Peak Oil is You
Donate Bitcoins ;-) or Paypal :-)
Page added on November 11, 2014
If Everything Is Just Fine, Why Are So Many Really Smart People Forecasting Economic Disaster?
The parallels between the false prosperity of 2007 and the false prosperity of 2014 are rather striking. If we go back and look at the numbers in the fall of 2007, we find that the Dow set an all-time high in October, margin debt on Wall Street had spiked to record levels, the unemployment rate was below 5 percent and Americans were getting ready to spend a record amount of money that Christmas season. But then the very next year the worst economic crisis since the Great Depression shook the entire planet and everyone wondered why most people never saw it coming. Well, now a similar pattern is unfolding right before our eyes. The Dow and the S&P 500 both hit record highs on Monday, margin debt on Wall Street is hovering near record levels, the unemployment rate has ticked down a little bit and Americans are getting ready to spend more than 600 billion dollars this Christmas season. The truth is that the economy seems pretty stable for the moment, and most people cannot even imagine that an economic collapse is coming. So why are so many really smart people forecasting economic disaster in the near future?
For example, just consider what the Jerome Levy Forecasting Center is saying. This is an organization with a tremendous economic forecasting record that goes all the way back to the Great Depression. In fact, it predicted ahead of time the financial trouble and the recession that would happen in 2008. Well, now this company is forecasting that there is a 65 percent chance that there will be a global recession by the end of next year…
In 1929, a businessman and economist by the name of Jerome Levy didn’t like what he saw in his analysis of corporate profits. He sold his stocks before the October crash.
Almost eight decades later, the consultancy company that bears his name declared “the next recession will be caused by the deflating housing bubble.” By February 2007, it predicted problems in the subprime-mortgage market would spread “to virtually all financial markets.” In October 2007, it saw imminent recession — the slump began two months later.
The Jerome Levy Forecasting Center, based in Mount Kisco, New York, and run by Jerome’s grandson David, is again more worried than its peers. Its half-dozen analysts attach a 65 percent probability of a worldwide recession forcing a contraction in the U.S. by the end of next year.
Could they be wrong?
It’s certainly possible.
But I wouldn’t bet against them.
John Hussman is another expert that is warning of financial disaster on the horizon. He believes that we are experiencing a massive stock market bubble right now and that stocks are approximately double the value that they should be…
If you look at corporate profits and especially corporate profit margins, they’re one of the most cyclical and mean-reverting series in economics. Right now, we have corporate profits that are close to about 11% of GDP, but if you look at that series you will find that corporate profits as a share of GDP have always dropped back to about 5.5% or below in every single economic cycle including recent decades, including not only the financial crisis but 2002 and every other economic cycle we have been in.
Right now stocks as a multiple of last year’s expected earnings may look only modestly over valued or modestly richly valued. Really if you look at the measures of valuation that are most correlated to the returns that stocks deliver over time say over seven years or over the next 10 years the S&P 500 in our estimation is about double the level of valuation that would give investors a normal rate of return.
Could you imagine the chaos that would ensue if stocks really did drop by 50 percent?
Well, Hussman says that this is precisely what must happen in order for stock prices to return to historical norms…
Right now, like I say, we are looking at stocks that have been pressed to long-term expected returns that are really dismal. But more important than that, in every market cycle that we’ve seen with the mild exception of 2002, we’ve seen stocks price revert back to normal rates of return. In order to get to that point from here, we would have to have equities dropby about half.
If that does happen, it will make the crisis of 2008 look like a Sunday picnic.
Meanwhile, other very prominent thinkers are also warning that an economic nightmare is rapidly approaching.
Economic cycle theorist Martin Armstrong foresees major economic problems in 2015 which will ultimately lead to “civil unrest” in 2016…
It looks more and more like a serious political uprising will erupt by 2016 once the economy turns down. That is the magic ingredient. Turn the economy down and you get civil unrest and revolution.
And of course there are a whole lot of other economic cycle theorists that are forecasting that we are about to experience a massive economic downturn as well. For much more on this, please see this article andthis article.
What is truly frightening is that we have never even come close to recovering from the last economic crisis. One poll that was taken just prior to the recent election found that only 28 percent of Americans said that their families were doing better financially. In addition, here are some more survey numbers about how Americans are feeling about the economy…
According to voter exit polls conducted by CNN, 78% said they are worried about the economy, with 69% saying that, in their view, economic conditions are not good. 65% responded that the country is on the wrong track vs. only 31% who believed that it is headed in the right direction.
Even though we are repeating so many of the same patterns that we experienced back in 2007, we are doing so with a fundamentally weaker economy. The last crisis did a tremendous amount of permanent damage to us. For an extensive look at this, please see my previous article entitled “12 Charts That Show The Permanent Damage That Has Been Done To The U.S. Economy“.
And there are lots of signs that much of the planet is already entering another major economic slowdown. In a recent article, Brandon Smith summarized some of these. He says that we are currently witnessing “the last gasp of the global economy“…
Global exports, and thus consumer demand, are plunging. Germany, the only pillar left to prop up the failing European Union, has experienced a severe decline in exports not seen since 2009.
China, the largest exporter and importer in the world, and Chinese companies, have been caught in a number of instances using fraudulent invoices to artificially inflate their own export numbers, in some cases reporting 50% more exported goods than had actually existed.
China’s manufacturing has also declined for the past five months, exposing the nature of its inflated export stats and indicating a global slowdown.
The Baltic Dry Index, a measure of global shipping rates for raw goods, and thus a measure of demand for shipping, continues to drag along near historic lows.
The U.S. consumer (the only economic asset the U.S. has besides the dollar’s world reserve status), has seen declines in spending as well as wages.
In the meantime, long term jobless Americans continue to fall off welfare rolls by the millions, making unemployment numbers look good, but the overall future picture look terrible as participation rates dissolve into the ether of government statistics.
How is such poverty being hidden? Foodstamps. Plain and simple. Nearly 50 million Americans now subsist on food stamp programs today, and this number shows no signs of dropping. In states like Illinois, two people sign up for food assistance for every citizen that happens to find a job.
From time to time, I get accused of “spreading fear” and of being obsessed with “doom and gloom”.
But that is not the case at all.
I actually want our economy to stay stable for as long as possible. Many Americans don’t realize this, but even the poorest of us live in luxury compared to much of the rest of the world. It would be wonderful if we could all live out our lives in peace and quiet and safety.
Unfortunately, it is simply not going to happen.
And it does not take an expert to see what is coming.
Anyone with half a brain should be able to see the economic disaster that is approaching.
There is hope in understanding what is happening and there is hope in getting prepared. Millions of Americans that are willingly blind to our problems are going to have their lives absolutely destroyed when they get blindsided by the coming crisis. So please use this brief period of relative stability to get prepared and to warn others.
Once this false bubble of hope runs out, all of our lives are going to dramatically change.
68 Comments on "If Everything Is Just Fine, Why Are So Many Really Smart People Forecasting Economic Disaster?"
Davy on Tue, 11th Nov 2014 8:18 pm
Yea, NR, look at all the bunkers the various leaders over the years had and most were never used or used for a very short time. OTOH in case of NUK war they may be handy.
Davy on Tue, 11th Nov 2014 8:28 pm
NR said – Most “raiders” will probably be thinking that the food is out in the countryside where all the farm animals and crops are. Well, that’s my theory.
Thanks NR, I thought we were friends you are sending the bandits my way now!!!!
I have wondered to myself what a dispersion of people from the urban areas may be like. We know there will be some. There is just no way these large urban areas can feed people in a collapse scenario. Even a minor collapse will be a major undertaking to feed people in many areas.
I wonder how far these people will go. In many cases they will be scavenging. They will not be prepared to move around in bands with guns in many cases. The one with guns and organization I imagine will stake their claim on an area rather than raiding IMO because their raids will run up against so many defensive positions their numbers will dwindle quickly. What about the military and the para military police. Surely they will be a force to be reckoned with.
This is an amazing topic to opine. Us doomers really need to get a better handle on the nature of raiding and scavenging. We have nest eggs to protect.
Northwest Resident on Tue, 11th Nov 2014 9:33 pm
Yeah Davy. There are so many different scenarios to contemplate. The worst case scenario, imo, would be a long period of grinding down slowly, with people getting hungry and desperate with no money but a car and guns and access to gasoline. In that scenario, I could imagine people leaving the city and driving into the countryside if for no other reason than commandeering a house that stands far away from other houses would make an inviting target. I can imagine attempted break-ins and forced entries in a neighborhood situation too. I tend to think (hope?) that the governments and law enforcement agencies are preparing behind the scenes for things like this. There’s no way to know what will go down, so best thing to do is fasten the seat belt and prepare for worst case scenario. Anything better than that is icing on the cake!
Simon on Tue, 11th Nov 2014 10:30 pm
with solar panels on every structure and home,,.here is a list of systems that will become OBSOLETE:
nuclear power plants
petro power plants
hydroelectric power plants
high voltage lines everywhere
smartgrid
utility companies
large cities
corporations <(media news falls here)
banks
government agencies
obsolete obsolete obsolete
etc etc etc…
here is the truth…
1) russia and china signed a contract to trade oil…
2) they are using american petrodollars to build a new gas pipeline that will be the largest ever built…
3) when it is finished and they flip the switch and turn on the gas pumps,,, the gas will be not be sold for american petrodollars,,. the gas will be sold for, yuan, rubles and barter of products…(barter of products is how america gets "made in china" products,,, "made in taiwan" products,,, "made in mexico",,. for petrodollars)
4) this pipeline has to go thru all the countries america is occupying or trying to occupy…they are trying to block the new pipe system…
5) the american petrodollar USED to be the "international world money"… with the BRICS starting a new world bank,,, and with countries bypassing sanctions, like the iran-russian oil deal,,, and the cuba-russian energy deal,,, the crimea-russian deals,,,etc… etc … etc… the petrodollar is now getting dumped worldwide…
6) america is counterfeiting,.. they call it the QE printing program,,. no gold in the banks yet they keep printing money…the economy is a big fake lie thats about to fall apart…
7) lastly,,, solar power and alternative energies,,. are killing fossil fuels(petro)… so if you dont need petro,,,then you dont need a petrodollar…
8) the rothschild and everyone depending on the government and banks,,. like news reporters,,, government scientists and the military complex,,, want to keep their jobs and standards of living,,, SO THEY ALLL ARE LYING TO YOU…
9) if they start a war they believe it will save the petrodollar,,, they believe they can continue the greed,,, but the BRICS nations are starting up their own systems and waiting out americas collapse… they are laughing at the usa… russia and china already beat america at its own game,,, so america is throwing the biggest shit fit in history,,, like sore losers at a monopoly board game…
Perk Earl on Tue, 11th Nov 2014 11:43 pm
“Most “raiders” will probably be thinking that the food is out in the countryside where all the farm animals and crops are. Well, that’s my theory.”
NWR, Davy, my theory is the cities will turn into killing zones with every square foot taken by gangs of teen/twenty something guys with lots of dogs, and girlfriends following safely behind. They’ll smash a window and send in a bunch of dogs to flush the people out and more easily get whatever cache they have. Once the cities have been cleaned out, they will disperse out in the countryside, but that will be harder than they think, mostly because fuel will be in short supply and they aren’t going to walk far in the shape most people are today.
I think people in the country will be better off if they are armed and have lots of seeds, know how to grow, etc.
No, haven’t seen your photo of garden, NWR, but would like to so I can get some ideas. Sounds like a lot of work, but congrats on making it work. We aren’t rich. We got our place for 130k, it went up to 450k, then in 09 it dropped to 180k, and is now up to 250k. What a rollercoaster ride this plateau is turning out to be. I remodeled it one paycheck and equity loan at a time, lol, until we refinanced. Now we need a big contract, which is in the works to pay off loan, then slap in a solar system and go off grid.
Lots of room to grow – just need to put my mind to it. Maybe a greenhouse?
Perk Earl on Wed, 12th Nov 2014 2:29 am
Get this; http://www.bloomberg.com/energy/
As of 12:33 am pst,
WTI -.64 to 77.30
Brent -.75 to 80.92
Brent not far from the high 70’s? It’s been on the move down again for the past few days. Not big moves but consistent. Oil, get your oil, who wants oil futures?
Davy on Wed, 12th Nov 2014 6:32 am
Perk talking about the social situations of collapse is like talking about the economic aspects of collapse. It is such a big world and even within the US it is a big diverse country. I think we will see some of what you say but we will also see neighborhoods come together to protect themselves. I see a limit to raiders moving around the countryside. We must remember TPTB are going to triage the unimportant areas and heavily fortify the important assets. Martial law will surely be in effect with holding areas for criminals. I imagine if it gets bad in an area important to them it will be shoot to kill orders with curfews.
We can be sure the degree and duration of the economic collapse will affect the social collapse. Mega population concentrations especially those that cover vast areas will become unworkable. Dispersed big population areas with lots of open area around them may fare better. There has to be a relief valve for the population. Vital services will be manageable as city populations fall. Many cities occupy good locations of value.
I have noticed in times of crisis the best and worst of man comes out. It will not all be mad max. Crisis has a way of uniting people in a common cause. If your common cause is not warring on your neighbors in a civil war this is good. War is never good and especially not in a collapse situation. Order, organization, and resources husbandry are essential. These vital conditions are also the most at risk.
JuanP on Wed, 12th Nov 2014 7:33 am
NWR & Perk, I posted these links on urban homesteading for NR the other day, but I don’t know if he got them. NR, these guys use the same beehive design I have chosen for my farm. These hives have easily removable vertical slats.
http://youtu.be/7IbODJiEM5A
http://youtu.be/NCmTJkZy0rM
JuanP on Wed, 12th Nov 2014 7:59 am
I have given the matter of zombies a lot of thought for many years. Most people will die close to their homes, the ones that become nomad will be extremely dangerous. It is a very hard life that kills you or hardens you in a couple of weeks. I really don’t want to kill people. I’ve had to kill in self defense in the past and didn’t like the experience.
The key to my approach to the zombies issue is a defensible impenetrable small home with a perimeter wall and a basement shelter filled with food, water, tools, and supplies. All my neighbors homes are larger and more luxurious, mine will look small and humble in comparison. I will let the zombies destroy and steal everything outside and inside the walls, and kill all the trees and any animals left outside. I will only defend the house. The house is like an ark that I can rebuild from after the zombies are gone. I will use dogs and neighbors as an alarm system.
In Uruguay, the police, military, or paramilitary are not a concern. They are very few, poorly trained, and lightly armed. There are only two cops and no military installations in my district.
The zombies is probably the most disagreeable aspect of prepping to think about. Large urban centers like Miami or Sao Paulo will get really bad at some point. I fear most people don’t understand how bad it can get. I prefer gardening. 😉
Most people haven’t prepared at all in any way. Most preppers have a big advantage with their skills, knowledge, training, discipline, psychological disposition, and supplies. The key will be holding on to the supplies and defending yourself.
Northwest Resident on Wed, 12th Nov 2014 9:52 am
I agree with Davy that in very difficult times, the best and the worst come out in people. And I am optimistic that ultimately the “best” will win over the “worst” because I have a mountain of evidence on my side to support that belief. As in, here we all are, lots of us. We only got here because humans have an innate tendency to pull together, to work together, to sacrifice for the common good, and to flush out and destroy the threats to community stability. All of these innate human traits are of course recognized and manipulated by TPTB, which is where so much of the evil and wrongs in the world come from. But still, somehow, humans thrive and we don’t thrive because we are a bunch of self-destructive lunatics bent on death and mayhem, we thrive because we naturally pull together into close-knit communities especially during periods of stress, and we work for the common good.
But only if there is a perceived chance of success, hope, a vision of a future. Without hope and without a uniting vision of the future, humans will go full retard in dog-eat-dog mode. That’s what could happen in the big cities and urban areas and elsewhere with too-few resources or other inadequate conditions.
Hey JuanP — I got those links. I tried to watch the videos but I think they were being watched by too many people at the time, and I got errors. I’ll try again. Thanks!
Perk — Here’s a link to my backyard “garden”. That rectangular pit that you see is now occupied by a 4x15x4 rain capture water tank, and filling up nicely.
http://s1383.photobucket.com/user/NWR2015/library/?sort=9&page=1
JuanP on Wed, 12th Nov 2014 11:03 am
I think that fortified villages and clusters of farms like in the past is a possible long term outcome. Cities of up to a million could make it in a few selected places with enough available water, food, and energy. I look at premodern Europe mostly for inspiration. The Spanish, French, British, and Italian countrysides, with their medieval hill towns and villas.
Northwest Resident on Wed, 12th Nov 2014 11:28 am
Multiple attempts to post a comment which includes a link to a certain article regarding QE have just disappeared — not gone to moderation, just disappeared. I’m trying a new approach. Search for article which includes words “qe-isnt-dying-its-morphing”. By n-o-m-I-p-r-I-n-s.
“The financial system has failed and remains a threat to us all. Only cheap money and the artificial inflation of asset values can make it appear temporarily healthy. Yet, the Fed (and the Obama Administration) continue to perpetuate the illusion that making the cost of (printed) money zero by any means has had a positive effect on the population at large, when in fact, all that has occurred is a pass-the-debt-ponzi-scheme co-engineered by the Fed and big US bank beneficiaries. That debt, caught in the crossfires of this central-private bank arrangement, is still doing nothing for American citizens or the broader national or global economy.
The Fed is already the largest hedge fund in the world, with a book of $4.5 trillion of assets. These will plummet in value if rates rise. Cue the banks that are gearing up their own (still small in comparison, but give them time) role in this big bamboozle. By doing so, they too are amassing additional risk with respect to interest rates rising, on top of all their other risk that counts on leveraging cheap money.”
Lies, debt and bullshit — that’s the “fumes” that our civilization is running on right now.
I wonder if this post will make it past the “not allowed” filters? Or more likely just some kind of computer bug???
J-Gav on Wed, 12th Nov 2014 12:57 pm
Thanks NR for pointing to the Prins article. I generally keep up with her writing but had missed that one.
Doesn’t pull her punches, does she?
The players in the big shell game may change roles occasionally to cover their tracks but, well, the show must go one – until it doesn’t, that is …
An old African proverb states that when the elephants fight, the people get stomped – and that when the elephants make love, the people get stomped too.
J-Gav on Wed, 12th Nov 2014 1:05 pm
I should admit that I transformed the original version of the African proverbe mentioned above. In fact, it says “the grass gets trampled,” but I believe I was faithful to the metaphorical meaning.
I have nothing against ‘real’ elephants, in case there might be any doubt.
Northwest Resident on Wed, 12th Nov 2014 1:35 pm
J-Gav — You are most welcome. I found that article intriguing. My attempts to post a direct link to it, even an altered link (ht tp for example) all failed. So I had to resort to what you see.
A while back, before QE3 officially came to a close, I posted my opinion that if TPTB end up actually ending QE and cutting off the constant flow of new “money” to the financial system, then that would be “a sign” that they had given up on trying to keep BAU going and were prepared to just let it die a natural death. Then they officially ended QE3 and nothing bad happened. Now we learn that they just *tricked* us into believing that QE has ended, when in fact it has just been shuffled out of sight of the “little people”, and otherwise continues as before.
“Poor people are always getting fucked over by the rich. Always have. Always will.” — one of the characters in the classic movie “Platoon”.
That more or less states the same thing as your elephant proverb, I think… 🙂
Lies, debt and bullshit — that’s the “fumes” that our advanced civilization is running on right now. Stop any one of those three and the whole thing comes crashing down.
.5mt on Wed, 12th Nov 2014 6:22 pm
I sense a longing for a simple life. Not me, when the Doom train tools in I’ll chain smoking Camels and ignoring all fishing limits.
Stop worrying so darn much. If you want a simple life make one, but stop pushing it on us BAU types. BAU is fun.
Also need to count the BAU in this thread. 🙂
Makati1 on Wed, 12th Nov 2014 6:34 pm
NWR, I tried to post a comment with reference articles but they also just disappeared along with the comment. Saved, closed site, reopened site, pasted and again, it just disappeared. No “Waiting for Approval”, no “Double post”, just gone. Frustrating as they were two very good references to the topic. PO, Yahoo or ???
Northwest Resident on Wed, 12th Nov 2014 10:51 pm
Makati1 — If I was a software developer for the peakoil website, I would consider that a bug. But for all we know, they planned it that way!