You just can't beat this scene from Harry Potter when looking for a visual representation of the phoenix of myth.
The idea is simple... huge, old, no longer needed parts of our Industrial Age society are breaking down, to be reborn into a new, Information Age version of American society. The most chaotic part of this transition will happen in this decade we're entering now, the Tumultuous 2020's as I'm now calling them. That's The Phoenix Great Depression in a nutshell.
On October 1, 2019, nine months ago, I first used the term, "phoenix recession," in this blog post. For three years, in that personal blog, I had been writing posts about the coming recession, and some of the big economic and societal issues that I realized would affect all of us, in a big way. I'm a geek on economics and big picture social dynamics, and an amateur futurist. Since childhood, I've been fascinated by trying to figure out what's going to happen in the future. A lifetime of watching and learning led me to the conclusion that a major economic crisis was coming in the late 2010's.
In short there is this convergence of some ultra long term trends and cycles, shorter term trends and cycles, and then the Covid-19/human corona virus pandemic also fell right into the mix, like a societal atom bomb, to force the change needed on so many levels. The Universe is weird like that.
On one hand, we have the long, sticky transition from an Industrial Age society into an Information Age society, described by futurist Alvin Toffler, in his long forgotten book, The Third Wave. In addition to that, we have a transition from the Acquisitor, or businessmen-dominated age, as the dominant mentality in American society, to the Laborer, or working people's mentality. This concept is described in The Law of Social Cycle by P.R. Sarkar, a 20th century thinker from India. In that theory, this is a time of a major populist uprising, which we've
now seen in a series of increasing waves, since Occupy Wall Street in 2011.In addition to those two huge transitions, we have the rise of the Creative Class, described by professor/author Richard Florida, an aspect of the rising Information Age where the economy is dominated by ideas, and the clustering of creative people into creative scenes who come up with those ideas. In addition to that, economist Ravi Batra found 30/60 year cycles of economic depressions in the U.S., and wrote about them in the late 1980's. The best known is The Great Depression of the 1930's. Then the cycle skipped 1960, and in 1990 we had a long "double dip" recession, six years of stagnant economy. 2020 is the next point in that cycle, so we're due for a depression or great depression. And what do you know, things lined up again and we dropped into what is now officially a recession, right in line with that cycle. It takes 3 years or a 10% drop in GDP to make it an "official" depression. We'll probably get the 10% GDP drop in the Q2 numbers. In addition to all of that, our U.S. (and most of the world's) economy is floating on the highest levels of government, corporate, and personal debt in human history. Oh, and we're at the end of the traditional 4 to 7 year business cycle. This cycle was highly manipulated, and stretched out for 11 years. So by late 2019, we were due for a major economic crash, and some major social movements as well.
So all those things somehow converged into the set-up for a major economic downturn, which would jump start a period of major economic and social change. Basically, a massive pile of shit is sitting in front of the biggest fan ever, and it was waiting to be plugged in. Then... like a late night infomercial, "And that's not all folks, as an added bonus, here's Covid-19, a 100 year, worldwide pandemic." The fan got plugged in, and a historical shitstorm began. We're going to see a level of change, all throughout society, like none of us alive have ever seen, in the 2020's.
This incredible period of breaking down of the old, the no longer useful, and the just plain fucked up aspects of human society, will usher in changes of all kinds. It's happening, like it or not. Change. More change than any of us can imagine now, even after the last 4 crazy months. This is just the beginning.
Change. Lots of change. The old is breaking down, and we have to figure out something new, and hopefully better, and build it. Quick. Death and rebirth from the ashes, on a societal level. That's The Phoenix Great Depression in a nutshell. We've got at least 5 to 7 years of craziness ahead, maybe more. Buckle up, it's gonna be a wild ride.
This guy puts together a daily video, chock full of interesting financial info from the actual sources. He does this every day. In March, at the end of the big stock drop, most of corporate America was insolvent or close to it. The Fed created more money than is ever has, to prop up these companies, and gave a few crumbs to Main Street America, the REAL economy. In this video, about ten minutes in, you can find a list of companies The Fed is supporting. Meanwhile, millions of small businesses are teetering on a knife's edge, trying to simply stay in business after the shutdown.
In this Forbes column, we hear that 106 million different loans have not been paid on time, in the last two months. Not $106 million dollars, but different loans. The information comes from Trans Union, one of the big credit rating agencies.
For the last 12 years, spurred by The Fed's artificially low interest rates, most of the U.S. (and much of the world's) economy has been fueled by debt. In everyday terms, American businesses, the U.S. government, and most consumers, have been living on their "credit cards" for more than a decade. Now they (we) can't make their payments in many, many cases. A huge chunk of those loans are not being paid back, due to the shaky financial system and the Covid-19 sparked downturn and business shutdown. So what happens to a world propped up by debt when the debt stops getting paid back? A collapse of some sort is inevitable, unfortunately. Tick. Tick. Tick...
The classic "Jenga block" scene from the movie The Big Short, describing how the 2008 financial meltdown happened. This scene is the best visual explanation of how debt, loans of one kind or another, are repackaged and sold, as "new" investments. This simple metaphor of the Jenga block tower gets the basic idea across. Since the Great Recession,mortgage backed securities and CDO's have been frowned upon. So other forms of debt have been repackaged and sold in a very similar fashion. Now lots of people aren't paying those loans back. That's what makes the "Jenga tower" investments collapse.
In 2008, it was $1.3 trillion in subprime mortgage debt collapsing that brought the financial world to its knees, and sent something like 6 million homeowners running from their houses. It's worse now. MUCH WORSE. According to this Forbes article from 6 days ago, more than 106 million different loans in the United States are not being paid back at the moment. When people stop paying their loans, whether they just skip payments, or get into a deferment or forbearance program, money stops flowing into the bank or holder of the loans. So the bank has less money to make their payments, and all these "assets," bundles of loans, aren't worth as much. So the bank's financial position is less stable. When enough people don't pay their loans, the investments made up of hundreds or thousands of loans, lose value, and that's when the Jenga towers collapse.
Right now, because of most people's paycheck to paycheck lifestyles, combined with 45 million people laid off and the Covid-19 shutdown, we have more people not paying their debts than at any time in history. But it's not just one Jenga tower of subprime mortgages (which were home loans to sketchy people), like in 2007-2009. We have several Jenga towers, with millions of people not paying their loans, that make up those Jenga towers. That's what's on the verge of collapsing right now, a whole table full of Jenga towers. And those towers are propping up the whole world's economy.
SLABS-Student Loan Asset Backed Securities- are basically the student loan version of the subprime mortgage bonds and CDO's in the clip above. $1.3 trillion in subprime loans going bad triggered the financial collapse of 2008. There are roughly $1.6 trillion in student loans, making up the SLABS market right now. A year ago, 40% of those loans weren't being paid on time, according to Nerdwallet. It's safe to say a lot more student loans, making up those SLABS, aren't being paid now. Why is there so much student loan debt these days? Because investment banks have been making huge fees selling SLABS for 12 years. They needed tons of loans to create them, so student loan money was easy to get.
To be fair, $1.3 trillion of these loans are "secured" by the U.S. government. So what happens if those loans don't get paid. Does the U.S. just eat that $1.3 trillion and write it off? No one knows. Yet. One major difference between SLABS today, and the subprime bonds and CDO's in 2008, is that for every CDO and bond then, for every mortgage, there was a house that loan was for. So the bank had a house to sell when the loan was foreclosed. With student loans, the only collateral is the student's brain. You can't foreclose a brain.
CLO's- Collateralized Loan Obligations- This market is very similar to SLABS and CDO's, but it's made of of commercial (business) loans. There are only about $700 billion ($.7 trillion) of these CLO's out there. We all know how well America's businesses are doing right now, and how solid they are, to pay back all of these loans. Another Jenga Tower. Banks and insurance companies in the U.S. hold most of these investments, as far as anyone can tell. So when these collapse, banks and insurance companies will be in in trouble. Which ones? We don't know.
CMBS- Commercial Mortgage Backed Securities- These are commercial (business) mortgages for commercial properties, repackaged, and sold as investments. This is a little bitty Jenga tower, was a mere $96.7 billion last year (2019). Who pays these mortgages? Retail stores, mostly. Ever hear of the Retail Apocalypse? Yeah, those retail stores struggling and going belly up month after month, that's what this Jenga tower is based on. Sounds solid to me.
And then there's the corporate bond market, another way that huge businesses raise money. These days, companies that are damn near insolvent, like Boeing in March, sell billions of dollars in bonds, and then the Federal Reserve creates money from thin air, and buys those bonds, that Boeing knows it will never be able to pay off. All the money The Fed creates out of thin air makes the dollars in your wallet or bank account worth less, which will lead to high inflation, at some point. Maybe hyper-inflation. This is how "zombie companies" are created, and that's a whole 'nother debt mess to be dealt with.
In any case, we have the three major Jenga Towers above, totaling somewhere around $2.4 trillion, and people and businesses not paying over 100 million different loans in the last two months. That's nearly double the amount of debt that triggered the 2008 economic collapse, and a much greater number of people and businesses not paying that debt. What could possibly go wrong?
Yeah, this is one reason I'm calling this a Great Depression when we're only a few months in. After these bubbles pop, and they WILL pop, it will take years to sort the underlying mess out. Things are going to get much crazier financially before they improve to any large degree.
When looking for a visual example of the phoenix myth, it's hard to beat this scene from Harry Potter. When the time comes, the phoenix goes up in flames, and then is reborn from the ashes. Metaphorically speaking, that's what I see happening in the decade of the tumultuous 2020's, here in the United States, and elsewhere.
I believe we are several months into a period of time that I've dubbed "The Phoenix Great Depression." In my thinking, it started with the seizing up of the "shadow banking system," and the Repo Market last September, 2019. This was the first shudder in this current economic collapse. While most people could ignore the Repo Market mess, the Federal Reserve had to rush in and pump tens of billions of dollars a day, ultimately every day, to keep our banking system functioning. They're still doing that now, in addition to "printing" money at a breakneck pace.
Then in February 2020, the Covid-19 strain of the human corona virus hit U.S. shores, bringing the pandemic here. This was the "black swan" event that triggered a stock market collapse that was already waiting to happen. Then came the mandatory business shutdown, for a couple of months, which we're emerging from as I write this, on June 23rd, 2020. With the opening up of businesses again, another surge of virus infections is occurring in many states, and we're still in the first major wave of infections in this pandemic. There are one or two more waves to come, most likely.
In addition to that, we had a video taped killing of George Floyd, in Minneapolis, by police officers. That sparked another aspect of The Phoenix Great Depression, massive social unrest, widespread protests, and calls for change, to policing, in this instance. We have had statues being pulled down by protestors in parts of the country, something I always associated with Third World revolutions. Shit's gettin' crazy. I believe these chaotic economic and social events are our future for the next 3 to 5 years. Five years of economic contraction is a "great depression." Three years of economic contraction, or a 10% drop in GDP (Gross Domestic Product), is a "depression." No matter how manipulated the numbers for Q2 2020 are, it appears the GDP will drop far more than 10%. So this looks like an official depression already.
I've been writing about some of the major issues happening in society, particularly in the economy, for three years, in my old blog, Steve Emig:The White Bear.* I saw a serious economic downturn coming a couple years ago. I believe it would ultimately be an economic collapse that will feel like a Great Depression, even if it didn't fit the textbook definition. For most people, the years 2020 to 2027, or so, will be a major economic struggle to survive. The reasons for this are that several ultra-long term cycles are merging into a period of incredible change. A period like none other in the memory of people living today.
One major cycle or trend is "The Third Wave" concept described by futurist Alvin Toffler in his 1980 book by that title, and subsequent books. Basically, we're living through the time when the Industrial Age is collapsing, and the Information-based Age is emerging. All of our myriad of new technologies is changing the way human beings live. This change is as big as the change from hunter-gatherer societies 10,000 years ago, into agricultural based societies. It's as big as the change from the Agrarian Age into the Industrial Age, starting 300-350 years ago. But this time it's happening much faster, in a single human lifetime.
In short, every industry, every system, every institution in our society will break down, and be rebuilt to work in the Information Age world. This is the 'phoenix" aspect of this great depression.
The factories were largely closed, or moved offshore, in the 1980's, 1990's, and 2000's. The music industry, the publishing industry, the TV and movie industry, and parts of the transportation have collapsed, and been reborn in a new version, with new technology, like the phoenix, Fawkes, above. The Retail Apocalypse, is the break down of the Industrial Age shopping system, and we'll see similar collapses and rebuilding in every other aspect of our society, that hasn't changed yet.
Another ultra-long term cycle that is merging in time with The Third Wave, is The Law of Social Cycle, a little known social theory by P.R. Sarkar from India. In this concept, there are four main mentalities in any society, and one mentality dominates, and shapes all of society, at any given time. The U.S. is at the tail end of the Acquisitor Age, the era where the businessmen rule society. It's a time when corruption has become so prevalent, and so ingrained, that the Laborers, the mass of people, find it nearly impossible to make a decent living anymore. The begin to rise up in a massive populist movement, and topple the corrupt powers at be. This is called the "Acquisitor cum Laborer" era in this theory, and it's a time of great upheaval and unrest, until either the society collapses (bad option), or the Laborers win (good option). The Laborers, by nature, are not leaders, so a third mentality, the Warriors, rise up into positions of power, ultimately. The Warriors are people who prize physical courage, daring, and individuality. In societies past, this was primarily the soldiers. But the warrior mentality in modern society includes, soldiers, police, firefighters, martial artists/MMA fighters, professional athletes, action sports athletes, fitness buffs, activist leaders, and others who display true courage on a regular basis. The fourth mentality is the Intellectuals.
Both of these social concepts predict times of incredible, rapid change, and much turbulence and chaos. Lucky us, they've now combined. In addition to those two ultra-long term cycles/trends, we have the end of a traditional business cycle, which generally means a "normal" recession.
We also have the clustering effect of the "Creative Class," explained by economic development expert Richard Florida in his 2002 book, The Rise of the Creative Class, and subsequent books. The majority of the United States economic output is now largely clustered in several large metro areas, primarily the San Francisco Bay Area, Seattle, the New York City metro, Boston, Los Angeles/SoCal metro, the Washington D.C. metro, and Austin Texas. You can add Houston, as well, a major energy hub. The vast majority of our economy is based in these places, a few second tier tech hubs. Most of the rest of the country is still clinging to life after the Great Recession of 2007-2009. In addition to all of that, we have more debt than ever before in human history; government debt, business debt, and personal debt. All of these major factors have combined, merged, into one period of incredible change.
Like a late night infomercial, "But that's not all folks..." Into this perfect storm of change came a 100 year pandemic, the Covid-19 virus. I DID NOT see that coming. The effect the pandemic had on these other trends is to dramatically increase the speed that things have gone, and will continue to go, downhill.
We're only 5 1/2 months into this new decade, 9 months into The Phoenix Great Recession, and we have major corporations going bankrupt weekly, about 43 million people recently laid off (temporarily in many cases, but still unemployed at the moment), tens of millions of Americans suddenly struggling to make their rent and mortgage payments, and over 100 million debt payments, of all kinds, being skipped now. So we have the highest level of debt in human history, and suddenly much of those payments simply aren't being made.
This mess is going to take a long time, several years, to work through. I think 2020-2023 will be the worst years economically. But it will be a tough slog, for most Americans (and much of the world) for at least 5 to 7 years. Many parts of America, particularly rural areas and small towns and cities, will never recover. That's the bad news.
The good news is that major economic downturns are the greatest opportunities in any economy. There will be incredible deals on all kinds of things, from everyday items, to cars and trucks, to businesses, to real estate, all over the place... for the people who can take advantage of those deals. There will also be tremendous social change, and great opportunities to right long term, structural problems throughout society. The Black Lives Matter movement is just the beginning on that front, there will be many more social causes gaining steam in the next few years.
In short, like the phoenix of myth, or Fawkes, Dumbledore's phoenix in the clip above, our society will be broken down (not necessarily in literal flames, but metaphorically), and we have the chance to rebuild human society into something more equal, more fair, more environmentally sound, and that works with all of our modern technology that we have now, or that is being developed.
It's going to be a rough ride for just about everybody. But if we use this incredible, if chaotic, series of opportunities well, most of us should be in a much better place in 10 years.
Hang on.
Steve Emig, June 23, 2020
Here's the January 26th, 2020 blog post where I predicted the 10,000 point, $10 trillion dollar (+/-) stock meltdown.
*"The White Bear" is my nickname in the BMX world, it has nothing to do with race. It came from a poem I wrote, after getting dumped by my girlfriend, in 1988. My roommate a few years later used the term to make fun of me, and it became my nickname. I hate racism, and prejudice of all kinds. We all do it, but like most intelligent people, I try to keep it to a minimum.
This is a real good video explaining the "zombie companies," how they became zombies, and their effect on a country (Japan from the 1990's on), and the zombie companies among us now.
Over 42 million Americans have lost their jobs in about three months. The stock markets plummeted in February and March 2020, as a 100 year pandemic, the Covid-19 virus, made its way into the United States, and spread rapidly. Most businesses face a mandatory shutdown, and now millions of small businesses are struggling, most major corporations were close to insolvency in March, and tens of millions of Americans are suddenly struggling to simply pay their rent.
It's June 21, 2020, as I write this post. We're in weird times. REALLY weird times. Economics and Big Picture social dynamics is something I've had an interest in for many years, going back to high school in the 1980's. I saw part of what's happening now coming, major economic and social issues, and wrote about them to some extent, in my previous blog. But the Covid-19 pandemic was something I did not expect to be in the mix, and it helped shift the other issues into light speed mode. Things are happening much faster than eve I expected.
I first coined the term "The Phoenix Great Depression" in a blog post, last December (2019), I believe. That's a term that popped in my head while trying to make sense of several long term trends I was watching. As some of the things I'd been writing about for three years started happening, like the massive stock market drop and subsequent recession (possibly a depression already, if we see a 10% drop in GDP). Over the past couple of months, I came to think of this decade we're entering as the "Tumultuous 2020's." That's because I believe we're just at the beginning of the incredbily chaotic times, as opposed to the simply chaotic times of the last decade or so.
So many things are happening so fast right now, and I was retiring my previous personal blog, after hitting the 100,000 page view threshold, that I decided this new blog was in order. In this blog I will collect articles, news clips, and interviews from people I think are sharing key insights going forward. I will also share my personal views, which are a Big Picture context for all the craziness going on these days. Hopefully this will help many of you make sense of today's Never Never Land economy, social upheaval, and chaos, and also help you find ways to make dollars from all the opportunities, as things get weirder.