I continue to view this period as very similar to 1973, with recession imminent (technically defined; we are actually in a low grade depression). The blue forecast line in the graph below is judgmental.
In A phase space, it is clear that we are turning the corner into the downturn; it is only unclear how much longer the Fed can prop it up. We are at the point A = 1.5, Delta A (YOY change) = 0.8 on the graph below, which shows four decades of history. The slide downhill comes next, whether late this year or several years from now, it is hard to tell. There is no forecasting involved other than assuming the A attractor is relatively stable. This is really just to say that “the law of the business cycle has not been repealed.” I just find it hard to believe that with the incomes of roughly 90 percent of the American population falling in real terms, that even with the extraordinary lack of labor force participation recently, that a recession can be avoided in the near term. Perhaps we’ll have a recession without an increase in unemployment (in the sense of two or more quarters of negative real growth). Whether the NBER in its wisdom would find that to be a recession is totally irrelevant. What I am forecasting is the collapse of confidence that always accompanies the business cycle downturn, and I do believe people will be smart enough to smell the coffee at some point regardless of the published unemployment rate. Times are changing.
The adaptation level is now at 8.6 percent unemployment. Any uptick to within a “just noticeable difference” of that number will probably signal imminence of further decline. Just rising above 8 percent will probably have psychological significance.
I read the attack on paper gold as a harbinger of things to come. There is a lot of liquidity looking for a buy point. TPTB might decide a quick, “controlled” rout is in their interest.
I only link to stuff anymore that really got me off. Here's Bruce Sterling's take on the unholy symbiosis of the high tech startup society and the new international Money Lords who are driving the middle class out of existence, delivered at a design conference in Berlin. He just nails it (sorry for the messy link, but I'm doing this on an iPad and don't know all the commands):
When will a global conscience arise? There is no evidence of it among most of the Money Lords.
H/t boing boing via Ritholtz
If you didn't catch this on Mish, it is must-see. Link is below. In case you had any doubt about the rot pervading Washington and Wall Steet.
I posted this over at macrofuge.com:
In story form: when financial capital (ownership of “physical capital” aka the means of production) becomes too concentrated, a “failure of effective demand” occurs as the owners of the means of production lower wages to the point where consumption spending begins to fail; this depresses “animal spirits” quite rationally because most [true] investment demand is a derived demand (from consumer demand); hence the preference among those owning the means of production in the form of financial capital to prefer rents and speculation (with their cash) over investment in “physical” capital; through influence the rentiers lower capital requirements and create an inherently unstable monetary structure, within which they fight like pirhanas over speculative opportunities, which leads to a cycle of intermediary collapses, extreme monetary base creation, and bailouts using sovereign powers of taxation to pass the loss along to the people; once trust on the monetary unit vanishes, perhaps with an expropriation of deposit funds, the stage is set for (1) deflationary collapse, as bank runs overwhelm the deposit insurance system, and (2) hyperinflation, as the monetary authorities order banks to issue prepaid debit cards to anyone wanting to withdraw his or her money from the bank to “restore confidence.” They then go and spend it as fast as they can.
The structural reforms needed: no more (or much higher reserve level) fractional reserve banking; steeply progressive income and, for a time, wealth taxation to restore a healthy circulation of income and product. See Emanuel Saez’s recent interview on this at http://www.bostonreview.net/BR38.1/emmanuel_saez_david_grusky_income_inequality_taxes_rent_seeking.php
Marx has the last laugh.
Personal note: the bank has cut my position, and I am seeking new opportunities. While I was happy to support small business lending, which is what I did, it was hard for me to reconcile working in such a manifestly corrupt industry as banking with my personal values. The Fed and the big banks are sucking the life blood out of the economy. As has recently become public knowledge, the big banks’ “profits” are manufactured out of their influence (being “too big to fail”). Still, small businesses need loans (sometimes), and I felt good about supporting that, although I would encourage anyone thinking of starting a small business to avoid debt if at all possible.
We are living through a period of history when the Devil has much of the world by the throat. One can only hope and pray that it ends better this time than it did in 1940. It will take a miracle of collective willpower.
My family was friends with Peter Drucker’s family when I was growing up. I recently got back in touch with Drucker’s daughter, about my age. Peter and Doris Drucker escaped from Austria in 1937 for America. They were concerned about the Nazis. Both Druckers were of Jewish extraction.
Peter died years ago, but Doris, a brilliant woman, lives on in Southern California, now 102. I asked my friend if her mother saw any similarities between what is happening in America now and what she saw in the 1930s in Europe.
“My mother is paranoid,” my friend said. “She’s says we need to keep cash on hand to bribe the guards at the Canadian border.”
Go read Jim Quinn’s last few posts at www.TheBurningPlatform.com— “No hesitation targets” and “Wall Street titans screw you every day”.
Source: FRED. Data to 2012Q4. The blue line is the value of the most recent observation. Almost every other time this value has been seen the economy has been either going into recession imminently, or within a year or so. Only in the 21st century has the economy managed to avoid recession by bouncing off the blue line.
The green line is linear trend over the period from 1950. The red line is the trend over the past 30 years, which suggests that the US economy is headed for a state of secular stagnation and possible collapse.