Here We Go

[ecosophia]

Two things happened today of note in the economic sphere. The first is that the US stock market posted a historic drop of 1175 points, on top of a 665-point plunge on Friday. 

The second is that the White House issued a statement insisting that "the long-term economic fundamentals are exceptionally strong." 

Those of my readers who've taken my advice and read John Kenneth Galbraith's brilliant history The Great Crash 1929 know what this means. That's exactly what the Hoover administration's flacks said as the bottom finally dropped out of the great boom of the 1920s. Then as now, the fundamentals were not strong -- the US in both periods had become a casino economy where frantic speculation temporarily papered over a severely dysfunctional distribution of wealth and a consumer economy that had been starved by inadequate wages to the working class. (A consumer economy can't prosper unless ordinary Joes and Janes have enough money to buy consumer goods without going into debt for them; it's a sign of the senility of our current privileged classes that this obvious fact somehow never sinks through their yard-thick skulls.) 

So it's possible, depending on how badly this latest round of crises gets mishandled, that we could be in for a serious economic downturn. Stay nimble, and watch for falling financiers...

Comments

Here we go....again

[(Anonymous)]

I actually bought The Great Crash 1929 a number of years ago but haven't read it recently. Time, I suppose, to dust it off for a re-read along with one of his other books Money:Whence it came,where it went (acquired second hand). I may also dig out Muddling toward Frugality (acquired from the discard shelf at our local recycling station). I suspect it will be more productive than watching my 401k take a nose-dive.

Luckily I live in a small town where the local banks aren't more than two stories tall. One of them has only tiny narrow second floor windows. Any financiers who could get through those would really have to be on the scrawny side.

Oh,yes and stock up on plenty of popcorn.

JLfromNH

Re: Here we go....again

[ecosophia]

A bowl of popcorn and a book by Galbraith -- now that's a productive way to sit out a stock market crash!

[joelcaris]

Hi JMG,

I was wondering if you would comment on today's gyrations. I noted but largely ignored Friday's drop as most likely a blip in an otherwise highly over-heated market, but today made me sit up and take more notice. Given the multiple statements made by various officials, observers, analysts and so on that used some version of "The fundamentals are sound," I have to say I'm getting a little nervous. I read Galbraith's excellent book on your recommendation, and so that statement is not one I feel good about when I hear.

I'm curious if you have any recommendation of particularly good blogs or writers on this subject, or specific things to look for going forward to figure out whether or not this is the beginning of a real downturn or more just a temporary blip with the real fireworks still awhile off in the future?

Or maybe I just need to be patient and wait a few weeks. May become clear pretty soon if this is going to become something big or not.

[ecosophia]

It'll be more than a few weeks. Watch what happens over the next six months; that'll be a good guide to whether we're going to have a short term crisis or a significant recession.

Good website

[(Anonymous)]

I recommend Chris Martensen's website. He mostly sticks to the facts and refrains from what I call "Doomer Masturbation". https://www.peakprosperity.com/

Don't forget the cryptos!

[(Anonymous)]

Most of them are down 50% in the last month, so you're more likely to be hit by falling crypto bugs first.

Re: Don't forget the cryptos!

[ecosophia]

There will be plenty of splat marks on the sidewalk!

Maybe not "Here We Go"

[degringolade]

But it is a definite 40%+ possibility in my mind. Being a geezer, I tend to remember the extent of the "oh Sh^%" moment back in '87 where 22% down in a day took one's breath away.

Right now we are down 7% (give or take) so my pucker factor isn't as high as it could be, but right now I will posit that there are a lot of folks out there paying close attention and making plans.

I believe that we will be looking at a economic "badness thing" in the none too different future, I just hope that this ain't the beginning of it. I always liked the scene in "Animal House" where Dean Wormer told Flounder that "Fat, Drunk and Stupid" was no way to go through life. Wellll...I kind of enjoy it, I would have to be forced to change at this point. :)

Re: Maybe not "Here We Go"

[ecosophia]

Oh, granted -- it's still up in the air. When I hear a government official say that the fundamentals are sound, though, I dive for cover.

[(Anonymous)]

I was wondering if the market tumble I noticed in today’s headlines might be something significant. Good thing I know an historically informed observer to tell me about it.

Funny thing is, I was going to ask if you could tell me of an astrologically auspicious time coming up in the next few weeks during which to launch a business enterprise. But what might be the beginning of a new depression (or the exposure of an existing one, as I see it) doesn’t seem like a great time for most businesses. So I’ll have to consider carefully the nature of my enterprise. Hopefully astrolabes and torquetums will soon be all the rage.

Kevin

[ecosophia]

An astrologically auspicious time would have to be calculated based on your natal chart -- the best aspects in the world aren't going to help you much unless they relate to your own natal positions! Compare your chart and an ephemeris, and see if you can find a date when Jupiter is applying to a trine or sextile with your natal Sun or Jupiter, and none of the planets involved are in any applying aspect with a malefic or in a square or opposition with anything. Start the business when one of the planets in the trine is in your second or tenth house, and it will prosper.

Thanks!

[(Anonymous)]

I’m gonna write this down and get busy with Astrodient!

Re: Thanks!

[ecosophia]

Glad to be of help!

P.S.

[(Anonymous)]

Medical necessity drove me into San Francisco today; it isn’t Wall Street, but close enough - lots of financial activity. No jumping financiers so far, despite the many new skyscrapers from which to do so. Silicon alley has turned downtown into a nightmare. Going home, it took me over an hour to drive three blocks; it was horrible, my worst motoring experience ever. I used to love going to the city; now I loathe it. Leaving the place was like a tremendous benediction.

Kevin

Re: P.S.

[ecosophia]

I bet. I've only been to San Francisco a few times, and it did not strike me as the kind of place I'd want to spend much time.

Re: P.S.

[(Anonymous)]

I’ve lived near it all my life, but for one year abroad, and lived in it for seven years. It was once a pretty great place, as cities go; but it’s been a long, long time since it made the transition from the Summer of Love to the Winter of Our Discontent. Then things went downhill from there.

Kevin

Re: P.S.

[neonvincent]

I recall you writing on The Archdruid Report that San Francisco was the Luciferic capital of the U.S., superceding Boston, which used to have the title. Then again, my old hometown of Los Angeles didn't fare much better, as you called it Ahrimanic.

Speaking of your old writings, in an exchange in the comments to your former blog you wrote that you were thinking of studying the Kondratiev cycle and other longwaves. Those might come in handy for times like these.

Re: P.S.

[ecosophia]

Yep. It's an interesting north/south dichotomy; at the beginning of the 20th century, when the west coast was still the back end of beyond, Chicago was the Luciferic capital and St. Louis was the Ahrimanic capital. I wonder if Beijing and Shanghai have the same relationship.

Re: P.S.

[filthywaffle]

You could say that holds, at least traditionally.

Beijing: Luciferic by viewing themselves as the cultured capital and keen to impose their will on the rest of China (and their nearby "vassal states" in the China Sea).

Shanghai: Ahrimanic with their relentless pursuit of riches, "wallowing in material experience" as you defined it.

Although some would say the government officials in Beijing are pretty good at "wallowing in the material experience" themselves!

Re: P.S.

[ecosophia]

Oh, San Francisco has no shortage of wallowing in material experience -- they just tend to be pretentious about it, where Boston tended to by hypocritical about it. I think the rule holds, then. I wonder whether it applies elsewhere?

http://www.ferngladefarm.blogspot.com

[(Anonymous)]

Hi John Michael,

Interesting times! I wonder how many people or funds have had to sell stocks to cover margin calls on recent losses on crypto currencies? The government proclamations you mentioned are not exactly encouraging.

Incidentally, I expect a mild recovery to be promptly followed by further and deeper falls and periods of stability, but I reckon the recent bond sales have not been a good idea. I recall that CDO's were dumped on the market to get them off bank balance sheets prior to the last mess in 2008. The whole game is subject to diminishing returns as costs are rising at a faster rate than incomes which is basically due to greed and fear of hyper inflation. Sometimes there is no way forward. If such easy money policies no longer work, then things can get quite strange!

Thanks for the great song! I really enjoyed it and the video clip was pretty cool too. I can recommend the awesome harmonies of N.E.R.D. and their song "Sooner or later". The video clip is fun and the harmonies are beyond excellent, but I'm not sure you'll enjoy the heavier guitar work than the esteemed Mr Burnett. :-)!

Chris

Re: http://www.ferngladefarm.blogspot.com

[ecosophia]

Gene Burnett was my t'ai chi teacher when I lived in Ashland, Oregon -- he's extremely good, and anybody who lives within easy traveling range of Ashland and wants to learn t'ai chi should make a beeline for him. I'll check out N.E.R.D.; I used to be deep into Led Zeppelin back in the day, so heavy guitar work isn't necessarily an obstacle!

Re: http://www.ferngladefarm.blogspot.com

[(Anonymous)]

Led Zeppelin is a fine choice! Kashmir is one of my favourite pieces of music.

So last night, the predictions were that futures trading will push the markets lower. Which is most likely true.

This morning, there are articles declaring that all is well and this an opportunity not to be missed.

I genuinely wonder how people can fall for this baloney.

[dufu]

FWIW, I knew this was going to happen, and I'm moving back from the "safety" of East Asia to the U.S. anyway. As Abigail Adams wrote, "It is not in the still calm of life, or in the repose of a pacific station, that great characters are formed. The habits of a vigorous mind are formed in contending with difficulties. Great necessities call out great virtues."

[(Anonymous)]

Things don't look good right now. I just saw the Dow Jones open even lower than it closed. Well, I'm going to be keeping an eye on this, in case it is the start of something big. What do you think the odds are it is?

I think it's fairly high, since there seem to be a lot of people in the media who are taking pains to explain why it's a good time to buy stocks, which I view as a dangerous sign.

[ecosophia]

No, it's not a good sign at all. It means the market is in deep trouble and the rich folks who own the media are trying to prop things up by convincing the suckers to go all in.

[(Anonymous)]

There's now also a slate of articles screaming this isn't a crash, but a healthy correction. Just from the effort being put into avoiding admitting it's big, I think its probably bigger than it looks.

[(Anonymous)]

Yes, and isn't is interesting how the privileged class is able to make money even on a downturn buy selling short. Those in the know and all that.

[ecosophia]

Well, of course -- I trust you weren't under the delusion that the stock market exists to benefit anybody but the rich...

[auntlili]

I read the Galbraith book years ago on your advice and agree ENTIRELY. I'm not so worried about raining stockbrokers as about something that happened late last week at my mother's bank. The tellers had a big sign in front of their cages that said "Deposits only, No checks cashed." Maybe they were short on paper money for some reason, but I've never seen that happen before. My mother wanted cash and had written herself a sizeable check, which they did agree to honor only after some consultation. I don't know how a check holder who did not bank there would have fared.

I gather the financial press is blaming this downturn on a favorable jobs/salary report and speculation that the Fed will raise interest rates, but that's happened before without a 1175 point drop. The last major plunge was because the real estate bubble burst and collateral in the shadow-banking sector fell apart. We're riding how many bubbles now? Student loans, real estate (again!), credit card debt, university and hospital expansions. There is no surplus of discretionary income to sustain these bubbles, and giving tax breaks to private corporations is not an effective means of creating that surplus, so . . .

[ecosophia]

Thanks for the heads up about your nother's bank! That suggests that they're trying to head off a bank run -- and yes, that suggests in turn that things may be much worse than anybody's letting on. We'll see...

1929

[(Anonymous)]

LOL Fundamentals ... are ... strong should be the drinking phrase. Last semester I warned both my college American history class about this, the federal reserve balance sheet. I have to teach to all levels of the class, so I recommended 1929 to the class. Then I re-read it over break. It's also an amusing historical document in it's own right, as a product of '50s capitalism and the McCarthy era.

Re: 1929

[ecosophia]

It is indeed -- and also just plain fun to read.