The NASDAQ fell below 8,000 this week, but there’s no need to panic. The historic bull market in U.S. stocks remains intact.
With a bit of optimism and some imaginative chart projections, reaching DOW 40,000 before the decade concludes might seem feasible. After all, in the realm of abundant “fake money,” virtually anything is possible.
However, we view the prospect of DOW 40,000 as unlikely—comparable to the chance of a dinosaur crushing our car during the morning commute. A more realistic scenario might be a return to DOW 10,000, which could soon occupy the headlines of the Wall Street Journal.
Meanwhile, as we bask in this “permanently high plateau,” let’s examine another dubious record that is currently unfolding with uneven precision. Notably, our ongoing economic expansion is nearing a critical milestone, clocking in at 111 months. This period is fast approaching the post-World War II record of 120 consecutive months of growth, which occurred from March 1991 to March 2001.
If projections hold, by July 2019, this economic expansion will complete its 121st month. What an achievement! One would think that such a lengthy period of growth would guarantee widespread economic prosperity. How else could a decade of expansion yield anything but positive outcomes?
Yet, in the realm of artificial money, the unusual and inconceivable can transpire, distorting our understanding of the economy much like a contentious Supreme Court confirmation hearing. What are we to make of this?
Real Trouble
This prolonged economic growth is unlike any other, particularly in its exacerbation of wealth inequality. The affluent have reaped substantial rewards, accumulating paper wealth through surging stock and real estate prices, which have predominantly favored the elite. The financial profiles of the rich have never appeared so robust.
Conversely, in the neighborhoods where homes are closely packed and resources are stretched thin, a starkly different reality prevails. Here, the aftermath of the 2008-09 recession lingers; incomes have stagnated, and well-paying jobs that can sustain families are scarce. Adding to the plight, a significant portion of the population finds itself dependent on government-sponsored opioids.
This stark divide between the wealthy and lower-income citizens, including a shrinking middle class, has emerged during what is ostensibly a record-breaking economic expansion. Remarkably, the wealth generated in recent years has left little left for wage earners.
The true challenge looms just ahead, as turmoil tends to emerge at the most inconvenient times. When the economic upswing concludes and the decline begins, a chaotic scene ensues. That is when real trouble surfaces.
Moreover, this trouble arrives precisely when the liquidity of credit vanishes, leaving behind a desolate wasteland. At that point, stock and real estate values—currently inflated beyond any economic foundation—will plummet. The illusion of wealth will dissipate faster than one can say “Jack Robinson.”
Corporate and consumer debts, which have ballooned over the last decade, will suddenly become insurmountable. As layoffs increase, consumer confidence—the last line of defense against a recession—will quickly erode.
Simultaneously, a moment of clarity will arrive with unsettling clarity…
Thirteen Reckonings Hanging in the Balance
A striking feature of the U.S. political landscape is the widespread disagreement over what constitutes the facts, or how the economy should operate. Should it be a laissez-faire system with minimal intervention, or should there be more regulatory oversight?
The conversations also extend to direct transfer payments and strategies for currency debasement. In these discussions, both Republicans and Democrats appear inconsistently aligned. Any remnants of a coherent philosophical framework have been diluted to the point of being unrecognizable—much like subpar beer.
The public, too, struggles to maintain a consistent narrative. Their expectations and demands from the government seem to shift with every breeze. Yet, we anticipate that these conflicting desires will come to a head during the next credit crisis and economic downturn. Herein lies a partial catalog of surrender—thirteen reckonings that are currently hanging in the balance:
- Everyone calls for smaller government, as long as their entitlement payments remain intact.
- Everyone distrusts the government, until economic troubles prompt them to seek federal bailouts through favorable refinancing.
- Everyone advocates for free trade, but only until their job is offshored to China or Vietnam.
- Everyone criticizes Made in China products, except when they find them at Walmart or Costco at unbeatable prices.
- Everyone desires safe, state-of-the-art infrastructure—provided their taxes don’t increase to fund it.
- Everyone loathes inflation, unless it benefits their stock portfolio or inflates their home’s value.
- Everyone condemns government deficits until they’re confronted with the reality of budget cuts.
- Everyone supports a trade war, as long as it doesn’t raise the prices of flat-screen TVs and iPhones.
- Everyone champions green energy, but only if it comes at their neighbors’ expense.
- Everyone endorses universal healthcare, prior to needing to visit a doctor.
- Everyone delights in cheap credit, but only until it leads to mass defaults on debt.
- Everyone praises government-sponsored pharmaceuticals until their loved ones suffer from them.
- Everyone wants one thing and another… but only if it doesn’t involve them bearing the burden.
When the economy falters, and everyone finds themselves on the brink of financial destruction, both citizens and politicians will lament together. They will demand that the government “take action” right up until the moment the façade of fake money crumbles.
At that point, conditions will take a distinctly grim turn.
Sincerely,
MN Gordon
for Economic Prism
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