Order out of Chaos? __ Part I

Chaos is on its way, my friends. And, no, I am not wearing my tin hat today. The economic outlook for the US is bleak indeed. In Part I of this series, I want to talk about what the near and medium future holds for our country and then I’ll go into a little of the why it is going to happen. In Part II, the discussion will be about what comes after the chaos sets-in. In other words, how will order emerge from the chaos. And then, I ‘ll give you my opinion on what it should mean to us relative to the coming elections.

What Is Happening?

Ever heard of Lakshman Achuthan of the Economic Cycle Research Institute (ECRI)? Well Mr. Achuthan believe we are already in or will very soon be in another recession. Why should we believe him? Well, from the ERCI website, here are some excerpts they are showing from a New York Times article:

Then there is the matter of the last recession. With the benefit of hindsight, we now know that the downturn began in December 2007. Few people realized it at the time. A survey by Blue Chip Economic Indicators that month found that, as a group, economists believed that the economy would grow by 2.2 percent in 2008. Instead, it began to shrink.

Are we heading into another recession now? Again, the consensus says we’re not.

But at least one organization with an exceptionally good track record says another recession may already be here. That is the Economic Cycle Research Institute, a private forecasting firm based in Manhattan. It was founded by Geoffrey H. Moore, an economist who helped originate the practice of using leading indicators to predict business cycles. Mr. Moore died in 2000, but the team he trained is still at work.

Relying on a series of proprietary indexes, the institute correctly predicted the beginning and the end of the last recession. Over the last 15 years, it has gotten all of its recession calls right, while issuing no false alarms.

That’s why it’s worth paying attention to its current forecast. It’s chilling: as bad as the economy has been, it’s about to get worse.

On September 30, ten days ago, Mr. Achuthan made his announcement theat the US was entering another recession and may in fact already be in recession. Other than Bloomberg and the New York Times, this story has received very little attention that I am aware of. There is a video of a Bloomberg interview with Mr. Achuthan on the ECRI web page that i can not embed here that I hope you will watch now.

There are at least three things we should take away from Mr. Achuthan’s discourse:

  1. He is not talking about one or two or three indicators pointing toward recession; he is talking about over a dozen indicators all pointing at recession.
  2. He says there is no policy change that could be made to prevent this recession at this time. The recession will ru its course and it is going to be ugly.
  3. How ugly the recession is dependent on whether or not there any catastrophic events that occur. In 2008, it was Lehmann Brother’s bankruptcy that was not predicted. Now we are faced with the tenuous situation in Europe. If the European Union or the Euro collapse, all bets are off as to how bad things will get.

If you keep up with whats going on in Europe or if you have read the posts that I have done here on the subject, you know that the European Union and their currency, the Euro,  are teetering badly. A recession in the US is exactly what Europe does not need. It will be like yanking the crutches away from a cripple. The fall of the European house of cards on top of a recession her in the US is a recipe for a world-wide calamity that is beyond my imagination. Chaos is the best description I can come up with.

Why is this Happening

Why we are entering another recession after such a short and modest recovery from the last recession should be obvious to all of us. Obama and his big government Democrats inherited a terrible mess from Bush and his big government Republicans.

Since January 2009, the real economy has struggled to get back on its feet and add jobs while growing the economy. But Obama and friends have done every thing they could dream of to counter the efforts of the real economy: They wasted hundreds of billions of taxpayer and borrowed dollars on unproductive projects and helping their crony campaign contributor friends, they passed unneeded and counterproductive bills like Obamacare and Dodd Frank, they continued the open border policies of Bush and in so doing added millions more to our welfare rolls and, through regulatory fiat and Presidential Orders they have done everything possible to kill jobs and impede the growth of the oil, gas and, coal industry.

So, of course, we are heading into another recession.But, what about the greater chaos that I see coming. To understand why the chaos will come, we must understand the interaction of our Federal Reserve System’s monetary policies and our big government statist’s fiscal policies.

To understand the Fed’s (and other central banks) monetary policies and what they have done to expand the credit bubble around the world to  the point of bursting, I recommend reading two articles that Jeffery Snider, President and Chief Investment Officer of Atlantic Capital Management,  wrote for Real Clear Politics. The first article appeared on September 30, 2011 and the second article appeared on October 7, 2011. (A big hat tip is due to Kurt Silverfiddle of the Western Hero blog.)

I warn you that the Snider articles are not light reading. For those of you who are better arm-chair economist than I am, you will probably enjoy Snider’s work. For those of you who are not into economics at all, you may find reading these articles a waste of your time. I’ll try to cut to the chase for you.

What I found most interesting in Snider’s discussion is the counter-intuitive explanation of why having the US dollar as the worlds reserve currency has been a curse rather than a blessing, as is believed bu many economist and world leaders. Once the fiat dollar became the worlds reserve currency (when Nixon broke the link of the dollar to gold) other nations needed to accumulate dollars as reserves in their central banks and it was forever to their advantage to keep their currencies relatively weaker compared to the dollar. This would support their export trade.  The result is that other counties would maintain positive trade balances while the US was destined to almost always have trade deficits. Although there would be times of good growth in the US economy, over time the monetary policies of a country whose currency was the worlds reserve currency would have to lead to less and less growth.

The bottom line is that the real productive capital in the US (and the world) can not grow fast enough to service the ever-increasing debt.  The fiscal policies of  our big government statist (and those of other countries) have compounded the problem with their anti-growth policies. The credit bubble is at the bursting point.

Whether the debacle of Greece and the European Union as a whole will be the needle that pops the credit bubble or the new recession in the US becomes the needle or some other unforeseen event becomes the needle is not important. What we all must face-up to is that the bubble is going to burst and soon. Chaos will envelop the world.

Tomorrow I will talk about whether we who love freedom will be able to use the coming chaos to rebuild the America our Founders wanted for us or will the bankers use the chaos to implement their dream of a One World Currency with a One World Central Bank and bring about a new One World Order. I will also talk about what this should mean to us and the importance of the coming elections. I will also be announcing which candidate for President I will be supporting during the primary season and why.

Well, that’s what I’m thinking. What are your thoughts?

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23 thoughts on “Order out of Chaos? __ Part I

  1. Excellent observations, Jim. Thanks for the linkage as well.

    I found Snider’s article illuminating, since I am far from a finance or economics expert.

    Did you mean to cite this article as well?

    http://www.foreignpolicy.com/articles/2011/09/07/an_exorbitant_burden?page=full

    That’s the one that explains how having the dollar as the reserve currency hurts the US. It is a somewhat difficult read, but well worth the effort.

    Keep up the good work!

  2. This is a great post, Jim. It really helps the uninitiated, of which I perpetually consider myself, understand what’s going on with the America dollar. As a mom of five hungry little mouths, the economy totally collapsing is at the top of my list of earthly fears. If there was ever a “national security” issue it is this!

  3. When I read this and other economic articles on the coming collapse, I feel totally helpless…like sitting ducks. I do think this particular sequence of events began way back with Nixon. I’m not sure why some economists in our country could not do something long before now to reverse the trend, but I guess that is wishful thinking on my part. We are here now…so I’ll be looking for your Part II tomorrow. As the article I shared with you indicated, the goal of this collapse is One World Currency, which must make George Soros so elated. With the One World Currency comes One World Government…and there goes sovereignty straight out the window. Duh…sorry to say something so simplistic. Just taking it all in. God was none too happy about the Tower of Babel…wonder what consequences will befall us for this. Will check back tomorrow.

  4. What is so depressing in all of this, is that there is nothing better that Obama could wish for then a collapse. In his so called “Jobs Bill” he proposes a retroactive tax on Muni Bond holders. Many local governments are on the ropes now. Lets make the bonds less attractive. Makes sense.

  5. I too fear that there will be worldwide chaos and I fear the order which might come out of this chaos because it appears to be right out of the communist playbook of “normalizing” the situation.

  6. There is lots and lots of discussion about what is and what is not a recession and whether or not we are in recession or not.

    A definition I like a lot comes from Ronald Regan:
    “Recession is when your neighbor loses his job. Depression is when you lose yours. And recovery is when Jimmy Carter loses his.”

    However, quantitatively speaking, I prefer the classic and easy to quantify definition of a recession that most economists use…
    Two consecutive quarters of decrease in real GDP

    http://www.bea.gov/national/nipaweb/TableView.asp?SelectedTable=3&Freq=Qtr&FirstYear=2009&LastYear=2011

    This chart from the U.S. Bureau of Labor Statistics(BLS) plainly shows that in real GDP terms that the economy is anemic, but we are NOT in recession. Real GDP has inched up every quarter since Q3 of 2009… almost two straight years now.

    Given that in the classic definition you cannot know we are in recession until AFTER we experience two consecutive quarters of real GDP decline then we are at least 6 months away from knowing if we are entering a recession or not.

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