Updated: Feb 14, 2020
There’s one thing in common across all economic recessions: no one sees them coming. Well, some people do but those voices are often dismissed and buried, and those who warn of a coming crisis are usually labeled as conspiracy theorists, alarmists, negative people, and similar connotations.
Now, let me be very clear. Some people call themselves experts and warn the public of an imminent crisis that never materializes, not out of their goodness but because they want to sell you a book or maybe attend a seminar. Beware of these people.
Having said that, some reasonable voices that are not trying to sell anything try to warn the public about a coming financial meltdown. I’m one of them. Well, I’m not trying to sell you anything. Those warnings are not good for big corporations or Wall Street or even the mainstream news and media outlets because the latter are endorsed by big businesses too. They’re not good for the government either because the government (i.e., ruling party) always wants to portray a shiny image of itself (.i.e., low unemployment rate, confidence in the market is high, and so on and so forth). The positive sentiment of the public towards the economy keeps the financial markets growing and more liquid.
The unpopular voices end up in what I call “alternative media” that have very low budget and barely reach the public.
After the last recession of 2009 the government bailed out the banks and pumped money (Quantitative Easing) into the economy to contain the slide. But apart from the Affordable Care Act/Obamacare (it’s still debatable), nothing was done to address the underlying problem of stagnant wages.
The U.S. household debt hit a historical record $13.3 trillion in 2018, up $454 billion from a year prior. That is close to 70% of the GDP. This means that the entire economy is based on debt. It’s true that consumer spending fuels growth but when most of it comes from debt at some point the bubble will burst.
Close to 80% of Americans live paycheck to paycheck. Unless, you live on Mars you probably heard about the government shutdown south of the border (U.S.) and how furloughed federal employees struggled to pay bills just after missing one paycheck.
To make matters even worse the Trump administration did nothing to stop or even slow down big money greed. It handed corporations the biggest corporate tax cuts in U.S. history. Tax rate dropped from 35% to 21%. Although most corporations took advantage of loopholes and avoided paying the full 35%. If you think that lowering tax would encourage corporations to increase jobs you’re simply wrong. Furthermore, after the tax cuts the tax receipts were almost at record low.
The top 350 CEOs earn312 times the average worker in the United States. McDonald’s boss Steve Easterbrook earned $21.7m while the McDonald’s workers earned a median wage of just $7,017 – a CEO to worker pay ratio of 3,101 to one. Did I just say a ratio of 3,101? Does that mean it takes an average employee 3,101 years to make Steve’s one-year salary?
Speaking of McDonald, the company has been struggling in the last four years from a revenue perspective but not from a valuation perspective. If you look at its stock you’ll see that it’s been increasing in the same time period. Which reminds me of the huge disconnect between the actual state of the economy (i.e., jobs) and the state of the financial markets. The Dow hit a record high 27.000 points last September compared to 7000 points in February, 2009, a 286% increase. Did the “real” economy grow this much? Not even close.
The Labor Force Participation Rate dropped from 66% in 2009 to 63% in 2018. Wages have been stagnant. Same for average weekly earnings. But you will argue, what about the unemployment rate? Well, the official unemployment rate used by the U.S. is U-3, which is 3.9%. The true indicator that should be used instead is U-6, which includes marginally attached workers. This rate is 7.8%, almost double U-3!
Wall Street capitalists built a concrete wall between the economy and the financial markets. They succeeded in completely decoupling the real economy from Wall Street. The investments and profits made in the market do not translate to actual growth in the economy (i.e., more jobs) but they do show up in the (accounting) books as added value, which later find their way to the GDP. The truth though is that those massive amounts of money often made by speculation do not leave the pockets of the investors and don’t find their way to the economy. Furthermore, borrowing money for free in the last 10 years really only helped the rich.
There’s almost zero correlation between the performance of American corporations and the value of their shares. Shareholders couldn’t care less about how company X is doing as long as the price of its shares is skyrocketing. This “virtual” parallel money-making machine called Wall Street has given us two parallel universes; one where there are real human beings who struggle to try to put food on the table, in parts, because of the extremely low minimum wages, and the other universe where filthy rich people who cannot get enough of profits. The gap is widening. The share of the top 1% earners is more than 40% of the economy. The rich are getting richer and the poor and getting poorer.
The richest three people in the United States (Bill Gates, Jeff Bezos and Warren Buffet) own more than the bottom 50%. Their combined wealth is north of $250 billion.
And then you’ve got jobs’ automation, which deserves a whole other article. Two things will cause the next meltdown: inequality of opportunities caused by infinite greed of the top 1% and the automation of jobs.
Now, will there be a recession soon? That depends who will be in the white house next January. If it’s the same tenant then a crisis will come sooner than expected.