Epocalypse Revisited: The Recurring Nightmare Of Economic Collapse

Market Commentator & Financial Writer
March 21, 2022

In 2015, I wrote about The Great Recession 2.0 that was coming upon us. I called it “The Epocalypse” to signify an economic apocalypse that would be epic in scale and that would begin a new epoch on earth — a turbulent time of global economic collapse. It described my overarching vision of our journey ahead.

By “vision,” I don’t mean I had a mystical experience, but that I was painting the broadest view of coming economic collapse I could at the time. I grasped its global breadth correctly, but what I didn’t foresee was how the end would expand through time in repetitions like a recurring nightmare — where each cycle of failure and recovery becomes shorter but more intense than the last, like waves pounding the beach in a surreal nightmare where each crest arrives more rapidly and fiercely than the last … like time is being compressed until the recurring events blur into one big rush of a tsunami flooding inland.

The following is an introduction to a series of Patron Posts (at least two) in which I’ll be exploring this seemingly endless collapse, the first of which will be published tomorrow. Our economic demise has hit us in jolts where various stock market crashes or corrections have come at the points where I said the market would crash, but have not initially been as severe as I thought; yet each has been steeper and deeper than the last with shorter times in between.

The reason the event became prolonged like this was that central banks went to far greater extents than I ever imagined they would in their repetitive recovery efforts. Each time they tried to back out of the recovery they believed they had created, they quickly backed out of their backing out because of how rapidly their recovery failed when their support was withdrawn. It was the backing out that I said would cause the collapse of their fake recoveries, but they always chickened out of their withdrawal of support more quickly than I thought they would, reversing their reversals.

That, in itself, tells you how destructive the original collapse would have been, as envisioned, if central banks had not gone through such an elaborate cycle of ever-greater and more-inventive efforts to avoid the increasing pain that re-emerged each time they removed their artificial life support. They are torturing the patient to death with their life support mechanisms, rather than letting the natural economic cycle of death and rebirth take place.

To be fair to myself, I did say the Epocalypse would not happen all at once and even that parts of it would be quite a ways down the road, but I envisioned more of a slowing train wreck than a crushing force of faster and faster cycles. I think it is now time to revisit my view of the Epocalypse as an even larger cycle of ruination on the heals of repair now crashes over us.

I last revisited it in 2020 as we were deluged by the COVIDcrisis, taking note that…

Things did not go as badly as I said they would back in 2015, but only because the Fed did not go as far as it had led the world to believe it would go [in backing out of its recovery plan]; and everything I said about what would happen in the economy was predicated on what the Fed said it was about to do. Now that the Fed finally did go that far (in 2018), all of that is coming back around to where I think it is time to revisit my descriptions of the Epocalypse, while bringing the scenario up to date with current events.

The Return of the Epocalypse

The endless waves of tribulation

Major parts of the Epocalypse did happen after both periods when I was writing about it: We saw the worst January plunge on record in 2016 (the month I gave for the market’s crash), but the market did not fall 20%. Then the stock market crashed a full 20% due to Fed tightening at the end of its “Great Recovery” project in the fall of 2018 when the Fed proved it can never tighten (with the whole year playing out as I said it would). We barreled straight from that into the Repocalypse of 2019 (the great Repocrisis between banks, which I had predicted for the second half of the year due to the Fed’s tightening, which I said would imperil financial institutions, and it did). The Repocalypse only grew worse until the Fed went back to full QE (just as I said the crisis wouldn’t end without returning to full QE because the Fed cannot tighten so must put back all the money it had removed). Then we dove straight from that into the steeper and deeper COVIDcrash of the stock market in March, 2020, (which I indicated in January, 2020, was “imminent” and which gave the Fed the “permission” it needed to launch back into all-out QE again without losing face). At that point, we fell directly into the nation’s shortest recession yet a recession that delivered the steepest most staggering plunge in GDP ever (made short again due to the greatest QE in history being joined by the federal government’s support in the form of massive bailout programs for all industries and first-time-ever huge amounts of helicopter money).

Every recovery required more strain, more power applied. After a short-lived burst of glory from all of that new money and from sudden economic reopening, we slid in economic meltdown toward a covert recession few saw coming in the last few months of 2021 as the Fed merely tapered its QE, which it had to do because we were roaring back into the hottest inflation since the seventies and early eighties (which I had also assured everyone was coming). While almost no one saw it coming, the Atlanta Fed now forecasts GDP growth of ZERO for the present quarter. The Fed’s taper gave rise to bond vigilantes (as I predicted it would) and a slow stock market crash that has taken two major indices down more than 20%, and now the world is facing a global crisis due to Putin’s War and the greatest economic sanctions of all time!

Do you see where I’m going with all of that? From the time when I said the Epocalypse would begin, it’s just been one damned thing after another, by which I literally mean the worded “damned” … as in each event has the qualities we would associate with some form of economic damnation — pestilence (COVID), wide social unrest (BLM, Antifa, Yellow Vests, etc.), war in Europe worse than anytime since World War II (with many talking of World War III and outright threats of nuclear missiles) and now likely famine in many parts of the world and economic breakdowns all over the globe, as I’ll lay out in the first Patron Post in this series. So, even though the Epocalypse did not hit in quite the shock-and-awe slam I projected, the events have been a relentless cascade of the kinds of major crises I described, and it is still only growing in size and terror.

The extraordinary financial efforts made to recover from each of the crises only goes to prove how severe they would have become if not for truly epoch financial rescues by central banks in collaboration all around the world. You can judge the size of the crash that would have happened by the global scale of the effort it took to prop it up and by the need to redo those historic rescues in continuous cycles because the rescue efforts, brontosaurus-sized as they are, never leave us in a recovery that cannot endure for even a year when they withdraw their support.

When former Fed Chair Janet Yellen infamously proclaimed at the end of the Fed’s Great Recovery, Act I, that we’d never see another financial crisis in her lifetime, I joked that I guess she didn’t expect to live long. Since then, we have gone from crisis to crisis to crisis.

When I first wrote about the Epocalypse all the way back in 2015, I explained the situation this way:

To understand why this global economic collapse will be even worse than the Great Recession, you also have to understand that we are still in the Great Recession. This is what the big, giant heads [on television] don’t get. What we are about to experience is merely how deep the Great Recession really is once all the props have failed.

How the Coming Global Economic Collapse will Play Out

You see, as result of trillions of Fed dollars, we not only did not feel how deep the Great Recession would have become, but times have been extraordinarily good financially; however, this drug-induced euphoria got its high from massive hits of Fed QE, requiring larger doses every time just as I said would be required due to the Law of Diminishing Returns. Eventually the drug dependence became so bad that the Fed could not do the lifting on its own, so the federal government had to join in 2020 with all of its muscle.

As I explained during the Great Recession in a series of articles I called “Downtime,” which I syndicated to newspapers like The Hudson Valley Business Journal before I began this blog, Fed life support was the only thing keeping the patient alive. The Fed created a codependent economy to which I said, as soon as you remove life support, the comatose patient will begin to die. It has proven out that, every time the Fed has removed life support, the patient has declined to such ill health that the Fed had to rush back in with greater life support.

The debt trap

While my failure to see how this would grind on for so many years is a bit humbling, its also evidence of just how much the original Great Recession still wants to swallow us into an ever-deeper belly because we never healed the cause of the ailment. We are never able to escape its gravity because we chose a course of pushing our problems ahead (“kicking the can down the road,” we often heard). We avoid the extremely hard political work of resolving the problems by filling them with mountains of money; but the material for those mountains of money has all been dug by creating pits of debt.

That has been my central thesis from the beginning: You cannot solve a debt problem with more debt; you can only prolong it.

The central flaw in this group thinking is that economies can be built over ever-expanding holes of debt. One would think the error of such thinking would be self-evident — as it is hard to build anything structurally secure over an ever-expanding hole — but clearly it is not self-evident, for the world has stormed down that path to peril hand-in-hand, singing gleefully all the way. The Fed and its fan dandies have engineered a recovery by digging out the biggest hole of debt the world has ever seen. And that’s one very good way you know this depression is going to be the worst the world has seen. Just look at the conglomerated size of all the national debt holes dug around the world. 

The central bankers’ solution to building over an increasingly gaping maw of debt was to hang the entire economy from an ever-expanding balloon of money created out of thin, hot air. The problem with that is that the air only stays hot for as long as you continue fueling the fire that heats it, which they fueled by digging out more and more of the coal underneath it. You keep fueling the economy to keep it afloat, but you keep digging the hole deeper and wider that is the reason you have to fuel it and keep it afloat in the first place. 

This is the point at which common sense should tap anyone on the shoulder and say, “Uh, what are you doing?” It would seem self-evident that you cannot superheat the money supply forever, and that the whole rigged economy will start to fall into the expanding hole as soon as the fuel gets turned off; but, then again, it would seem self-evident that you cannot create enduring prosperity out of ever-expanding debt. 

Apparently it was not. 

As I have said from the start of this blog, the belly of the Great Recession has only been propped up temporarily. There has been no recovery, for recovery would require building a new and secure foundation to replace the one that crumbled out from under us, but we are resting on a patched version of the same flawed foundation that led to economic collapse in 2008 and 2009. The Paul Krugmans and other big-name economists of this world recommended that we solve a crisis that was fundamentally a debt-created problem by creating vastly greater debt, but we also solved a housing crisis by recreating a housing crisis. We’ve continued the same mortgage-backed securities built of low-quality mortgages … and we’ve managed to get housing prices right back to the stratosphere they were in before the last collapse. We have learned absolutely nothing.

You see, ending all the free money, assures inevitable collapse of the hot-air-balloon-sized Everything Bubble. We saw that when the Fed last tried, and it is now trying it again at a time when its efforts will be further plagued by Putin’s War and all the wartime sanctions imposed to lay siege on Russia. The Fed still believes it can do it:

“We’re in a different place than we were before…. We have a much bigger balance sheet, the economy is in a much different position. Inflation is raging. So, we’re in a position where we could actually draw down a large amount of liquidity out of the system without really doing much damage.”

— Fed Governor Christopher Waller (CNBC)

All that really means is the situation is out of control, as evidenced by raging inflation with a Fed afraid to raise rates as quickly as Waller said he believes they actually need to:

Though he voted this week for just a 25 basis point move due to uncertainty from the Russian invasion of Ukraine, Waller said he thinks the Fed may need to be more aggressive soon…. “I really favor front-loading our rate hikes, that we need to do more withdrawal of accommodation now if we want to have an impact on inflation later this year and next year.”

So, he admits they have raging inflation, says they are in a great position to raise rates more quickly but was afraid to do it due to the war and sanctions. They are more between a rock and a hard place than ever due to scorching inflation on one side and a hot war on the other.

From my first predictions of the Epocalypse that I tied to the Fed’s first tightening, we have lived in a constant state of crises, and now we have entered another. I cannot say, as Yellen did, that it will be the last in my lifetime unless I wish to cut my life short.

The recession upon us

So it is that, having just finished my series on the Everything Bubble Bust prior to Putin’s War, I already need to look at how Putin’s War and the resulting wartime sanctions will magnify what I’ve written because this is where we already are:

“Over time, the three biggest factors that tend to drive the U.S. economy into a recession are [1] an inverted yield curve, [2] some kind of commodity price shock or [3] Fed tightening,” said Ed Clissold, chief U.S. strategist at Ned Davis Research. “Right now, there appears to be potential for all three to happen at the same time.

Yahoo!

Number 2 could be seen when I wrote,

This global embargo is happening right at a time when we were also already about to see the collapse of the Everything Bubble because the Fed and other central banks were entering a time of their fastest, greatest moves from easing to tightening ever seen. Now we have to factor in how all of these sanctions — not just oil but the Everything Sanctions — combine to make the economic collapse I have been predicting even worse.

The Big, Bad Biden Oil Bust

At that point, we had already seen massive commodity price shock over the previous six months, made worse by the present sanctions; and now #3 is here as the Fed has started actual tightening with its first interest-rate hike. Each of those are said to be enough to start a recession by themselves, but we had not quite seen the one thing that is the Fed’s best predictor of recessions — #1, the inversion of the yield curve. However, we were very close:

*******

David Haggith

David Haggith started writing about the economy after he predicted The Great Recession half a year before it hit and was puzzled as to why no economists or stocks analysts saw it coming. In the months after the crisis broke out, he started to write humorous editorials in a series titled “Downtime,“ which chided the U.S. government and bankers who should have seen the economic collapse coming but whose cronyism, greed and ineptitude caused them to run the world into a ditch. Those articles were published in The Hudson Valley Business JournalThe Valley City Times-Record (North Dakota), and The Daily Herald in Tennessee. Haggith is dedicated to regularly criticizing the daily news — not just the content but the uncritical, unthinking nature of almost all of the reporting. He now writes his own blog, The Great Recession Blog, to break down the news as an equal-opportunity critic toward both Republicans and Democrats / Conservatives and Liberals … since neither kind of politician has done anything worthwhile to plot a better economic course. His articles are regularly carried by several economic websites.


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