The face of the river, in time, became a wonderful book . . . which told its mind to me without reserve, delivering its most cherished secrets as clearly as if it had uttered them with a voice.
-- Mark Twain
The stock exchange in Egypt remains closed as the government collapses. Banks are closed as well. Internet, cell phone and television networks have been shut down by authorities. Business is grinding to a halt. Economic repercussions are beginning to send tremors through the country as the risk of food, water, fuel and supply shortages hits. Goods are piled up at ports that have been closed by the army. Transportation systems are not functioning. Prices are beginning to rise. Escaped prisoners are on the streets. Police have fled. Over one hundred people have died in the protests.
I stumbled across this video yesterday while looking at clips of the protests on the internet. When I first watched it I noticed it had already been seen by 600,000 viewers on YouTube. The piece stood out because of its artistry and emotional appeal, and I could see right away it had the potential to reach a lot of people. Three hours later I looked it up again and saw the view count was already up to 750,000.
The video was made by Tamer Shaaban, who calls himself “another Egyptian who’s had enough.” It was edited from footage he compiled from various news sources on the internet, and set to sections of the song Into the Fire by the British band Thirteen Senses.
“Violent clashes between police and demonstrators as over ten thousand gather on the streets of Cairo. The Egyptian population has endured a tyrants rule for far too long, millions struggle each day to find where their next meal is coming from. January 25th, 2011 marks the day when the people rise and take back what’s rightfully theirs. This isn’t the end, but hopefully the beginning to a long awaited regime change,” Shaaban posted on YouTube.
This is the power of the internet and the power of the people when they are empowered by technology. Today’s revolutions are being organized using the tools of new technology, like cell phones and social networking sites. Now the Egyptian economy has been shut down by revolution, but a revolution in art and journalism continues to spread the story and move hearts around the world. Grass roots media is afoot.
The political crisis in Egypt has become an economic one, and the economic crisis is becoming a humanitarian one. The Middle East is seeing a huge wave of social unrest, but this is part of a global phenomenon. We saw riots in Europe last year. People around the world are hitting a limit with austerity and oppression, corrupt government and inept leadership. The squeeze is too tight. This is not the end, and perhaps even closer to the beginning. Expect to see more unrest around the globe, especially in countries where debt is an issue. And expect to watch it on YouTube.
“The revolution will not go better with Coke.
The revolution will not fight the germs that may cause bad breath.
The revolution will put you in the driver’s seat.
The revolution will not be televised.”
– Gil Scott Heron
This past week there was all sorts of good news about the economic recovery spinning forth from National Public Radio. In a sure sign the recovery is moving forward, Obama has decided to replace his recovery oversight team with some sort of a new job creation team. Apparently the recovery process is forging full steam ahead in the housing sector as well, with home sales on the rise nationwide. Now, increased sales would have nothing to do with the fact that there’s an unprecedented wealth of repossessed property hitting the market with hugely eroded value, of course… or that excessively positive spin from the media is influencing investor buying?
The media seems desperate to report something positive about the economy these days. I understand the draw. People are tired of the bad news and the tough times. The idea that things could get worse or go on like this for much longer is frightening. But isn’t the function of journalistic reporting to cut to the truth of the matter? I am coming to completely distrust anything positive I hear from the mainstream, even NPR. The atmosphere is verging on Orwellian these days, but with the ludicrous conflict of interest at play regarding sponsors such as the National Association of Realtors backing public radio and the commercial media already beholden to the designs of big business, it only stands to reason we are not going to get a clear picture of where the economy stands.
Surprisingly, one recent article from CNBC did manage to cut through the chatter with a title declaring Housing Market Slips Into Depression Territory. The article itself was perhaps not wholly accurate as it described the economy as revving back to life with “signs of hiring on the horizon.” That remains to be seen. I suppose it depends on the distance of that horizon, but I don’t expect to see any bold improvement for a while without the development of some amazing new energy technology or such to drive it. Nonetheless, it was refreshing to have the press acknowledge the severity of the situation we are steeped in.
According to the CNBC article, home values have now seen a worse decline than they did during the Great Depression, having hit a 26% reduction nationwide with home prices still falling. While it wasn’t addressed in the article, the housing market and the investments attached to it are what led us into this downturn, and falling prices continue to put downward pressure on the greater economy. The fact that housing is now worse off than it was during the Great Depression suggests our economic engine may not be revving back to life with quite the verve the press would have us believe.
I suppose it is wise for the press to be careful. If you subscribe to the school of behavioral economics you understand the influence emotion and attitude have on the market, and it can be argued that this is just cause for prudence in reporting. However, there are multiple and very reputable economists, investors, analysts and scholars alike who are calling the situation we’re in a depression.
Nobel Prize recipient and Professor of Economics at Princeton University, Paul Krugman, warned in a New York Times article published last July, “We are now, I fear, in the early stages of a third depression.” Though he has since come to believe the severity of the downturn was tamed to some degree by fiscal stimulus, he again referred to the economy just yesterday on his Conscience of a Liberal blog as being in a depression.
Last month 87-year-old promoter, trader and investment letter author Harry Schultz warned in his final issue of the International Harry Schultz Letter “Roughly speaking, the mess we are in is the worst since the 17th century financial collapse. Comparisons with the 1930’s are ludicrous. We’ve gone far beyond that.” He should know, having grown up during the Great Depression.
Former US Budget Director for the Reagan administration David Stockman issued an alarming warning recently, advising “Get some gold, beans, water, anything that Bernanke can’t destroy. Ron Paul is right. We’re entering a global monetary conflagration. If a sell-off of U.S. bonds starts, it will be an Armageddon.”
Telegraph columnist Ambrose Evans-Pritchard stated last year “The M3 money supply in the United States is contracting at an accelerating rate that now matches the average decline seen from 1929 to 1933, despite near zero interest rates and the biggest fiscal blitz in history.” This statement was issued when we all still thought we were dealing with a mere 700 billion dollar stimulus package, before the new Dodd-Frank reform law exposed the trillions in stimulus the Fed had secretly poured into the global economy.
Kevin Giddis, Managing Director of Fixed Income at Morgan Keegan revealed last May “There is big money making big bets that at a minimum we’ll have a [second] recession if not a depression that could last for years.” Always follow the insiders to see where the real action is taking place.
Trends forecaster Gerald Celente warns we will see an unprecedented collapse of the US economy by 2012. “We’re going into the Greatest Depression, and it’s going to be ugly.” Celente believes we’d already be in the throws of such a depression if it hadn’t been for those trillions the Fed covertly doled out to prop up the world, but calls the stimulus effort unsustainable and believes a crash is imminent.
"The Soup Kitchen," Norman Wilfred Lewis, ca. 1937
These are just a few examples of the voices we generally aren’t hearing on the radio and television. The list goes on and on across the political spectrum, and alarms have been sounding for years now. Economist Dean Baker of the Center for Economic and Policy Research in Washington DC issued warnings as early as 2002 that an emerging housing bubble would threaten the development of a downturn rivaling the Great Depression. Yet we still hear little discussion about the possibility of economic depression. So the question arises, what is a depression anyway? Would we even recognize one if we were sipping it from our soup bowls?
Ray Dalio is one of the world’s leading hedge fund managers with clients including world governments, central banks, pension funds and endowments. In 2010 he was the most profitable hedge fund manager of the year. He defines economic depression as a specific process which is fundamentally different from the process describing recession. He prefers to avoid the term “depression” because people tend to characterize it by the bread lines, shanty towns and other stereotypical images they associate with the Great Depression of the 1930’s. Instead he prefers to use a term he coined himself, calling it the “D-Process.”
In an interview with Barron’s two years ago he described how economic depression differs from recession.
“Most people,” says Dalio, “think that a depression is simply a really, really bad recession. But in reality, the two are distinct, naturally occurring events. A recession is a contraction in real GDP brought on by a central bank tightening monetary policy, usually to control inflation, and ends when the central bank eases. But a D-process occurs when an economy has an unsustainably high debt burden and monetary policy ceases to be effective, usually because interest rates are close to zero, and the central bank has no way to stimulate the economy. To compensate, the value of debt must be written down (risking deflation) or the central bank must print money (a trigger of inflation), or some combination of both.”
In an article about his company Bridgewater, in Fortune magazine a month later, Dalio warned the US was entering into an economic depression.
“In recent years the level of debt as a percentage of GDP in the U.S. has skyrocketed past previous highs last seen in the early 1930s. And the Federal Reserve’s benchmark rate is now hovering just above zero. To Dalio, therefore, it’s clear that a D-process is under way,” the article states.
Dalio’s definition of the depression process definitely characterizes today’s economy accurately, while the definition he gives for recession does not. Many today are unwilling to refer to our economy as being in a depression because it doesn’t exactly resemble what we saw in the Great Depression. Where are the breadlines? Where are the disenfranchised masses poking about for spare dimes? Well, every depression is going to look different depending on the various forces in place at its inception. Today, for example, we have all the social programs set in place after the Great Depression to help us avoid events we saw in the past. Today’s bread lines have manifested as a massive increase in the use of food stamps. Today’s dimes for the disenfranchised are delivered as checks via the unemployment insurance program.
Dalio also makes the distinction that while recessions are relatively common, depressions are not. We tend not to understand the phenomenon well because of this. We also tend to become overly confident as the event of depression slips into the realm of history that it will never happen again, and we lose our ability to recognize it when it does. The fact is, no one saw the Great Depression for what it was until years after it was over. Hindsight is 20/20, as they say.
Whether or not you want to call today’s economic situation a depression, we can certainly agree it is at the very least depressing. While the elite discuss the technical aspects in ivory conference rooms the people on main street continue to suffer with diminishing wages and unemployment that won’t budge, with increasing foreclosures, with lost benefits, lost prospects and debt they are unable to service. No one knows exactly what lies in store for us ahead, but some of those discussing economic depression have issued some pretty alarming warnings. I suppose I’d rather be safe than sorry.
I return to a quote from the unorthodox economist Robert Prechter of Elliot Wave International who, suspecting we are headed for a depression worse than any we’ve known before, has issued the following advice: “Winter is coming. Buy a coat. Other people are advising people to stay naked. If I’m wrong, you’re not hurt. If they’re wrong, you’re dead. It’s pretty benign advice to opt for safety for a while.”
Happy New Year! Well, the holiday shopping season turned out to be stronger than last year’s and perhaps the best for retailers since 2007. And yes, Virginia, Santa Clause is now on Facebook. Internet shopping was the strongest ever, rising 12% from last year, so perhaps that explains all those empty parking spaces and short checkout lines at the malls. Now, as we put our decorations back into their boxes and our wrappings into the recycling bin, we begin to wonder what is next.
This is the time of year I like to gaze deep into the crystal ball in hopes of catching a glimpse of what might lie ahead. The time line regarding how things will play out is not always clear, but the crystal ball will undoubtedly reveal something of where forces brewing today will lead us tomorrow. Sometimes things take longer to transpire than anyone might have initially imagined, and often events unfold differently than expected, but we can at least gain clarity regarding the seeds of the issues scattered about us today that may eventually take root and bloom. So, without further adieu… let us dim the lights and join hands around the table, and allow the vision to reveal itself.
Crystal ball says…
Housing market will continue to crumble. The continued crash will threaten the stability of the overall economy perhaps causing another dip into recession, though this may take a while – maybe into the following year. Housing bubbles pop in Australia, Canada and possibly China.
US municipal bond market thrown into crisis by states unable to service debt. Cities and counties face financial peril.
Europe thrown into further crisis as Spain’s debt problems drag down EU system. Euro is threatened, may face collapse. Debt problems in Italy come to a head.
Speculation in commodities continues, but bubble pops before too long.
US banks face continued closures as housing tanks and problems in MERS/foreclosure fiasco are exposed.
Unemployment remains high.
Lending standards continue to tighten, availability of credit continues to shrink.
Further Quantitative Easing… more about covert monetizing and lending, less about public heroics and bailout plans.
War fatigue… people question the value and sustainability of war in Afghanistan. Non-interventionist sentiment grows amongst public and youth, as war presses on.
Public pension crisis gains more publicity. Increasing pressure on unions to restructure benefit plans to match those of private sector.
Rising poverty leads to rise of political awareness and unrest. Protest. Rise of public interest in economics and policy.
Issues of liberty surface as public is squeezed by government looking to make up for deficits. Anti-terror security efforts continue to encroach upon privacy. Libertarianism sees growing popularity.
Counterculture movement amongst young adults. Internet connects global movement. Rise in grass roots political activity, arts and innovative small entrepreneurship.
Green, cyber and bioengineering technologies see development.
Loss of faith in government and present leadership. Obama criticized as political leader yet appreciated as motivational speaker.
Evolution of the spiritual. Includes focus on ethics, atheism, new exploration, as well as the return to and reinterpretation of the classics.
Fashion forward… archetypes of warrior, explorer, shaman, monk and intellectual. Hard modern lines begin to soften. Irony refined. Earnestness emerges. Twitter poets. Dada. Naturalistic and unusual dominate idealistic and artificial (boob jobs reversed, crooked teeth are cool). Hair in bangs and layers. Troubadours. Textures. Earth, stone, metal and faux fur. Post-punk preppy. The ant and the grasshopper. Causes and comeuppance. Micro farming. Neo-Romantic sentiment. Nostalgia. People return to the cinema, and live entertainment thrives with development in alternative venues. Cozy. Hand crafted. Recycled. Frugal. Less is more.