WASHINGTON, July 24, 2015 – Heading into the last half-hour of Friday trading, all stock market averages—and most stocks for that matter—are plummeting again in action that’s likely to put a dent in even the cheeriest of market optimists.
It’s hard to put a finger on just what’s causing Wall Street’s continuing massacre, but we have an idea, and it’s not Greece and maybe it’s not even China. Rather, we have a looming problem that may have caught many traders unawares: deflation. For economists and bankers alike, that’s one ugly word indeed. And it’s what the Fed feared in particular during the Great Recession collapse circa 2007-2010.
When no one in industry is very interested in buying raw materials, that’s probably because they’re worried they can’t sell what they make. So rather than sit on expensive, non-productive inventories of raw materials, companies don’t acquire them at all or hardly at all, which then starts fossilizing supply lines further and further afield until companies are hardly manufacturing anything at all. At which point, they begin to lay off thousands of now-useless employees.
The jobless, in turn, can’t buy anything now either, so companies simply start shutting down and closing assembly lines, laying off more workers who don’t buy stuff, etc., etc. You get the picture.
Now, that doesn’t seem to have really happened yet, at least in the U.S. thus far. But if manufacturers both here and abroad aren’t buying any raw materials, more or less, those layoffs and worsening sales stats can’t be far behind.
The problem is that after the 2007-2010 economic collapse around the world, then-Fed Chair Ben Bernanke and other central bank officials around the world looked at their governments’ balance sheets and turned as white as ghosts. International and individual indebtedness was sky high and, under normal circumstances, was impossible to reduce. The only option: inflate your government’s way out of trouble, paying off existing debt in ever-cheaper dollars or (name your currency).
It was a swell idea, meant to derail the possibility of 1930s-style deflation. Problem is, all central banks chose to take care of banks first while ignoring people, aka, the “consumers” who allegedly kept economies humming. Bernanke, for his part, quietly encouraged Congress and the President to genuinely stimulate the economy by making it job and consumption friendly. But Congress in particular, run at the time by a common criminal otherwise known as Democrat Senate Majority Leader Harry Reid, simply decided to shut the place down rather than help the Fed deal with the situation by getting Americans back to work ASAP.
The U.S. economy, at least, has never recovered as a result. Any “recovery” touted by Washington is all smoke and mirrors. Why? When the Fed finally threw up its hands and terminated its series of QE (quantitative easing) efforts, it started drying up the free money that banks and corporate CEOs had been using to buy back their shares, which buybacks played a major role in creating the impression that companies were scoring better and better earnings and that the economy was really recovering.
But for the most part, this was all a convenient lie. And now we see why. With buybacks winding down, starved as they are by the lack of free QE money, share counts have stabilized. Now lower and lower corporate earnings per share aren’t being hidden by share buybacks like they used to be, so this quarter’s numbers have begun to reveal the reality all those bigwigs have been hiding for years: Nothing has really improved very much since late 2007, and John Q. Public is still on a buying strike since he’s never participated even one bit in the now nearly 8-year long phony recovery.
The problem has been exacerbated by the crashing fuels and materials markets, made even worse by the Obama Administration’s utterly insane drive to put coal miners, transporters and processors out of business forever. The effort has been remarkably successful, driving America’s remaining coal mining giants close to a situation of universal Chapter 11 bankruptcy.
The ripple effect has been enormous, causing massive layoffs across the boards that go unmentioned in lefty Snowflake rags like the Washington Post and New York Times since the agony is largely being suffered by the yahoos who inhabit flyover country. But its impact is being felt everywhere as consumption and fuel use continue to go down.
There are less people with less money who can now buy less stuff, and so the spiral begins.
Which gets us to a point we’ve been flogging endlessly but with no apparent results: Greece, its corrupt, overspending government, its arrogant government employees, its cynical, oppressed citizenry, and its substantial cadre of greedy oligarchs gradually created a slow-moving, government and union-oriented kleptocracy that made a mockery of democracy and ended up destroying an economy and a people for perhaps generations. That’s what happens when you game a nominally capitalist system so badly it can no longer work.
But the Greeks were idiots, right? Right. Except that tiny Greece is the canary in the coal mine, to stretch a metaphor. And that canary is now breathing its economic last. Just like the much larger Western economies that are doomed to follow it, led by corrupt politicians put in office by corrupt and greedy unions and oligarchs who exist to feed only themselves and an ever-increasing cadre of overpaid, overcompensated government employees who hate the people they’re supposed to serve.
When populations go down because they can no longer afford to form families and when there are less and less people capable of buying products that companies make, the whole enterprise starts inexorably winding down, and that’s what we’re seeing now.
As markets go, we’re likely in the midst of at least a nasty correction, or, worse, a complete reboot back to 2008-2009 at which point we might try to rebuild an economy once again but this time without all the fake stuff and happy, phony smiles.
If Western politicians don’t start waking up and responding to what voters want and need and doing it damn soon, the next few years are going to be very unpleasant indeed, if not outright murderous.
Don’t laugh at Greece and say it can’t happen here. The U.S. canaries are already dropping by the dozens, and it’s going to get a lot worse unless New York and Washington cut out the self-serving crap and run both business and government in the pro-capitalist, pro-free enterprise way both were always meant to be run.
Again, no trading tips today. The market is taking a slow, inexorable black swan dive. There may be a dead cat bounce here soon. But, to paraphrase that great philosopher, Yogi Berra, the decline ain’t over ‘til it’s over.
We’ll try again Monday morning.