The horizon is not so far as we can see, but as far as we can imagine

The Coming Global Recession and the Remaking of the World

Guidance is falling all over the world for economies, with even Germany at risk of falling into recession.  The US dollar has been rising in a huge flight to safety, while the price of oil has been dropping.  Growth in the world economy has ultimately been based on the BRICs and those have been based primarily on Chinese demand along with a series of new housing and equity bubbles.  Those who say there is no inflation are fools: there is plenty of it, showing up in real estate and stock markets.

Meanwhile, in the developed world, all of this money has gone to the top, not to the top 10%, but to the top 3% or so (depending on how you cut the pie), with the majority going not just to the 1% but to the top .1%.  Demand has been driven almost entirely by the demands of the rich: high level housing in global cities like London; and stock market appreciation vastly above any conceivable rate of productivity increase.  Corporations have made their profits by engaging in oligopoly pricing, with US cable giants making almost 100% returns on “high speed internet”, for example.

The market for real-estate is nowhere close to clearing: there are many more houses, apartments and condos empty than there are homeless people; prices are rising far faster than either inflation or wages, and debt is piling up on on new home entrants, especially in the United States, where the student loan bubble has impoverished the people old folks expect to buy their houses at inflated prices.

The base of the economy, of a mass economy, is thus rotten.  However, it needs to be emphasized that the majority of the economy post 08 has been based on central bank money printing: that money has been used to directly and deliberately inflate housing and stock markets.  There is no “economic recovery” as the post-war world understood it, there is only print-priming, bubble pumping, oligopoly pricing and austerity driven buyout activity.

Demand for actual workers has been kept low while profits and gains from bubbles have been kept high, leading to massive cyclical gains for the rich.  The late Jane Jacobs worried (a little early, but presciently) that we were moving into an old-style world. She got the details wrong, but she got the essence correct: as many have observed in the decades since, the plan is aristocracy, and the plan is succeeding.  There is aristocracy by right (billionaires) and there is aristocracy by position (corporate officers), and there are important retainers and local gentry (centi-millionaires), but the well-being of the majority of the population is not a concern

What is a concern is making the system self-perpetuating: locking in high profits, making sure that the heirs of the aristocracy keep the gains, and making sure that labor never gains the ability, either politically or through economic pressure, to upset the game.

They will not succeed, due to exogenous shocks to the system they cannot control, and due to their own rather shattering incompetence, but that does not mean things will get better for ordinary people, instead what is more likely is social collapse amid climate change and a number of wars, as America loses its hegemony (by some measures China is now the world’s largest economy.  Do not expect that America will go easy into that long night, nor that China will not remodel the world as it continues to rise.)

Many countries are now more tied to China that to the US for survival: their elites make their money selling commodities to China, not the US, and their ordinary people get their imported goods the same way.  Again, do not expect this to not affect the world.

The US is still the dominant power, to be sure, and it will use its dominance and all its tools to hang on and make more billionaires and centi-millionaires, but its day of hegemony is over.  Nor, I suspect, will China’s day (if it succeeds in overthrowing the American Raj) be long.

In the meantime, recession comes, in the midst of the ongoing depression.  Buckle up, it’s going to be ugly.

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  1. Gil Smart

    Great piece, and I fear you’re right, but wonder how you see the social collapse playing out.

    It does amaze me, the extent to which the rabble have allowed themselves to be bought off or distracted by political sideshows or digital “entertainment.” But for the exact forms, though, I guess it was always this way.

  2. a long night goodbye

    Ian Welsh wrote :…..”what is more likely is social collapse amid climate change and a number of wars, as America loses its hegemony.. ”

    If there is a sign of coming social collapse it would be the elites moving their money out of the country and buying up hard assets and residences in other countries. We are not seeing that. Probably because it is just as bad, if not worse in Brazil, Spain, Hong Kong, India, Africa, Syria, the Ukraine, China, Mexico, the UK.

    The smartest people always are the first to jump off a sinking ship. Nobody has jumped yet.

    Ian Welsh wrote: “Do not expect that America will go easy into that long night…”

    Probably a true statement just due to the sheer size of the country being at 300 million people, many of which have firearms. It’s also not a country of unified people in terms of getting through calamities. Americans are very divisive when it comes to social structures. Most likely due to race, religion and economic stratification.

  3. Tom

    I suppose the bright spot will be that Student Loans basically end up forgiven by default as the central banking system crashes and burns from the inevitable combat and political breakup. If this new Ebola Strain is what I fear it is, it may just be the trigger because the ball got dropped way too bad, and so stupidly by that Texas Hospital.

    Ebola in and of itself won’t ruin the country, the panic caused by it will.

  4. alyosha

    There’s a few people I follow from the trading world who are into something called Elliot Wave Theory. It’s a way of looking at price moves, and their retracements, and the typical ways this happens over and over again, in an effort to find tradeable patterns. While Elliot waves can often be seen in retrospect, trying to use Elliot Wave theory practically is not something I have found that useful. There’s the saying that no two Elliot Wave practitioners will ever come up with the same wave counts, given the same input price chart.

    Nonetheless, a key idea in Elliot Wave is that these patterns are holographic, – you find the same patterns operating at the micro hour-to-hour level as you do at the macro year-to-year, or even century-to-century level. Large waves are composed of smaller waves, which are composed of smaller waves yet.

    People who are into Elliot Wave often tie it in to a cyclical view of history. There are major cycles that contain minor cycles. Some practitioners say that we are at the end of huge super-cycle whose last wave, last push forward, began during the Renaissance. Just as prices push forward and then retrace per Elliot, so do social trends, as we return to feudalism.

    One practitioner predicted a return to castles with moats; some months ago, I posted a link to an ad, for some Los Angeles real-estate that effectively was a castle with a moat – the home had what amounted to an electronic security perimeter along with a “safe room” and helipad, should the moat be breached.

    Thanks for the insightful and concise article.

  5. Ian Welsh

    Sigh. That people are fleeing to the US economy right now does not mean they always will. And much of what looks like flight isn’t, it’s condo flipping in a bubble market. It’s money seeking outsize returns that are artificial and won’t last, because most condos being built are shit, and will be slums in 25 years.

  6. jump

    I have thought we are at a tipping point into recession for the past year–much to my broker’s chagrin.
    A couple of questions though.
    What safe haven do the elites have? Not just their money, but their safety or is there some denial happening?
    Archdruid talks of catabolic collapse. Basically the carrying cost of the current state of affairs and institutions cannot hold the status quo and, well, the elites just get a wake up call. Comments?

  7. China will not continue to rise. There will be no more rising. The global economy is shrinking, inevitably, with plenty of daily news items helping it down. It’s been long ages since the U.S. provided anyone with commodities or manufactured goods. The U.S. is cruising on momentum, along with being the financial Czar, so far. Amazing what we have constructed, given our shattering incompetence. Interesting times.

  8. Jordan

    Should we just all commit suicide?

  9. guest

    It’s been long ages since the U.S. provided anyone with commodities or manufactured goods. The U.S. is cruising on momentum, along with being the financial Czar, so far.
    We produce a lot of soldiers and mercenaries and guns and bombs and all sorts of things like that. Kind of tells you what our leaders think the future will look like and how they want to capitalize on it. Sux for the cannon fodder, and everyone else, I guess. But it’s not like the US is not actively plotting its course.
    Besides, I think we have been hearing the doom and gloom predictions for way too long. I’ve been seeing the end near since Bush/Cheney stole the election. Doesn’t mean it isn’t coming. Maybe tomorrow, but probably not tomorrow, or next month either. But most Americans, and probably most folks in many other places, saw what happened in 2008, and it didn’t seem that bad, and the aftermath wasn’t that bad, and the suckiness has been normalized. But most of all, the dire predictions are not happening fast enough or badly enough, so they have just written them off.

  10. Thank you for this interesting article.

    One of the eye-openers for me at the start of this new millennium was an article in Foreign Policy: “The eagle has crash landed.” by Immanuel Wallerstein. Every so often I re-read the article and see that the worst case scenario sketched there, is playing out as we speak. The article was supposed to be a warning, not a manual. Furthermore, since we now have tied all the worlds economies together, it starts to look more and more as a single house of cards on this world.

    It tries to show that the US’s role was already over in 2002 and if they played they’re card right, they could’ve diverted a crash into a gradual decline. Hanging onto OPEC, financialization and Bretton Woods has made it possible to hang in there somewhat longer. With the associated cost of these policies, there will remain nothing left, once everything starts to crumble.

  11. Ian Welsh

    Well Jordan, feel free. Plenty of people will still have good lives, more will have pretty good lives, they just won’t be nearly as good, for the majority, as they could be.

  12. Tony Wikrent

    “If there is a sign of coming social collapse it would be the elites moving their money out of the country and buying up hard assets and residences in other countries. We are not seeing that.”

    I don’t have any idea what hard assets and real estate elites are or are not buying, or where. But the past year or two, there were at least two studies which pegged the amount of money stashed in offshore financial centers at $30 something trillion, to over $50 trillion. If that’s not “money out of the country,” I wonder what would be.

    So happens that just last night I came across something I had blogged in the run-up to the 2012 election. It was relaying an article Matt Taibbi had written:

    Romney . . . is a perfect representative of one side of the ominous cultural divide that will define the next generation, not just here in America but all over the world. Forget about the Southern strategy, blue versus red, swing states and swing voters – all of those political clichés are quaint relics of a less threatening era that is now part of our past, or soon will be. The next conflict defining us all is much more unnerving.
    That conflict will be between people who live somewhere, and people who live nowhere. It will be between people who consider themselves citizens of actual countries, to which they have patriotic allegiance, and people to whom nations are meaningless, who live in a stateless global archipelago of privilege – a collection of private schools, tax havens and gated residential communities with little or no connection to the outside world….
    Obama ran on “change” in 2008, but Mitt Romney represents a far more real and seismic shift in the American landscape. Romney is the frontman and apostle of an economic revolution, in which transactions are manufactured instead of products, wealth is generated without accompanying prosperity, and Cayman Islands partnerships are lovingly erected and nurtured while American communities fall apart. The entire purpose of the business model that Romney helped pioneer is to move money into the archipelago from the places outside it, using massive amounts of taxpayer-subsidized debt to enrich a handful of billionaires. It’s a vision of society that’s crazy, vicious and almost unbelievably selfish, yet it’s running for president, and it has a chance of winning. Perhaps that change is coming whether we like it or not. Perhaps Mitt Romney is the best man to manage the transition. But it seems a little early to vote for that kind of wholesale surrender.
    — Matt Taibbi, Greed and Debt: The True Story of Mitt Romney and Bain Capital, Rolling Stone, August 29, 2012.

    And (this is not really off topic), I think we should look much more critically at the open-carry movement in the US, in which the 2nd amendment right to own firearms is shorn of the responsibility to be part of “a well regulated militia” and, even worse, trumps everyone else’s rights. Just last night, video game critic Anita Sarkeesian cancelled an engagement to speak at Utah State University after receiving death threats, and the authorities refused to prevent anyone carrying firearms from entering the auditorium.

    What I think open carry is really all about is “normalizing” the presence of firearms in public, making it easier to approach and kill (or wound) opponents of the right. Who started open carry” Who conceived the idea? Who promoted it in state legislatures? I think it was ALEC.

    Progressives and the left are adamant in refusing to face the sad and horrible fact that violence does, indeed, work. Even just the threat of violence. I think it’s an open carry organization in Wisconsin which announced its members would be at voting places, to check on the activity of people who had signed the recall Walker petitions. What chilling effect will that have on election turnout by opponents of Walker? Does the right to carry firearms really trump the right to vote? Oh, we’re told, there is no “right to vote” enshrined in the Constitution and its Amendments. By whose interpretation? Antonin Scalia?

  13. Jordan

    Who are the plenty you speak of?

  14. Ian Welsh

    Troll Cycle: someone asking a question that takes far more time to answer than it does to ask, thus wasting the time of the person they’re asking it of.

    Answer: who the plenty are is left to an exercise for the reader.

  15. What I think open carry is really all about is “normalizing” the presence of firearms in public, making it easier to approach and kill (or wound) opponents of the right.

    This was explicitly so. The “popular” part of the open carry movement is more or less open that this is about paranoia of a leftist intruder. Actually that’s the firearms movement as a whole; they conceive of the Second Amendment as a bulwark against an internal communist threat.

  16. Jordan

    I’m sorry, I wasn’t trying to be a troll. Your article just made me very depressed and I am having trouble making sense of my life and the world right now.

  17. cripes

    Yes. I understood his question to be brief and open-ended, unless there exists a subtle insinuation that there really isn’t a “lot” of people that will live well post-collapse (however we define that). In any case Ian or others can speculate on what that might look like.

  18. Lisa Formally OldSkeptic

    Neo-liberalism has always been a political ideology (with a morality all of its own), the ‘economics’ provided were fig leaves to ‘justify’ a clearly political agenda. The classic example of that being ‘the efficient market hypothesis’, which gave a technical rationale to gut market regulation.

    This was clear from the start. In Milton Friedman’s TV series in the 70’s his ‘perfect society’ was Hong Kong back then. Dictatorship (the British had no truck with democracy), incredible poverty, no social insurance systems of course, with everyone working endlessly and an oligarchy sucking up all the profits. Perfect neo-liberal society.

    At the core there seems to be a hankering to return to an imaginary Victorian England as the ‘perfect society’, complete with forelock tugging peasants and workers and only ‘the right people’ being able to vote.

    Each and every action has been to move towards that goal at national and international levels.

    All other competing ideologies have been swept away, so that only it remains. Even basic science goes on the chopping board, because they might conflict with the dominant ideology.

    Along with the sheer cruelty, there is another element, lying to push the agenda, in fact endless lying. There has been a collapse on any restraints in Govts/oligarchs/elites/etc in totally lying. Hence such howlers (like here in Australia) that cutting textiles & footwear tariffs would all make all of us billions richer. What about the job losses some asked? “Oh they will all find new jobs and become richer because of it” was the answer (hint: it didn’t happen).

    So step by step they have moved towards their ‘promised land’. And they are true believers in this, some because of vested interests (duh), some because they really believe this, some because they are just sociopaths (this is the ‘era of the sociopath’). And they now dominate most tiers of Govt and bureaucracies at national and international levels.

    So they ain’t going to be moved or stopped easily. If our economies all go under, then they will just do more of the same, because in their lexicon of beliefs it will not be their fault, or their beloved oligarchs, rather the blame will be on all those greedy useless proles who will have to be punished because of it.

  19. Lurker the Third

    Your article just made me very depressed and I am having trouble making sense of my life and the world right now.

    Things can get harsh at times, so one way of making sense of your own life, and simultaneously making the world a better place, is to get involved in any of the thousands of areas where you can personally help. Whether it’s volunteering at an animal shelter or senior citizen home, planting trees or just smiling as you walk down the street, you’ll find that giving happiness to others brings happiness to you too.

    Yes, there will be difficult times ahead, so be in the best shape you can to help everyone meet those challenges.

  20. difficult times

    Jordan: People in the 60’s built bomb shelters and lived in perpetual fear of the end of time and continued to build the national highway system, engineered advanced computing and laid the foundation for one of the greatest scientific advancements of the US age. If and when things go south, as Ian Welsh stated, the US won’t go easily into the long night. I suspect it will take down many of the other countries as it does spiral out of control. Like a sinking ship which creates a vortex around it…So you can just hope that you’re not going to suffer…at least not too badly. In the meantime, act like those people in the 60’s…that all if fine in the world, because if you do go down, you want to be happy and not fearful or sad.

  21. Well, we do not have to worry about that here in the United States, because we are economically stronger than the rest of the world and will continue to enjoy the strong recovery which we are currently enjoying no matter what the rest of the world does. Our stock market is dramatically high (I’m writing this a week ago), unemployment is the lowest since before the recession began, and corporate profits are at historic highs. All of this is ging to continue, and even get better, even if the rest of the world goes into another recession because… Well, apparently because if it didn’t then Republicans would take over the government.

    As you can tell, I have been reading blogs and discussion boards populated by Obama supporters.

  22. Greg T

    Bill H-

    I don’t know what you’ve been reading, but you clearly don’t read this site very much if you think patrons of this blog are Obama supporters.

  23. EGrise

    I think Bill H is being facetious.

  24. @Jordan

    I know the feeling.

    At the festival OHM2013 we had a talk with Guy McPherson with his doom and gloom about collapse of the biosphere around 2018. Add in a lot of sleep deprivation and diving into the rabbit hole furthermore on this subject. The result for my mind was not pretty.

    However after getting a while to get my bearing, it became better. Writing stuff down, talking with people about it. Also seeing the other cool stuff that people are let’s you see that not everything is set in stone and you can make your own and others surroundings/life a lot cooler. Sitting under a blanket and waiting for the lights to go out, does not help.

    I think both humor and reflection provide the distance one needs for dealing with these kinds of issues.

    See also this posts on Reddit from a couple of days ago.

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