The end really is near: a play-by-play of the coming economic collapse

My Comments: The headline says ‘really near’ but what does that mean?

In my past I worked with a currency trader whose idea of a long term hold of a position he’d bought was 3 days. His idea of ‘really near’ was about 30 minutes.

If you are now in your 30’s or 40’s, your definition of a long term hold on investments you own should be on the order of 10 years or more. For someone like me whose age suggests I may not be alive 10 years from now, a long term hold might be six months to a year.

What will happen in the foreseeable future is there will be an economic collapse, the markets will tank, and people will be jumping off buildings. These five economist share their ideas about how this will come about.

Max Cea  |  August 12, 2018

Since June, 2009, the pit of one of the biggest recessions in American history, the U.S. economy has been growing, slowly but steadily. That’s just over nine years of uninterrupted growth.

If the good times roll for another year — and most economists expect they will — this expansionary period will go down as the longest ever in American history, surpassing the 120-month-long period during the ‘90s tech boom.

But don’t be so quick to pop bubbly and send the confetti raining down. There’s precedence for unprecedented growth: It always ends. The economy, of course, moves in cycles.

And no matter how you slice it, it would seem there’s only so much more climbing before a fall. But what will set off a downturn? How bad will it be? And when will it actually happen? To answer these questions and more, Salon consulted with five economists, three of whom (Peter Schiff, Steve Keen and Dean Baker) predicted the 2008 financial crisis before it hit.

Dean Baker is a Senior Economist with expertise in housing and consumer prices

What Will Happen: A recession caused by the Fed over-reacting to a temporary uptick in the inflation rate.

How this will transpire: There are two ways we get recessions. The first and more common is that the Fed raises interest rates too much (ostensibly because of concerns about inflation) and throws the economy into recession. The other is a bubble burst. The latter happened in 2001 with the stock bubble bursting and the 2008-09 recession with the housing bubble.

I don’t see a bubble bursting recession on the horizon because I don’t see any bubbles large enough to sink the economy when they burst. (We have bubbles, like Bitcoin and Tesla stock, but nothing terrible will happen to the economy when they burst.).

This leaves the Fed. I think [Chairman of the Federal Reserve Jerome] Powell has been cautious with his rate hikes and will likely continue to be. Nonetheless, inflation data is erratic and it is virtually inevitable that we will see some periods of higher inflation in the not too distant future. This should in principle not be too severe.

When: Let me cast a vote for 2020.

What government should do: The best way to deal with a downturn is to have good automatic stabilizers in place. These are items like unemployment insurance and other transfer programs that automatically increase when we go into a recession and people lose their jobs.

Unfortunately, we have been going the other way, with many states cutting back unemployment insurance and other benefits.

David Blanchflower is a Dartmouth Labor Economist with an expertise in wages and unemployment

What will happen: [Predicting a future recession] is pretty darn hard to work out. It depends on what the signals are, and it depends what people do. In a way, the financial market shock that was coming [in 2008] shouldn’t have been a surprise. We saw it in 1929. Keynes warned about the long, dragging conditions of semi-slump. And we’ve seen the slow recovery driven by the fiscal authorities go into austerity, keeping fiscal policy too tight.

The worry might well be that this is a shallow turn, but if the policymakers fight like ferrets in a sack, that might make things worse. Bernanke was asked [with regards to the 2008 recession], “What would unemployment have been if the US hadn’t acted?” It went to 10 percent, and he said it would’ve been 25 percent if the Fed hadn’t acted. So the issue is not so much what do I think it’ll look like. It’s, what’s the response of the policymakers to the downturn? Do they make it work? Do they dampen it? Do they see it before it’s coming? My suspicion is it’s probably going to be a relatively shallow [dip], but it’s probably going to be made worse by the fact that the policymakers will look like blinded lunatics.

Why: I think the arguments you have to make are that this is now the second longest recovery ever. I think by next spring it will be the longest ever. Recoveries generally don’t die of old age. They die because of misplaced actions by the Fed and rising oil prices. Obviously, the stimulus that was put in place in the U.S. at the late stage of a recovery has given a boost.

And then the Fed are cranking it back. The other thing is that there’s a lot of evidence that the U.K. and Europe and elsewhere — that these economies are slowing.

How this will transpire: My work suggests, in a series of recent papers and various contributions that I’ve made, that particularly Western economies are a very long way from full employment. And the number is likely in the mid-twos, not in the mid-fours. So the actions by the Central Bank, in the U.S. especially, but also this week in the U.K., to raise rates are mistakes.

There is no wage pressure, there is no inflation, there’s no basis in the data to do that. And that’s what generates recessions.