Occasionally economically ignorant critics attempt to nip at my ankles by making reference to the apparent absence of the global economic contraction that I believe is happening and predicted would start to become widely recognized by the end of 2010. But the failure of the Great Depression 2.0 to be recognized in the conventional macroeconomic statistics yet doesn’t bother me in the slightest, because the map is not the territory. And, as I demonstrate in the chapter entitled “No One Knows Anything”, those statistics cannot be trusted in the least. Keep in mind that the National Association of Realtors is having to revise its numbers to account for the 3.1 million home sales that were reported by its statistical model in 2009 and 2010 but cannot be found in any real-world recording process; a similar correction to GDP would indicate a 30 percent decline from $14,870 billion to $10,306 billion. It’s interesting to see how this is roughly in line with the confidential Goldman Sachs report cited by the Market Ticker.
What have I been saying? That the only thing keeping us from recognizing a full-on economic depression was government deficit spending? Spending that, at present levels, cannot possibly continue.
Worse, there’s no way out of the box. Raise taxes and you subtract directly from private spending. Refuse to raise taxes and you are forced to continue to borrow. Extrapolate out the $1.7 trillion from calendar 2010 and removing that would result in a decrease of twenty-eight times Goldman’s estimate, or some fifty percent of GDP.
Were you sitting down when you read that? Did you have an incontinent moment? If you didn’t then you don’t believe Goldman’s confidential report. If you do believe it you now know what’s going to happen. Not might, will.
One way or another, the artificial support to GDP that is embedded in our insane deficit spending will stop. It mathematically must stop. And when it does stop, if you believe Goldman’s analysis, even if we only cut deficit spending in half GDP will fall by 25%. If we eliminate it? GDP is halved.
And there, my dear critics, is precisely where your missing depression is. I don’t mind admitting that the Fed has been able to keep the situation strung together with string and chewing gum longer than I thought they could, but it doesn’t matter if they manage to keep it up for another five years. The end result will still be the same. Although it’s not quite correct to say that it doesn’t matter, as the longer they manage to postpone the inevitable, the more painful it is going to be.
Socionomics told us 10 years ago that there we were going to be seeing a huge increase in violent political upheaval around the world. That’s exactly what we’re seeing now across the Middle East, but don’t think that it is going to end there. Once the desperation spending stops, it’s going to spread across the East and West as well. We’re not talking cannibalism in the streets, but we’re also not talking about a stroll in the park either. But just so we’re clear, I expect at least one more round of stimulus, and probably two, before the Keynesians throw in the towel. This indicates that Republicans will eventually cave on the debt ceiling; given their strong rhetoric there will have to be some sort of crisis that will excuse the abandonment of their position.