Reading Time: 2,820 words, 8 pages, 6 to 11 minutes.
Updated July 23 with ‘Demographics’
My forty-year old Godson was belly-aching about the lack of jobs. He whined it’s all the Boomers’ fault.
I tore a few strips off him. I asked him WTF am I wasting my time researching and writing these articles if he doesn’t read them. Since I had him cornered, I told him a few things he obviously didn’t want to hear.
We are in an economic depression. It was predicted in Strauss and Howe’s 1997 book “The Fourth Turning” [Link] that occurs every four generations as a time of great turmoil. Their Generational Theory is a framework which explains where we are, how we got here and where we’re going. For more details see ‘Notes” at end.
This is a ‘Stealth Depression.’ The government is doing its utmost to hide it with fake statistics. Their ass media handmaidens are carrying their water telling us everything is wonderful. And, if my Godson believes the ass media, he deserves his fate.
At the bottom of it all are fake inflation (CPI) statistics. They distort everything else because most economic data is ‘inflation adjusted.’ Consequently, when other economic data such as GDP growth is adjusted with fake inflation statistics, then those numbers are also distorted.
Note: there’s a difference between inflation (increased money supply) and Consumer Price Index (CPI), but I used the terms interchangeably to make it easier for my Godson to understand.
Anyone who buys stuff or reads John Williams Shadow Stats [Link] knows that the actual inflation rate in 2017 is roughly 5% and NOT the bullshit 2% (or less) that the government claims. I say “roughly” because I rounded the numbers to make it easier for him to understand.
I wish I could have shown him the ShadowStats graph below.
Consequently, every so-called 2017 statistic that’s “inflation-adjusted” is off by 3%. (Hint: 2 – 5 = -3)
The government claims that (inflation adjusted) 2017 GDP growth is roughly 2%. Since it’s understated by 3%, it means the economy is “growing” at negative 1%. In other words, the economy is SHRINKING by 1%. And, that’s only this year.
Looking at the chart again, you’ll see that since 2001, the real inflation rate (the blue line based on non-manipulated methodology) bounced between 2% and 9%. This means the government’s bullshit inflation rate was understated between 0% and 7%. The ‘mean’ (roughly average) overstatement is roughly 3% to 5% since 2001.
The “magic of compounding interest” is often called the eighth wonder of the world. If you earn a small percentage every year and keep reinvesting your earnings, the growth rate eventually goes exponential. And the sooner you start, the more you make. I wish I could have shown him the chart below that shows the difference ten years can make.
Emily (the blue line) started investing ten years before David. Emily makes a shitload more than David. That’s the magic of compounding interest.
The trouble is; it works in reverse, too. If the economy shrinks ‘only’ a couple of percent every year before too long the economic decline also goes exponential. The economy has been shrinking roughly 3% to 5% for the last sixteen years. Because of the magic of compounding interest, the economy is less than HALF what it once was when you factor in the REAL rate of inflation. More people, less than half the pie.
Now, do you see why everything’s gone for shit? Now, do you see why so many people are out of work, or if they do have jobs, why they cannot make ends meet? Even good jobs pay half what they once did. Lousy jobs pay even less. Bullshit inflation statistics hide the real decline.
Anyone waiting for “The Collapse” can stop waiting; it began years ago and will continue for a long time. There’ll be shocks and lurches along the way. The U.S. dollar will strengthen as the Euro declines and capital flees into the dollar. Cash will be banned starting with large denomination bills; it already has been in India. Years ago, Satyajit Das admitted they can’t stop the collapse; all they can do is try to engineer a soft landing.
And, never mind the ‘nominal’ pay (dollar amount) of wages. Purchasing power is declining and the Middle Class is slowly dying. Dollars are worth less every year. Zimbabwe was a perfect, if extreme, example. They were printing trillion dollar bills that couldn’t buy a loaf of bread. Everyone was a trillionaire, yet everyone was starving.
Too Much Debt
Never in history has there been so much debt worldwide; household debt, corporate debt and government debt. The graph below is consumer (household) debt.
The graph below is corporate debt. Notice the small box showing how little corporate debt declined during the ‘Great Financial Crisis” of ’08. Now imagine what happens when the idiots at the Fed and other central banks increase interest rates and all this debt becomes more expensive to service? More on that later.
Credit: Bonner & Partners
Money is based on nothing tangible. Money is now created with debt, and they need more debt to pay the interest on the bonds that created this debt/credit/money in the first place. We’ve reached a point where there isn’t even enough money in existence to pay the interest let alone touch the principle. Consequently, everything is slowly turning to shit.
Once you understand this, many things fall into place:
Factory orders fell to where they were a decade ago [Link] Inventories (especially autos) are rising. Credit spreads can’t get much lower. The U.S. dollar is on the decline, yet commodity prices are unchanged which means they’re deflating when adjusted for the REAL inflation rate. The U.S. corporate tax rate is among the highest of industrialized nations. Some production is returning to the U.S., but it’s performed by robots.
Stock markets give the illusion of recovery, but there are fewer retail investors. In addition to the Federal Reserve-Treasury Ponzi scheme, the corporate sector has been the primary buyer of their own stocks (“buy-backs”) since the Crash of ’08 as companies take advantage of ultra-low interest rates.
Demographics is Destiny
Few people appreciate the power of demographics which is the study and analysis of population dynamics over time or space. North America has a cohort of 80 million boomers, the first of who are turning 70 this year. Millions of boomers will do so every year for the next 15 years. Many will live to age 85 or longer.
The power of this demographic is seen in the two charts below. The first one shows the U.S. population aged 70+. The second shows their share of the overall population.
The graphs above show where we are today and, most important, where we are going.
Other than government employees, few people have a defined benefit pension plan. Most boomers have less than $100,000 in retirement savings. Given today’s low interest rates, bonds don’t pay much and even Blue Chip stock dividends are only slightly higher. Consequently, aggregate growth in incomes will decelerate and pose additional deflationary pressure on the economy.
Those who can retire will have a lot of time on their hands. They’ll spend money on experiences such as travel, tourism and restaurants, but a lot less on clothing, durables and housing. Demographics is indeed destiny. [Link]
Boomers are retiring and spending less, but younger generations are not picking up the slack. Malls are empty or closing. Stores are going bankrupt at an unprecedented rate. It’s not all because of online shopping because online shopping has not increased as much as the decrease in bricks & mortar [Link] Few people have money except the 0.1%. As George Carlin used to say “It’s a big club and you ain’t in it.”
Oil prices are plunging not because of the over-supply governments and the ass media want us to believe, but because of lack of demand. We’re in a Stealth Depression. Fewer people have money to buy gas or jobs to drive to.
Aging Work Force
Another indicator of this Stealth Depression is the aging Amerikan work force. Look at the Labor Force Participation Rate in the chart below. The greatest increase in jobs is aged 65 and older (brown line.) The biggest decline is in the youngest cohort (blue line.)
Many Boomers can no longer afford to retire. The last two recessions (shaded gray) and the stock market crash in ’08 devastated their retirement plans. And, many who did retire have returned to work to make ends meet. I understand my Godson’s complaint; his cohort’s employment is down since 2000. However, every age group is screwed. The oldsters want to retire, but can’t and the youngsters can’t find decent jobs. Welcome to the Stealth Depression.
The U.S. Bureau of Labor Statistics (BLS) employment numbers are as fake as the so-called inflation rate. Mish reported “that 67 percent of non-employed younger men lived with a parent or close relative in 2015, compared to 46 percent in 2000.” He says what the statistics miss are “masses of people on welfare via fraudulent disabilities, people in school wasting money in dead-end retraining exercises, people who have simply given up looking for a job…” The unemployed who have abandoned job searching are classified as “discouraged workers” and excluded from the unemployment statistics. Fake everything masks the Stealth Depression.
Adding insult to injury, the idiots at the Fed believe the government’s fake labor statistics and are using them to justify interest rate hikes discussed below. More below.
Central Bank Idiocy
“Never underestimate the power of stupid people in large groups.” ― George Carlin
The Fed and other central banks worldwide are neo-Keynesian idiots worshiping at the altar of neoclassical economics. They completely ignore the impact of debt. Their track record for explaining, predicting and controlling economies is a series of utter failures, yet they continue singing from the same song sheet. The Overton Window [Link] explains this herd mentality. Nassim Taleb uses the term “intellectuals-yet-idiots.” The collapse of Argentina, Greece, Venezuela, and Zimbabwe are their most recent catastrophes, and they won’t be their last.
The most powerful of the central banks is the U.S. Federal Reserve (the “Fed”) which manages monetary policy through interest rate manipulation that ultimately affects the global economy. They operate on the principle that the U.S. economy booms when they lower interest rates and increase the money supply. Conversely, the economy shrinks when they raise rates and reduce the money supply.
Being idiots, they either do the wrong thing or, if they do the right thing, they do it at the wrong time or too late or too long. The length, depth, and global consequences of the Great Depression of the 1930s were primarily caused by the Fed’s ineptitude. Trying to minimize stock market speculation, they raised interest rates in 1928 and 1929. The stock market crashed, and the slowing U.S. economy triggered recessions worldwide. Oops!
Being idiots, they repeated their mistake reacting to the international financial crisis in 1931. More oops! And, then they failed to act as a “lender of last resort” during the subsequent banking panics. Still more oops!
President Richard Nixon “closed the gold window” in 1971. This cancellation of convertibility of the U.S. dollar into gold increased inflation prompting the Fed to raise interest rates to combat the falling dollar. The result was a major recession inducing the Fed to lower rates. More see-sawing of rates caused a series of recessions from 1980 to the Great Recession of 2008. Lots more oops!
And, now the Fed, deluded by the government’s fake economic statistics is raising interest rates so they can lower them when the next Fed-induced recession hits. Once again, the government is the problem disguised as a solution. Economic growth is fake. Bill Bonner says, “Fake money produces fake prosperity. Take away the fake money… and the fake prosperity goes ‘poof,’ too.”
We’re in a Depression. Technically we did, but fundamentally we never recovered from the Great Recession of ’08, so raising rates will kill the zombie economy and induce another recession that will make the last one look like a walk in the park. The only question is “when?”
Increased Risks Create Black Swans
Confidence is the glue holding our financial world together. Uncertainty undermines confidence and increases risk. Many Black Swans are circling overhead ready to trigger a shit-storm.
– The recent failure of Republicans repealing Obamacare.
– Trump’s promised tax reforms unsupported by the Republicans.
– The Deep State’s war Trump.
– Further Fed rate hikes.
– Political theater raising the U.S. debt ceiling before the October deadline.
– Risk of a credit default cycle. We’re in the terminal phase of debt creation.
– The Tech bubble was $15 trillion. U.S. housing bubble was $30 trillion. Current bond bubble $100 trillion. Current derivative bubble $550 to $1,500 trillion. Bubbles burst. The numbers are going exponential.
– The VIX (“fear index”) at historic lows means unprecedented stock market complacency.
– The ass media’s never-ending Trump Derangement Syndrome.
– Record number of Amerikans disapprove of both parties. [Link]
– North Korea is playing a dangerous ICBM game.
– Increased pressure on China to rein-in North Korea.
– Chinese presence on artificial islands in the South China Sea and a container ship mysteriously ramming the Amerikan destroyer USS Fitzgerald.
– The Neocons continue pushing for a war with Russia.
– Globally, we’re in the biggest financial bubble the world has ever seen.
– Interest rates will rise uncontrollably and increase borrowing costs when bond vigilantes overwhelm government monetizers.
– Rapefugees over-running and destabilizing Europe.
– Resource-rich trading partners like Canada & Australia won’t be spared from the next down-turn by Chinese demand like they were during the ’08 – ’09 recession. Their banks are being down-graded, yield-curves flattening, defaults increasing and real-estate in unprecedented bubbles.
– The Anglo-Amerikan empire’s destabilizing wars in the Middle East including Syria are now in the sixteenth year.
– Most of Amerika’s public pension systems are insolvent with Illinois at the epicenter.
– The Jewish calendar Jubilee year 5777 promises fireworks into 2018.
We cannot rely on history for forecasting the outcome of all these risks. Right now, many of us are blinded by Normalcy Bias [Link] and see this as just Chicken Little “doom & gloom”. However, the shit will continue to hit the fan.
Gold & Silver; a Double-Edged Sword
One solution to protecting some of your wealth is buying precious metals (PMs) like gold & silver. Remember; never put all your eggs in one basket.
Gold-bugs for years have been hoping PM prices sky-rocket. They should be careful what they wish for.
When confidence is shattered, the matrix of rackets and criminalized financial sector loses control. That’s when it hits the fan, and the price of gold & silver will skyrocket. We will have a short window of opportunity to capitalize on PMs and convert them into assets before asset prices skyrocket as well. In a worst-case situation (let’s hope it doesn’t go that far) a loaf of bread will be more valuable than an ounce of gold. You can’t eat gold.
Buy physical PMs, not paper. Remember, PMs are insurance, not necessarily an investment. Hide them; don’t store them in a safety deposit box. If you can’t touch them, you don’t have them.
What Can You Do?
– Spend less than you make. Start by cutting non-essentials.
– stop spending money you don’t have to buy shit you don’t need to impress people you don’t like.
– Get out of debt.
– Stay out of debt.
– If you plan to sell your house in the future, do it NOW before the bubble bursts. It’s better to be a year too early than a month too late.
– Rent (I do.) Over-priced real estate is a bottomless money pit, a time-waster and a tax cow (property taxes only go up, never down.)You’ll have a deteriorating pressboard shack when the mortgage is finally paid. Wait for the bubble to burst if you insist on buying into the house hoax to satisfy the Missus’ misguided sense of security.
– Keep only enough money in the bank for bill payments to avoid Bail-ins.
– Keep several months’ cash on hand for expenses, but be prepared to abandon this strategy when they ban cash.
– Cryptocurrencies are a risky and volatile strategy. Again, don’t put all your eggs in one basket. They can be hacked, or banned by the government.
– By 1 oz. gold coins (not bars) from reputable dealers if you’re rich, silver if you’re not.
– Stockpile durable essentials like toilet paper, garbage bags, soap, etc., etc.
– Learn to shoot and safe gun-handling.
– Guns & ammo.
– Stop eating junk food and exercise more because you need to stay healthy.
– If you’re wealthy, apply the Jim Sinclair GOTS checklist. [Link]
– Invest in yourself and your skills.
– Start now if you haven’t already because time is getting short.
My Godson found another job. It’s a step down from his last one which was a step down from the previous one, but at least it’s a job. The ingrate should be thankful he has a job. Any job! More than 20% of eligible workers don’t.
Welcome to the Stealth Depression of the Fourth Turning. When it ends, no one knows, but when it does I guarantee it’ll be unlike anything we’ve ever seen.
Remember the mantra:
We cannot borrow our way out of debt.
We cannot spend our way to prosperity.
We cannot pretend our way out of trouble.
They keep trying, but ultimately, they’ll fail.
July 22, 2017
Notes: for more details on The Fourth Turning, see Jim Quinn’s “The Burning Platform” blog [Link] and scroll way down past the ads on the right side to the “Fourth Turning Library” for numerous articles expanding the insightful Fourth Turning analysis and predictions.
Your comments are welcome!
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– CPI is joke. My favourite line in the CPI is Healthcare. Because Healthcare has a weigthing of 4 to 5% in US CPI but the US spends about 15 to 17% of GDP on Healthcare.
– In general I agree with your analysis that “The Economic collapse Began Long time ago”. But here and there some details are NOT accurate. And I have some more details.
– 1) Harry S. Dent takes the US birth data and adjusts that data for immigration and emigration. If e.g. a 30 year old canadian moved to the US in the year 2000 and became a US citizen then one should move one birth from the column “Canada 1970” to the column “USA 1970”. That DOES make a difference. Without that adjustment the amount of births in the US stopped rising in 1961 and remained (more or less) flat in the 1960s and 1970s. With that adjustment the amount of births peaked in 1961 with a sharp peak/spike, started to fall after 1961 and NEVER reached that 1961 level ever again.
– 2) Contrary to common belief the US Baby Boom began NOT in 1945 but already in 1935. From say 1905 up to 1935 the birth rate was more of less flat. But between 1935 (No, NOT 1945 !!!!) and 1961 the birth rate (adjusted for migration(s)) kept rising in a near perfect straight line. (See Harry S. Dent’s books). The fact that the birth rate went up in a straight line between 1935 and 1961, is for me the best proof that the Baby Boom in the US began in 1935 and NOT in 1945. Yes, the Baby Boom continued (!!!) to go up in a straight line after 1945 but the Boom began in 1935.
– This has MAJOR implications. This means that the 1st Baby Boomers reached the age of 65 in the year (1935 + 65 =) 2000 (!!!) and NOT in 2010. But this remained unnoticed because the number of Baby Boomers born between 1935 and 1945 was – in comparison to the amount of older Baby Boomers – so small. And those first Baby Boomers turned 70 in the year 2005, etc. etc. with the Baby Boom peaking in 1961 means that the largest amount of baby Boomers will turn 65 in (1961 + 65 =) 2026.
– There is more bad demographic news for the US. Already before 2008 the US was ageing. But after 2008 the birth rate started to decline even more. Some sources say as much as 20 to 25%. (Haven’t got the faintest clue where to find that data and how to confirm/disprove that data). The conclusion is obvious: Families simply can not afford to have babies anymore or decide to have fewer babies.
– I have a different view on why debts continued to rise in the second half of the 20th century. and that’s called “Increased productivity”.
Strauss & Howe also predicted the Depression, like the Great Depression, would soon be followed by an all out global war.
If 2008 equates to 1929, then we are at 1939 equivalent.
And this time we have, not two kiloton sized nukes, but thousands of megaton sized nukes.
Yeah, that’s what so troublesome!
I hope you’re wrong. I hope I’m wrong. I hope we’re both wrong. If not, we’re in for a world of pain because when all else fails, they take us to war and the one after this next one will be fought with sticks and stones.
Thanks for the reminder on 4th turning, almost forgot that one.
I need the occasional reminder too as it keeps the present shit-storm in perspective. Life is becoming like a perpetual Jerry Springer show.
Excellent Blog Gerold! I am 42, probably the last of the older style generation, after my age group they started messing around with the school system, and handing trophies out to everyone on the team.
One thing that is NOT included in any charts or graphs is product deflation. Here in Australia it was very noticeable after the financial crisis, then it eased off a bit, now it’s back. The manufacturers are citing higher energy prices because of the coal fired power plants shutting down, and not enough “green” energy to go around. We are seeing products get “shaved”…. 10 grams here and there, and drink sizes going smaller as well. Beer was always 375ml a can, now they are “standardizing” it to 330ml. The government here also raised taxes massively on beer over 4.5% alcohol, so they are all going low alcohol to save on taxes, but they keep the price the same. It is having an unintended consequence of men having less beer, less hangovers and more time to research and do things they want to do. That spells danger for any government!
By my calculations, at the current rate, Aussie men in 30 years time will basically be drinking alcohol flavored water at $100 a slab.
The current system is definitely going to fall under the weight of debt. They can’t keep raising prices, as people simply won’t pay (or can’t), and cutting product sizes can only go so far before it gets ridiculous. It’s been funny to watch companies try flog “bite size” and “mini packs” as convenient, but they are not fooling anyone. The price per ounce/gram is basically double if you just paid for the normal size pack. The Corona “throw downs” at 200ml per bottle is just embarrassing. Who the hell would buy that?
Interest rates here are low, prices high (especially housing) wages stagnate and this is supposed to be “good times”? It’s going to get real interesting when they start raising those rates and sucking the money out of the system.
I’m a big fan of guns an ammo, and invested heavily in ammo around 2008/9. I have seen ammo prices increase by 100% over a 10 year period, with no sign of slowing down. If kept dry, it can last 100+ years and be used as currency when the SHTF. You probably covered that somewhere in your pages which I have yet to read 🙂
I had thought about writing my own blog with advice etc, but when I came across yours I felt I would be wasting my time. Your site has a lot of the common sense wisdom that has been lost along the way, and stuff that resonates with me personally, so I’m going to go through it with my kids to teach them a few pointers.
Cheers, and I look forward to your next write-up!
Excellent point about product deflation, Mike! I should have included it in the article.
The Amerikans are calling it “Shrinkflation” where the product size decreases, but prices stay the same thus manipulating inflation statistics.
Another thing I should have mentioned about the distorted unemployment numbers is the ‘birth/death ratio” that supposedly estimates the number of new businesses being created vs business closures. It uses a model based on probability-based sampling methodology from before the Great Recession to estimate the number of new jobs these business “births” create. In other words, about 30% of all so-called new jobs since 2010 have been fictitious.
“Shrinkflation” is rampant. I had some fish-finger sandwiches yesterday, first time in a long time, and noticed the fish-fingers are no longer the length of the bread. I always remember Bruce Willis’ cigarrette in “The 5th Elelement”. I originally believed the oversized filter was because he was trying to quit smoking, but is probably a sign of things to come.
Great blogs, Gerold. Keep ’em coming.
Yes, indeed. This article reports that ‘shrinkflation’ has hit 2,500 different products.
I’m sorry but I kinda can’t agree with your thinking on interest rates. They’ve been rock bottom since forever and all that does is devalue a currency. The CBs are telling us they will go up very slowly. It’s the only way. We’ll stay in this pretend deflation if nothing changes.
One of the reasons interest rates were driven to near zero besides funding the ever-increasing government debt was to drive liquidity into the stock markets to maintain the illusion of economic recovery and, hopefully, with this increased confidence induce a REAL recovery. It didn’t work. One of the three mantras I’ve ended my articles for many years is “We cannot pretend our way out of trouble.” Actually, we can for a little while, but not in the long run because people wake up to the scam. Certainly not for the historically unprecedented length of time we’ve had ZIRP.
CB aren’t raising interest rates because they want to, but because they have no choice. CB’s are monetizing some bonds overtly, but many more covertly. It’s not retail investors or the Saudis or the Chinese or the Russians buying hundreds of billions worth of Treasuries this past year. It’s the CBs especially the Fed. They’re creating money out of thin air and simply transferring it from one pocket to another. They’re paying themselves off with IOUs they’ve printed themselves. If I know it, so do many others.
The artificially propped-up stock markets are in bubble territory. I know it and so do many others. It’s only a matter of time before that bubble bursts. I know it and so do many others. I’m looking to get out of equities and go where? Bonds? They pay next to nothing interest. Sure I’ll buy bonds at maybe half the price. Bond rates and price see-saw. One goes up, the other goes down. If I pay half the price, the rate doubles. I know it and so do many others. CBs claim to want to raise rates slowly because the bond vigilantes are pressuring them to do so and eventually they’ll overwhelm the CBs and interest rates will skyrocket along with gold and silver. I know it and so do many others and more of them everyday.
Never mind what the CBs say. They lie. Watch what they do. Especially watch what interest rates are doing. They’re going up. The CBs are just pretending they’re in charge. They’re not; they’re losing control.
Thanks Gerold. You’ve definitely confirmed what I’ve been suspecting for awhile now. I’m no economic analyst / expert but was always told the retail sector can be a true gauge on the health of an economy. Judging by all the recent closures and down sizing , things are definitely taking a turn for the bad, not good as media try’s to portray.
Good point, Mario! The number of store closures this year has reached another historical record, not that the ass media would ever admit it …