapse of the Everything Bubble. Then in another article this weekend, we’ll come to how the success of those sanctions, contrary to much of what I have been reading by other pundits, will expedite globalism and its expansion toward a digital global currency.
What I want to present in the series is a realistic worst-case scenario. Here is what I mean by that: I’m going to rationally lay out what we can expect from all the major impacts that are in play right now — realistic scenarios. I will leave out all the stuff we cannot predict that could compound it, such as… China attacks Taiwan, NATO gets involved in policing a no-fly zone over Ukraine, a drought hits US grain crops making food shortages worse, a much more virulent and deadly strain of COVID takes another sweep through the world, etc. None of those are remote possibilities in the world we actually live in now; they things can happen and are not even particularly unlikely, but I’m limiting my view to the things we know are already happening because that in itself is going to be bad enough. So, reality-only-based projections, no hypotheticals.
Yet, the COVID re-contagion is already becoming another stark reality, so let’s start there since it has just begun to re-emerge as it stands right now (no hypotheticals).
COVID continues to be a pox upon us
While it has nothing to do with the war or the sanctions, we may need a reminder here that COVID has not passed on by. It’s been off our radar screens because the war grabbed and riveted our attention, but a new COVID wave is already building.
China is scrambling to address its most severe Covid-19 outbreak in two years, reporting soaring cases in a fresh wave that has seen the country tweak its zero-Covid policy…. It came as 16 provinces reported new coronavirus infections, as did the four megacities of Beijing, Tianjin, Shanghai and Chongqing….
And since the port of Shenzhen – one of the world’s busiest container post is now also locked down, expect a fresh round of cascading chaos in Transpacific supply chains, just in time to join the snarled Transatlantic supply chains as the Ukraine war cripples all global seaborne traffic.
On Tuesdays, China, even with its stringent zero-COVID lockdown policy, was experiencing more than 5,000 new cases a day. As a result, we already have a new lockdown in China due to COVID that is already affecting trade again:
Beijing’s decision to lock down 17.5 million people in China’s de facto ‘tech capital’ of Shenzhen is already creating serious problems for global supply chains. Now, it appears that among the earliest casualties of this latest lockdown is the perennially popular iPhone. Because, as Bloomberg reports, Apple supplier Foxconn has been forced to scale back production at two sites used to make iPhones due to the lockdowns…. The shutdown risks creating a supply shock “on top of a supply shock” and leaving the Fed with little to no room to actually get inflation under control….
There are other reasons to worry about supply chain disruptions. The city is also home to one of the world’s largest container ports. Any disruption there could have a serious impact on global supply chain. Meanwhile, during a similar lockdown last summer, the Yantian port in Shenzhen was forced to shut down for nearly a week due to infections among its workers. This caused a massive backlog of goods that took months to finally clear. It also caused a spike in global freight rates.
In fact, since the sanctions began, global freight rates from China to Europe rose from $8,000 per container to $40,000 because Russia has, in retaliation, banned train transport from China to Europe.
In total, there are now…
At least 13 cities nationwide were fully locked down as of Tuesday, and several others had partial lockdown…. Residents of several cities there including the provincial capital of Changchun — home to nine million people — are under stay-at-home orders.
So, China has a growing COVID problem, which it treats with austere lockdowns on top of a huge new sanction dilemma, leaving China scarcely open for business at all. (Which, on the good side, also means it is no condition to be starting a war with Taiwan, so probably won’t so long as Taiwan doesn’t provoke it … or Mike Pompeo with his pompous trips that would appear to be provocation in themselves.)
That is not a future possible COVID lockdown (not a hypothetical Black Swan), but a current actual swath of new lockdowns due to COVID that have yet to play through the supply chains as parts shortages impacting all sorts of additional products as well as loss of imported final products to market from China. And one of the regions experiencing the heaviest impact is their tech hub, Shenzhen. So, it means expect shortages and higher prices for longer. If anyone has been telling you they are about to go away, don’t listen!
Scenes of closed neighbourhoods, panic buying and police cordons cast back to the early phase of the pandemic, which first emerged in China in late 2019…. “The control measures were doing pretty well before…. Now it starts again, when will it ever end?“
Germany is also being struck with a new COVID outbreak, so we are not done with the economic impacts of COVID yet, even if Putin’s War has taken our minds off of it. (I am not advocating the reactions taken against COVID, but we know what they are, and we know how devastating they are economically, and we know they are not likely to change much as we see in China and Germany):
German Health Minister Karl Lauterbach said the impact of COVID-19 in the country had reached a “critical” level after the number of infections rose to a record high this week…. Despite planning to further relax COVID-19 rules, Germany logged a record high number of coronavirus infections in 24 hours on Thursday, and a figure almost as high, 252,836 cases, on Friday…. “The situation is objectively worse than the public mood,” the health minister said. He said that some people’s belief in Germany, including politicians, that the pandemic was now over, was an “error of judgement. We can not be satisfied with a situation in which 250 people are dying every day and the prospect is that in a few weeks more people will die,” he said.
While Germany still plans to lift many of its COVID restrictions nationally, it is leaving it up to local jurisdictions to enforce them as they see fit in hotspots. Clearly COVID is not done with us yet, or we are not done with it, depending on how you want to look at it.
Experts in Europe claim that the strain they’re seeing is a mutated form of omicron. It’s a subvariant known as BA. 2, which appears to be more transmissible than the original strain, BA. 1, and is fueling the outbreak overseas.
In Hong Kong, leader Carrie Lam called for more vaccinations as rising infections raise alarm bells. Lam said on Friday that the city’s COVID-19 vaccination program will focus on its elderly and children while authorities battle to curb climbing infections and death rates…. A World Health Organization (WHO) official on Friday had urged the Philippines to remain vigilant against Covid-19, warning that another surge was “inevitable….” The United States is extending the requirement of wearing masks on planes and public transport for one more month, federal officials said.
More than a third of the CDC’s wastewater sample sites across the U.S. showed rising Covid-19 trends in the period ending March 1 to March 10
Simply put, we’re not out of the woods, even if COVID went off the radar for a bit. In addition to global central bank tightening, which is highly likely to pop the global Everything Bubble, and in addition to the multitude of new sanctions layering down like fathoms of sludge on top of this deep recessionary collapse I was already saying we are entering, we still have an ongoing plague that is still causing and will continue to cause massive supply-chain interruptions around the world that haven’t even played through yet. And that is just from what we know of COVID’s actual doings right now without any new strains causing new problems.
If you would like to read the Patron Posts that will lay out the Epocalypse I believe is going to take some more serious steps forward this year, as well as those that recently described the Everything Bubble Bust, then all you need to do is become one of my Patrons at the $5 level or higher, depending on how much you would like to support my continued writing. The first update for the war and sanctions should be out tomorrow with, at least, one more to follow on its heals. You can use the link at the bottom of this article to sign up. Likewise, if you’d like to see how I laid out the cycles I just talked about, which we have been experiencing since our crash into the Great Recession 2008, in order to see why they continue and get worse each time, I’ve collected those articles together in this little ebook: