The U.S. GDP dropped 32.9% in the second quarter of 2020, with numbers out this morning. There were already many issues in the economy, like the Repo Market seize up in September 2019, before the second quarter came around. But it was the Covid-19/coronavirus pandemic shutdown that was the "black swan event" that really sent things downhill. For those not up on economics, the GDP is the Gross Domestic Product, basically all goods and services bought in the U.S. the second quarter, April, May, and June, of 2020. The next biggest drop was about 28%... back in 1921. Even in The Great Depression of the 1930's, no single quarter's economy dropped this much.
I love how the CNBC hosts say, "It wasn't as bad as the 34.7% drop expected." That's a lot like saying, "Today I expected to catch Covid-19, have a car accident, get mauled by a grizzly bear, get hit by an asteroid, and be in a plane crash. And I ONLY got in a plane crash, caught Covid-19, and got attacked by a small bear, so it wasn't as bad as expected." It's that ridiculous.
If you look at the "definitions" section for an economic depression on this Wikipedia page, you'll see one of two things define an economic "depression." Either there's a recession that lasts for 2 years or more (Investopedia and the traditional definition is 3 years), OR there's a 10% decline in GDP. Today's numbers tripled that level. Again, we had a 32.9% drop in GDP. So, like it or not, this economic downturn is OFFICIALLY a depression. When this time is written about in history, it will be called a depression, or a maybe great depression, if it lasts more than five years.
I'll be fair, this depression would have happened if anyone was president. Donald Trump didn't cause the depression. But the Trump administration did do things that made it worse. The completely inept reaction to the pandemic when it first hit U.S. shores has not only killed thousands more Americans than it would have, but it is making the economic situation far worse, in the long term. The Trump tax cuts were a windfall for the uber-rich and major corporations, and that helped prop up a weak economy for many more months. Because the recession that should have started in 2017 or 2018 was held off, markets went much higher, and financial bubbles got much bigger. Because of that, the economy had (and still has) much farther to drop.
Also, when Fed chair Jerome Powell started raising interest rates in late 2016, and into 2017, pressure was put on him to reverse course, because higher interest rates were freaking out the stock market. At that time, Powell was trying to get interest rates from a historical low position, to a more "normal" level, which would give The Fed more ways to deal with the next recession. But he suddenly reversed course, apparently under heavy pressure from the White House and others, and eventually lowered rates, to help prop up stocks and other financial markets. This also propped up a weak economy that desperately needed a serious correction, a recession. So when a crash did finally come, it was a much worse one than it would have been if it hit in 2017 or 2018.
So why does it make a difference if we're in a recession or a depression? A depression is simply more intense, and will likely last quite a bit longer. Simply acknowledging that we're in a "depression," should make people think more intensely about how to survive and work out of it. It should also get us to look at this as a longer term, serious issue, not just something that will work itself out in six months. The downside is that a lot of people freak out when they hear "depression." And people are freaked out already.
My personal opinion is that it's better to state it clearly, accept that this is a major deal, and then get to work looking for solutions in all the issues facing us, like 28 million people on the verge of eviction. We don't need millions more people on the streets or living in cars suddenly. But our jacked up political system likes to spin things, even serious things, hoping the problems will go away if they can convince enough people it's not that bad. Politicians can call this whatever they want, but if you get an eviction notice, shit gets serious... real quick.
This is a serious economic crisis. It's not being handled well, though the trillions of dollars The Fed has created have helped big business, wealthy people, and many recently unemployed people... for a while. But this help comes at a huge cost later on, in the form of heavy inflation, possibly full blown hyper-inflation. We need to put on our Big Boy and Big Girl pants and work out some really big solutions soon to some really big problems, and get a handle on keeping struggling people housed, finding new jobs, saving small businesses, and everything else we're dealing with.
Here's my recent blog post explaining why I started calling this economic downturn The Phoenix Great Depression several months ago. There are a lot of really long term trends and cycles converging, making this much more than a typical recession.
In this CNBC article from last Tuesday, they actually printed the words "Great Depression," on CNBC. Believe me, that's a big moment when they admit that's a possibility. The reason the article asks the question is because of the huge unemployment numbers in major cities right now. Here are the June unemployment numbers from the article:
New York City- 20.4% unemployment
Los Angeles- 19.5%
Chicago- 16.1%,
Detroit (it went up)- 17.7%.
Real unemployment stats are likely higher, only people actively seeking employment, and signing up for unemployment get counted. There were at least 7 million working age men not officially working and not looking for work before all of this started (Eberstadt- "Men Without Work"), and unemployment doesn't include a lot of independent workers, gig workers, small business people not working because or mandatory closures, people with reduced hours, or people who've accepted pay cuts. In all likelihood, we're probably near or over the 25% unemployment threshold of The Great Depression of the 1930's, if everyone could actually be tallied up.
The article says there's no real definition of "great depression." According to economist Ravi Batra's books, which I read in 1989-1990, there is, or at least was, a definition. A recession is an economic contraction (total economy shrinks) for two consecutive quarters, meaning 6 months. A depression is an economic contraction for 3 years, OR a 10% drop in GDP. We may see a 10%+ drop in GDP in the official Q2 numbers coming out next week, July 30-31. A great depression, by the traditional definition is an economic contraction for 5 years or more.
My personal opinion, and the reason I've been writing on this subject for about 3 years now, is because I think we're at the start of a true depression, and it will feel like a full blown great depression of 3-5, and likely 7 years, of tough economic times. Since the traditional definition has been abandoned, I don't know what this economic downturn will be called, but it will be a long tough ride for most Americans. BUT, recessions and depressions are also a great time of innovation, new business ideas, new industries emerging, and a lot of opportunities hidden in the economic mess.
According to this CNBC article today, 28 million Americans face eviction. Uh... yeah... that's not good. Landlords are encouraged (by someone, apparently) to "be creative." I wonder if the banks and lenders the apartment owners owe money to are also encouraged to be creative.
This short article cites a recent survey of apartment owners, 60% of whom said their tenants can't make rent payments. All of their tenants? Or some of them? It doesn't say. In any case, here's another ginormous number in a bad category, possible evictions, giving us some sense of just how many people are seriously struggling to stay housed after the craziness of the past few months.
This video was made in March 2020, when the stock market was hitting its first big bottom, and before most of the $3 TRILLION+ in bailouts really began. But this video gives a great view of how big and widespread this economic crisis is. This depth and breadth of this crisis is one major reason this will be a long downturn.
From my point of view, having followed and watched several long term social trends for many years, I see a long, rough, economic downturn for several other reasons. There is a convergence right now of several long term trends and major social changes, it's not just an "normal" economic recession that lasts 12-18 months.
Here is one of the big social upheavals I've been watching evolve for years, which almost no one even knows is going on. This is The Third Wave concept explained by the late futurist Alvin Toffler in his 1980 book, The Third Wave. The basic idea is very simple, the Industrial Age dominated by factories in every town is ending, and the Information Age is being built. At one level, we all know that. It's like, "Duh, of course!" To most people, this transition happened a long time ago. The factories shut down, a lot of small cities and towns struggled, and now we're in the Information Age.
But we're only PARTLY in the Information Age. Yes, nearly every person has a smart phone now, we don't share a phone with a cord attached to the kitchen phone like when I was a kid. We have streaming music, not CD's or vinyl records played on a record player. But our education system, K-12, is still an Industrial Age model. Our legal system, our criminal justice system, our political parties and system, they are all systems created in the Industrial Age. A lot of our old, major, industrial, "blue chip" businesses, are still largely working on underlying Industrial Age models. Our entire college/university system is still a model from the Industrial Age. Our local, state, and federal government bodies and agencies are still working on Industrial Age models. Yes, these all use new technologies, but the underlying systems and models they are based on, are still Industrial Age models.
Each of these businesses, governments, industries, or systems, will break down, and be disrupted, the same way Napster completely disrupted the music industry in 1999. This can either happen by people of the old model, intentionally re-inventing the old system, or completely new people inventing a new, Information Age system. Most of the time, it will be the second option. Thinking of the retail industry, Sears, the longtime major department store didn't see the potential of online shopping, and Jeff Bezos, who started Amazon, did. Bezos started a new model, and now, about 25 years later, Amazon is gigantic, and Sears is bankrupt. This basic scenario WILL happen to every part of society that it hasn't happened to yet. It's simply happening because new technologies making an entirely new business model or system possible.
This transition of everything, from the Industrial Age model, to the Information Age model, started slowly in about 1956, according to Alvin Toffler. The speed of this change has gradually increased, and now change is happening very rapidly. When it comes to 2020, this economic downturn is accelerating the level of this change. So we not only have a major economic recession, which started last September (Repo crisis), AND we have a major, 100 year pandemic, which has killed over 142,000 Americans, as of this morning. In addition to THAT craziness, those things are dramatically escalating the pace of change in the remaining Industrial Age businesses, governments at the local, state, and federal level, and systems of other kinds. In every system, business, or industry, these are HUGE, massive changes, and many of the old businesses wind up closing down, like chain stores in the Retail Apocalypse. This level of change, happening in so many different places at once, cannot possible happen in 12-18 months. Most... MOST of those major Industrial Age businesses were practically insolvent in March 2020. These major businesses, an Wall Street, have been propped up by somewhere around $3 trillion, just to keep them afloat, so they can try to recover. But this completely unprecedented level of bailouts WILL ALSO dramatically lengthen this recession/depression (it is officially a recession, for now).
So this is just one of several major social trends and cycles happening, and CONVERGING, at this point in time. The Third Wave aspect alone would turn a serious recession (6-18 months) into a depression (3 years or 10% GDP drop) or a great depression (5 year economic downturn).
So that is PART of the reason I'm calling this economic collapse The Phoenix Great Depression. It will be VERY deep. It will last several years, with different economic indices going up and down at times, and it includes a level of societal change, and speed of change, unheard of in human history. The "phoenix" part is the rebuilding of a new, viable society as we work through these many changes, at many levels, happening all at once.
This has been reported a bit already, the pandemic has sent a lot of New York City renters scurrying for the suburbs or less dense regions. My personal opinion is that, it's freakin' New York City, wealthy people will come back once a vaccine is available and in wide use, and they can get back to "normal" big city life. But for now, vacancies in NYC apartments are up 85%. Rent prices are insane there, we've all heard that, and now they're coming down, and I think we'll see more of this in coming months.
Basically, this appears to be the start of a much needed price correction in NYC rentals, and we'll probably see similar data soon show up in other major cities. The beneficiaries right now are the smaller communities upscale city dwellers are flocking to. With things moving so fast these days, other than Long Island and parts of the Hudson Valley, I haven't heard where else city dwellers are moving to. Again, like the previous post, we'll see how this current trend plays out.
In this Bloomberg article, "A $35 Billion Bite From U.S. Banks May Be Only The Start," the spin doctors seem like they're trying to make you dizzy. One one hand, the article explains that major banks have set about $35 billion aside to deal with delinquent loans that may be coming their way. On the other hand, comes the "everything's fine" spiel you get form mainstream outlets. Unemployment is up, but "seriously delinquent loans" are down in the last couple months. Um... yeah, because The Fed has thrown over $3 trillion or of created money into first the repo market, then many other aspects of the economy, in the past 9 months, something never done in history. At the same time, because of the intense nature of the virus shutdown, banks and lenders have been going to great lengths to offer forbearance and other terms to help the millions of people laid off, with lowered pay, and struggling to pay all kinds of debts.
This article reminds me a lot of the early rumblings of the subprime mortgage mess in 2008. We have at least three major forms of debt that have been packaged and sold as investments, very much like the subprime mortgage backed securities and CDO's in 2008. The three main ones I'm aware of are Student Loan Asset Backed Securities (SLABS), Commercial Lending Obligations (CLO's), and Commercial Mortgage Backed Securities (CMBS). We'll see where this leads...
This is a CNBC report from March 9th, 2020, as stocks plummeted on Covid-19 shutdown fears, AND a whole slew of longer, underlying factors. The Dow was down about 1,700+ points at the time of this report. The Dow bottomed out at around 18,500, a couple weeks later.
Here's my 2020 predictions blog post, from my (now retired) personal blog, written on January 26,2020. The Dow was around 28,700 and still heading up, the Friday before I wrote this post. In that post, I predicted the Dow Jones Industrial Average would drop below 19,000 at some point in 2020. I also made predictions for the Nasdaq, the S&P 500, and the Russell 2,000. Of those four predictions, all but the Nasdaq prediction have actually come true. And we're just 6 1/2 months into 2020.
I'll go into more detail on how and why I made those predictions as this blog goes on. But there's a simple rule I learned in the late 90's, about commodity charts. It also generally applies to the stock markets. When a long bull market ends, the price drops approximately 50% of the entire bull market run. So if you take this last bull market in the Dow, check this chart, (click to "Max" timeline), and figure the points risen from February 2009 low, to the peak in February, 2020. Cut that number in half, and subtract it from the Dow's peak in February 2020, of 29,551. The Dow should drop to roughly17,800, at some point. You can do the same thing to the other index charts. I padded my predictions a bit, knowing that there may be one big drop, a likely rally for a while as the inevitable bailouts kick in, and very likely another, lower drop, at some point in the future. I was just trying to predict the initial big drop.
Once a long term bull market is over, in commodities or stocks, the markets are turbulent, and basically pretty much impossible to predict, for quite a while. This usually turns into a wide trading range for some time. In today's Dow, for example, I think we'll see a big, long trading range from roughly 23,000 to 28,000, up and down, for another 1-3 years. There SHOULD be 1 or 2 more big, DEEP drops, to Dow 17,800 or so. But that might not happen because The Fed is basically willing to completely devalue the dollar (eventually) to prop up all the major U.S. corporations and banks that were functionally insolvent in March, after the stock plunge.
In any case, the stock market is basically a gambler's market, for the next year, at least, and probably 2-3 years. Yes, there will be incredible bargains for long term investors, like Warren Buffet and Charlie Munger at Berkshire Hathaway. But you're not Warren or Charlie.
In addition to that, with so many other factors happening in the economy, like real estate collapse that's coming, the continued retail apocalypse, precious metals rising, and more bankruptcy auctions coming than ever in human history, I think there will be thousands of amazing opportunities for small and mid-level investors, that will be much more lucrative than stocks over the next 1-3 years. So that's why I wouldn't touch the stock markets now, if I was in a position to invest a serious amount of money.
Watch this 3 1/2 minute video, and you'll understand the process of creating laws better than President Trump seemed to when installed as president... unfortunately. Schoolhouse Rock rocked.
When you buy a stock, a house, a business, or any investment, technically you're becoming a party to a contract of some sort. In the old days, people would read the whole contract, and both (or all) parties involved would sign it, and say they agree to the terms. Things happen faster in the internet age, but when you buy a stock online, or make any other investment, you are entering into a legal contract.
What does that mean? It means you give someone money, or something of value, and they provide you with something of value, or a service, in return. You click and buy 10 shares of Amazon stock online, and you now own a tiny part of the Amazon company, legally. If you buy a house, same thing, you pay some money, agree to terms, and you own that house once everything is signed. Then it's your house, because of that contract. Every investment involves some kind of legal contract.
So what makes a legal contract valid? What makes it valid is the functioning rule of law in the country (city, state, etc.) where the contract is signed. You agree to live up to your end of the bargain. The other party agrees to live up to their end of the bargain. If one side doesn't do that, then there's some form of recourse. Generally, you can sue the other party, and take them to court. In court a judge or jury hears both sides of the story, and makes a FAIR, LEGAL, decision. If the system is corrupted by a judge taking bribes, for example, then people soon learn that contracts there don't mean much. That erodes the TRUST in the rule of law there, and it devalues investments, or makes them pointless altogether. Why would you spend money to buy a building for your business, if a crooked judge can nullify the contract, and say his friend or brother-in-law now owns the building, and you have no recourse.
So to have a functional economic system, you need people buying and selling things, engaging in contracts with each sale, but you also need a system of laws, and a belief by people, that the legal system is actually fair. If most people know the system is corrupt, that there is no functioning rule of law, then no smart person would want to invest there. Do you know anyone lining up to invest in small countries in Africa? No? Why not? It's the internet age, you can send money nearly everywhere. The reason is because the belief is that most of those countries are quite corrupt, and you'll probably lose your money because some person favored in the country can take advantage of you. So investments become largely worthless, when there is no functioning rule of law. That's one big reason why the rule of law in a country is so important, from an investment perspective.
Yesterday, Friday, July 10th, 2020, President Trump commuted the prison sentence for his old friend Roger Stone. He didn't give Stone a full pardon, but in effect said, "Hey, we're bro's, you don't have to go to prison, because I say so." Stone was convicted on 7 felony counts, including lying to Congress and lying to the FBI, to protect President Trump. The president has the power to pardon people, but not in a situation that benefits him personally, or to engage in corruption.
Stone was given due process of law, and convicted, unanimously, on 7 felony counts. Last night the president took a sledge hammer to the United States rule of law, by undoing the sentence of Roger Stone, and doing it in a case that benefited himself, Donald Trump, personally. You can't get much more corrupt than that. In effect, he said, "My friends, like Roger Stone, are above the law, because I say so." President Trump also deprived Congress and the FBI of their 5th amendment rights to due process under the law. If Roger Stone, or any friend of Trump's, can lie to the FBI and to Congress, the rule of law slips away. More important for everyday people and investors, BELIEF in the Rule of Law, in the United States, also slips away.
If you enter in a contract in the U.S., can you still depend on the rule of law here in the U.S., if someone doesn't hold up their end of the contract? Probably... for now. UNLESS that person is Donald Trump or Roger Stone. They are now above the law. The sham impeachment by Mitch McConnell earlier this year declared President Trump was above the rule of law, and would not be held accountable for his illegal actions. You can add Attorney General Bill Barr to the list of people who are above the law, RIGHT NOW, in the U.S., as well. Barr has replaced the federal prosecutors in the three main U.S. prosecutors offices that can (and have been) investigating President Trump. Those are the prosecutors offices in D.C., the southern district of New York, and the eastern district of New York. So the U.S. officials tasked with investigating alleged corruption by the president (this one, or any other one), now have hand picked followers of Bill Barr installed.
So right now, the President of the States, and the Attorney General (top law enforcement person under the president), have both taken actions, which declare the rule of law no longer applies in the United States, if they don't want it to. But they want you and me to believe that every other law (and contract) is still valid. Unless it involves them, or Roger Stone.
So... is your contract that says you own your house still valid? Are your stocks you own still valid contracts? Are government bonds and T-bills still valid contracts? Maybe. Probably. For now... Unless they involve Donald Trump, Bill Barr, Roger Stone, or anyone else with close personal ties to the president.
My point here is rule of law is based in TRUST in a system.
Yes, there is some corruption almost anywhere. But most people still believe in the system of American rule of law. That's one thing that has set our country, and our economy, apart from the rest of the world for about 244 years. President Trump's and Barr's actions yesterday threatened not only the literal rule of law, but the belief of people around the world, in the rule of law in the U.S.. And that threatens every single contract, and every single investment. in the United States. When the trust in rule of law breaks down, so does the entire economic system, and everything based upon it.
This is actually a good news/PR piece about online shopping versus brick and mortar stores, from last year. Physical stores aren't all going to disappear, as online shopping keeps growing. But a huge percentage of traditional brick and mortar stores will close down. This is The Toffler's Third Wave concept in action, in the retail sector.
This post is a tiny piece of a real big network of ideas, and that's what this blog is for, to flesh out little bits and pieces of my concept of The Phoenix Great Depression, as it happens, in real time. I put "recession" in quotation marks in the title, because I believe this current recession will ultimately be a true depression, and a "functional" great depression. I think we will very likely see a 10% drop in GDP growth for Q2 2020, thanks, of course, to the Covid-19 Shutdown. A 10% drop in GDP makes this recession a "depression," like it or not. But those numbers won't be out until July 30-31, about three weeks form now. GDP will bounce back to some extent, but I believe we're basically in a 5 to 7 year economic mess as a country (and world). That's a "functional" great depression, even if it is not a textbook one.
Now, on to the point of this post. In 1980, futurist Alvin Toffler published a book called The Third Wave. The basic idea was that the onslaught of new technologies emerging then, like the weird concept of everyone owning a personal computer and other gadgets, were going to fundamentally change how society functions at a deep level. This had only twice before, in 10,000 years. Roughly 10,000 years ago, the agricultural revolution began, most likely in Turkey, and humans slowly changed from hunter/gatherers to farming based people. That changed how nearly every human on Earth lived, over a couple of thousand years. The agricultural revolution was the First Wave, as Alvin, and wife Heidi, saw it. People went from wandering tribal groups to farming communities settled permanently in one area. That was a huge shift.
About 350 years ago, the Second Wave began. That was the shift from agricultural-based society to an industrial-based society. That wave happened quicker, over 200 years or so, as most people stopped being farmers, and moved to cities and got jobs in factories. Again, another fundamental shift in how people lived on a day to day basis, based on new technology, like the steam engine, mechanical inventions, and later, electricity. The Greatest Generation, The Baby Boomers, and my peeps, Generation X, were all born into the late stage of the Industrial Age. That's our "normal."
But the Third Wave, as the Tofflers saw it, was emerging, with computers, new medical technologies, new communications technologies, and advanced robotics, among other ideas, gaining steam and turning into functional products. The Third Wave is the shift from an industrial-based society to an information-based society. It's a long, sticky transition from the Industrial Age to the Informaiton Age. Alvin and Heidi Toffler saw this as fundamentally changing how human beings would live and interact. Except this huge shift was happening much faster, basically in a single human lifetime. They put the beginning of the Information (or Digital) Age at 1956. That was the first year that "white collar" office workers outnumbered "blue collar" factory workers in the United States. So in 1980, Alvin's book, The Third Wave came out, and it had a great influence on many influential people.
But then other books, other notions, other ideas came along, and the Toffler's Third Wave idea faded from most people's consciousness. I began reading Toffler's work in the 1990's, and the Third Wave idea stuck in my head. As I watched society begin to change more and more rapidly, and see things like Napster disrupt the entire music industry with a click of a mouse, I began to think the Third Wave was still playing out. As the internet rose in popularity and widespread use, and as car phones turned to cell phones, and now into smartphones with photo, video, text, and wifi capabilities, The Toffler Thirs Wave concept, and other ideas, explained a lot of what I saw happening.
So what is The Retail Apocalypse, which the news story above is about? The Retail Apocalypse is the breakdown of the Industrial Age goods distribution system, and the building of an Information Age goods distribution system. It's as simple as that. Officially, 9,300 retail stores closed in 2019 alone, and about 20,000 in 2017-2019 combined. Coresight now estimates that about 25,000 retail stores will close in 2020 alone, due largely to the pandemic-induced shutdowns. Not ALL retail stores will close down, as the news clip above explains. But tens of thousands of them will. Amazon DID NOT cause this. Jeff Bezos at Amazon, and other visionaries like him, at eBay, Shopify, Wish.com, Etsy, and other online retail sites and platforms, saw the potential future, and built something for the Information Age retail world. Sears, J.C. Penney's, and many others, DIDNOT see the future potential of online shopping, largely because they were the 800 pound gorillas of retail at the time. They laughed, how could a few tech geeks with a website threaten their behemoths? And then the paradigm began to shift. Remember, Blockbuster video had the chance to buy Netflix for $20 million, once. When's the last time you went to a Blockbuster store to get a movie on VHS?
The Phoenix Great Depression is not about retail sales in particular. I believe EVERY industry and human institution, that hasn't had a "Napster-level," Big "D" Disruption, will see one. Period. No one gets "spared." The Retail Apocalypse is Disruption in the retail world. The populist movements which brought Trump and Berrnie Sanders into the limelight, are Disruption happening in the political parties. The next phase of real estate Disruption is happening. Look at commercial real estate before the pandemic. Now try to imagine it after Covid-19, if you can.
We're about to see the College Apocalypse begin in a big way, it has already put dozens of small schools out of business. EVERYTHING, every business model, every institution, every human system still left from the Industrial Age, from the criminal justice world to manufacturing furniture, to how non-profits work, to how hospitals run, to basic things like the toilet industry, they will all see massive Disruption. The old, Industrial Age way of doing things will continue to break down, and a new, Information Age version will be built, probably by a different group of people.
This isn't something that can be stopped, most of us (me included, I used to be a serious Luddite) will not like this messy transition. But it's going to happen anyway. Period. You can surf the wave, or get pummeled by it, to use a California metaphor. It will happen because of all the new technologies in our world, and those still being developed, make an entire new way of life possible. Visionaries in many areas will build new models for different aspects of society, business, non-profit, and social.
Now... what does this current recession (eventually a depression), have to do with this Third Wave transition? As I was blogging about aspects of these ideas over the last three years, and saw a pretty serious recession coming soon, I realized that the speed of change was constantly increasing, and that this coming recession (the one we're in now) would amplify the speed of change. In effect, the converging of the Third Wave's Disruption with a major recession, was going to shift the speed of change into 5th gear. The parts of our society that were already changing, like retail, would change even faster. An the parts of society that had not yet changed (like K-12 and higher education, for example), would be forced into rapid change, BECAUSE OF the serious economic downturn. We WILL see a visible College Apocalypse appear in 2021, as well as other major changes. This convergence of a serious recession/depression would force parts of society to change very rapidly. That's what I saw as coming at us, as of last year.
And then, in February and March, the Covid-19 pandemic hit American shores. Unfortunately, with the pandemic came a completely horrible response to it from the White House and the national leadership here in America. So the pandemic has become much worse that it had to be. This pandemic has shifted the rate of change from 5th gear to light speed. I imagine most of you know the scene in the original Star Wars movie, where Han solo first shifts the Millenium Falcon into light speed. That's what just happened to the rate of change of every business model in the U.S., and the advanced world. There will be changes in business models, but also in social systems and models. Black Lives Matter is just the beginning on the social change front. There will be much more along those lines, from many different groups of people.
Simply put, there is no way we can make all the changes needed, in an 18 month, "normal" recession. This will take years. If that isn't enough, we've all seen the unprecedented response by The Fed and other central banks. What did they do? They created enormous sums of money and threw it at Wall Street and corporate America. By "adding liquidity," to the tune of several trillion dollars, they are literally propping up the largest Industrial Age businesses, keeping them on life support, hoping this "recession" will end quick. It won't. Because it's not just a recession, there are several long term trends and transitions, like the Toffler's Third Wave, playing out as well. Many of the major corporations being bailed out right now won't live through this decade. And propping them up will literally make the "recession" last much longer than it really needs to. The bailouts will be part of what makes a needed depression turn into a functional great depression. Propping up "zombie companies" delays Schumpeter's "creative destruction," which is necessary. I'm not saying these companies components will disappear, but they will likely be part of different, Information Age companies, a decade from now. Maybe an Elon Musk-type person will be running GE's jet engine business, or something like that. Capitalism lets inferior businesses fail, it's a necessary part of the process, and we've said "goodbye" to capitalism,at this point.
So in very simple terms, this current economic downturn will speed up the rate of change, in many industries and institutions. The pandemic will dramatically increase the speed of that speeded up change. This is going to hurt. But the upside is the "phoenix" part of The Phoenix Great Depression. If you understand what's really happening, and see this Big Picture myself, and some others are looking at, then you can pick a part of the world and begin building a new model, part of the Information Age that will live on for decades to come. Are you up for that?
A professor at NYU, and one of the most hardcore realists among economists, Nouriel Roubini gives a great take on the myriad of issues we're facing in this new decade, and what the recovery may look like. He sees what may be a "Greater Depression" in the mid-20's, and he explains the ten drivers that could lead to it.
I had no idea who Kevin Ward was when I watched this video, a couple of days ago. I'm currently writing a report on where I see things going economically in the next several years, on my Phoenix Great Depression concept as a whole. So I watched a handful of videos on real estate, to see what other people were thinking about the current state of things. This was one of those videos. I wanted to know if everyone still had very different view than me, or were some people toning down their optimism on real estate after the last few months?
To be honest, I thought this was going to be a "Rah!Rah! Buy real estate right now!" video. Much to my surprise, Mr. Ward gives a really serious, really comprehensive, very well thought out look at what's wrong right now, and what's right, in the economy and real estate. This video gives a really good overall view of real estate in our current crazy times. I recommend this video for anyone interested in investing in real estate, or selling real estate, right now, or in the next few years.
Best known for his 1997 book, Rich Dad, PoorDad, and several investing books since, investor Robert Kiyosaki talks about how commercial real estate supports cities themselves through taxes. What happens when the office buildings and retail stores empty out? Cities themselves, small, medium, and large, could go broke. Robert focuses on New York City, as an example of what's happening, and will happen, to cities throughout the U.S., and the world. This short, 5 minute video is a great insight into this issue from a top investor's mind.
When an animal's population rises too high, some kind of corrective measure takes place, and the population is reduced to a more sustainable level. Lemmings, small rodents in the arctic, have the most dramatic version of this, they jumps off cliffs en masse, seemingly committing suicide, leaving a small number to repopulate their habitat.
As a 11-year-old living near a lake, outside Willard, Ohio, a friend and I decided we were going to start trapping muskrats for their fur one winter. Muskrats are rodents, basically big water rats, that live all over North America, and have thick fur. I'm not writing this post to get into the issue of fur trapping, which lots of people are totally against these days. I'm writing this post because, to get my trapping permit in Ohio, I had to take a course one Saturday, about wildlife and trapping in general.
My dad, Tom Emig, was an avid target shooter, but never went hunting. My dad abhorred violence of any kind, and never wanted to hurt animals himself. He loved a good burger or steak, but never wanted to actually harm an animal personally. But being a cool dad, he agreed to take me to a conservation league lake site clubhouse, where the trapping course and test were being held. So it was a cool father/son day for us. We had morning session of lessons for a couple of hours, and then a break and some refreshments. Dad and I walked around the lake, talking about all kinds of things. Then we had another hour or so of lessons, with about 25 other men and boys, no women were there. Then everyone took the test. If you passed the test, you got piece of paper certifying that you could go buy your trapping permit at an fishing shop or similar store near your house.
One part of the lessons we learned that fall day in Ohio, was some of the basic biological facts about wildlife populations in general. One of those basic facts, across all animal species, is that animal populations rise and fall in cycles. This is true of mammals, like the lemmings above, or the squirrels, deer, rabbits, raccoons, opossums we all see from time to time. It's also true of fish, amphibians, reptiles, and insects. If you've seen a major locust cycle year in your area, you know how crazy their populations can get.
In our wildlife trapping course, on that fall day in Ohio, we learned that when an animal population peaks, and their are too many animals for the local environment, one of two things reduces the animal's population. Either some major disease sprouts up, an epidemic in that species, and a huge number of animals die. The other option when overpopulation happens is that the local environment simply doesn't have enough food for that species, and a huge number of animals starve to death. So when an animal population overpopulates, either disease kills a large number, or starvation kills a large number of those animals. Then the number of that species drops to a level that the local environment an support, and life goes on as normal for that species.
In our trapping course, on that fall day in Ohio, we learned that this is why natural predators are so important. Predators kill and eat other animals, and that helps a species from overpopulating. We also learned that hunting, fishing, and trapping also help reduce animal species numbers, and keep them from overpopulating.
My point in this little story about basic wildlife biology, is that humans are an animal species. Except our intelligence has given us the ability to create cures for diseases that would naturally curb our population numbers. So our population grows largely unchecked. We do have wars at times, which kill large numbers of people, something other animals don't do. I've never seen a raccoon flying a B-2 bomber killing other raccoons. Like any animal population, from time to time, new diseases, or new strains of known diseases, pop up through mutation, and an epidemic, or perhaps a worldwide pandemic, like Covid-19, grows, spreads, and starts infecting and killing large numbers of humans. That's what the Covid-19 strain of human corona virus is doing right now.
Here's the thing. We're humans, we're smart. Or at least we're supposed to be. We, as a society, can recognize that we're having a pandemic, and we can take measures to limit the number of people who die from the epidemic, or in this case, worldwide pandemic. We, as humans, can also engage in misinformation and disinformation, and actually talk people into believing that the pandemic isn't real, and the measures instituted aren't needed. We have both of those things happening right now.
Our society, like in the Spanish Flu pandemic in 1917-18, put rules in place to slow down the spread of the disease. We now have mask rules, social distancing rules, and we had a major societal shutdown. Those measures, according to a scientific study, saved over half a million infections and tens of thousands of deaths. This happened worldwide, despite a complete failure on the part of the White House on this issue in the U.S.. As of right now, the morning of July 2nd, 2020, there have been over 10.9 million Covid-19 infections, officially, worldwide, and well over 500,000 deaths. Here in the U.S., there have been over 2.8 million infections, and over 131,000 people have died. I just listened to a news report that said the numbers of infections is rising in 45 out of the 50 states right now. And 4th of July is this weekend.
If you go balls out and party like a normal 4th of July, you're basically acting like those lemmings in the clip above. You may not get sick, you may not die, but you're definitely making a massive spread of the virus much more possible. If you decide to dial things back, and have a small party with family members, and avoid big crowds and events, you're showing your intelligence. And us humans, in theory, are intelligent creatures.
It's your call, hopefully many of you will do your part to slow this pandemic down a bit. Are you smarter than a lemming? Are you more intelligent than a gerbil-like critter with mass suicidal tendencies? I'm on Facebook every day, I know some of you are not. But thanks to the people out there who are smarter than lemmings, and tone it down this weekend.
Have fun, celebrate, but be smart. Happy Independence Day.
