ICoD1 simply means we kick-off our “In Case of Depression” series with this first article.
Although we would love to buy into the “Nanny State will save us all” mentality, there are convincing reasons why this Depression will be different than any before.
Schools have brainwashed most into believing that the US Great Depression (1929-1943) was “IT” – a kind of “one-off” never to be repeated.
Yet, when you’ve spent half a lifetime studying economics and news as I have, it becomes clear that not only are depressions semi-regular (and thus predictable) but they involve numerous common elements.
The National Bureau of Economic Research calls out a recession this way:
“A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. A recession begins just after the economy reaches a peak of activity and ends as the economy reaches its trough. Between trough and peak, the economy is in an expansion. Expansion is the normal state of the economy; most recessions are brief and they have been rare in recent decades.”
A Depression differs, as Gregory Mankiw sized it up in 2007, in that…
“There are repeated periods during which real GDP falls, the most dramatic instance being the early 1930s. Such periods are called recessions if they are mild and depressions if they are more severe.”
The most qualified Federal Reserve chair to date was Ben Bernanke who understood the differentiation between recession and Depression all too clearly:
“During the major contraction phase of the Depression, between 1929 and 1933, real output in the United States fell nearly 30 percent. During the same period, according to retrospective studies, the unemployment rate rose from about 3 percent to nearly 25 percent, and many of those lucky enough to have a job were able to work only part-time. For comparison, between 1973 and 1975, in what was perhaps the most severe U.S. recession of the World War II era, real output fell 3.4 percent and the unemployment rate rose from about 4 percent to about 9 percent..”
So, whatever comes on the heels of recent market perturbations, we are likely to get at least a deep Recession. But, in my view, for a multiplicity of economic reasons, a full-on Global Depression is likely.
Consider these factors as “get started” ideas:
- I have long written about the dangers of consumer supersaturation. We see it everywhere we look. Whether it’s in the number of televisions and “screens” in our homes (Elaine and I have 9 – for two people!) to the prevailing trend toward epidemic obesity, excess consumption rules the day. I remember as a news director in 1975, or so, asking the CEO of a new Public Storage company “Why would people buy stuff and then Pay to “Store it?” At the time (pre-saturation) the proposition of “paid storage” was absurd. Yet, here we are.
- The purchasing power of the US Dollar is trash. We’re down to less than 4-percent of what it was in 1913. Revolutions begin (historically) when fiat falls below 5-percent of original purchasing power. The 96% of our “money’s worth” is debt.
- Savings has become concentrated.in the hands of the one percent. Although not as violent a displacement as the French Revolution, per se, there will be lots of pain and suffering as many of the One Percenters see their savings destroyed.
- Despite all the data – and excessive taxation – Depressions do “reset the clock” and provide for another run at long-term economic success.
This was the premise of Nikolai Kondratieff (Kondratiev by revisionists like Wikipedia – privately we hold to the Kondratieff spelling used by the American Economics Association in the early 1940s when Kondratieff’s works were become a hot ticket in American economic thought…):
“In 1925 he published his book The Major Economic Cycles which quickly was translated into German. A short form was published in 1935 in the Review of Economic Statistics and for a time his ideas became popular in the west, until eclipsed by those of John Maynard Keynes.
“Kondratiev’s economic cycle theory held that there were long cycles of about fifty years. In the beginning of the cycle economies produce high cost capital goods and infrastructure investments creating new employment and income and a demand for consumer goods. However, after a few decades the expected return on investment falls below the interest rate and people refuse to invest, even as overcapacity in capital goods gives rise to massive layoffs, reducing the demand for consumer goods. Unemployment and a long economic crisis ensue as economies contract. People and companies save their resources until confidence begins to return and there is an upswing into a new capital formation period, usually characterized by large scale investment in new technologies…”
We now know that although Kondratieff was nominally right – insofar as cycli8cal Depressions being semi-regular through his time – we have seen a change in their length since.
Though the late 1990’s and into the 2000’s a group of us interested in Long Waves of this sort gathered at the University of Colorado Long Waves discussion group to debate things like the change in cycle length.
My preferred work-out was based on the extended life of a working human. As lifespans increased, so did the length of the Long Wave. However, that’s not convincing to people like my consigliere who argues that other factors are at work including debasement of the currency at never-before possible rates. We can thank Nixon for uncoupling the dollar from Gold in 1974, or so. then, we have a technology cycle, as well.
Not that it matters. IF we have a Depression, the only point of the economics discussion will be the “Placing a Blame” and the two political wasteland parties, social media, or some left-field cause (terrorism, another oil spike,, or whatever) will be the blame.
Best thing to do when difficulty like this latter day “Hard Times” arrives is to skip all the demonstrations and get out your list.
What are my Personal Basic Systems needed to live and navigate through anything?
- Food: What are your food supply options?
- Housing: Where will you live.
- Transportation: Do you get around?
- Energy: Will you be too cold? Hot?
- Environment: Will you crap on the street? (A new, yet to be recognized by conventional/group-think economists, but nevertheless, very real leading economic indicator!)
- Communications: With no money, what phone?
- Finance: With no “money” (Or worthless as in the Weimar Republic) how well do your “systems” hold up?
Which gets us to a “bottom line” for this morning’s discussion:
When Bad Times show up, how well prepared are you? Where are your vulnerabilities lists?
We Need “Threatalyzer” or “Lifealyzer” Software
I’ve argued for years that there is a missing class of software – which I call the “Life Manager Class.” The idea isn’t here – yet – let alone mature, but there are examples of the gist of it happening on sites like Founder2Be and this listing.
What will make this kind of “Personal Life Meaning and Management” (PLMM) platform work is when it catches up to current events and recognizes three realities of planning for an impending economic Depression.
- The software will focus on the Seven Core Life Support modules (my contribution from my books and research).
- It will be organized somewhat like a Project Manager tool (Project or Kan Ban style)
- It will offer total score and specific module scores.
- It will integrate to Personal Banking and Investment.
- And it will offer modeling like some of the open source data management/machine learning tools like SilverDecisions or Orange.
In the ideal iteration, such a PLMM package would also do things like model your optimum education levels for “next moves” and would even “shop schools” and give recommendations. More on the algorithm and development in Peoplenomics this morning.
Why the Giants of Big Data aren’t already offering this as a low-cost add-on to personal banking, insurance, and portfolios is one of the greater mysteries of life. Except that we have a world full of specialists who know every possible aspect of one thing.
But in the Aggregate they know nothing about everything.
Which is why it behooves people like me to wonder (even knocking on the door of 70, lol) How can we better manage life?
You still have that golden choice: You can MANAGE YOUR OWN OUTCOMES or the EVENTS WILL DO THAT FOR YOU.
Seems a simple-enough task. But more urgent if, as we suspect, events begin to spiral which they could after elections.
So, the next section of ICOD (in case of Depression, right?) then rolls into view: “What can we learn from Third World Lessons?” Seems like a good topic to pick up in our next prepper and remaining ahead article come Saturday morning over coffee, eh?
Write when you get rich,