I said some time ago that our economic collapse probably wouldn't happen all at once in some grand cataclysmic event; it would more likely be a long-term, slow, steady decline. I've been watching the indicators over the past couple of months, and all the signs are that the rot is setting in even faster than I predicted. A few warning signs from recent reports:
- Karl Denninger points out that the inventory cycle is shortening - in other words, suppliers are getting rid of their accumulated stocks of product and are not replacing it to the same extent. They see a situation where consumer demand is decreasing, not increasing, and they don't want to be caught with too much money tied up in inventory they can't sell. He puts it very bluntly: "I believe we are seeing a very material slow-down across the economy in final demand."
- Powerline illustrates what it calls 'The Disaster of Obamanomics' with these two charts. The bottom graphic (click it for a larger view) is particularly troubling. Note how people below 55 are battling to find employment. These folks are in the years when they should be spending money on buying homes and vehicles, starting and raising families, and so on - but their rate of employment is static or declining. Older people, who don't need to buy as much, are holding on to what jobs they have for dear life, and are also undercutting younger people by being willing to work for less (partly because their retirement savings and/or pensions supplement their current income). This means that younger and middle-aged people in particular have less to spend. As a result, the economy as a whole is stagnating.
- 'Personal income tax receipts in April were below year-ago levels in 27 of 32 states where data were available'. They didn't fall because people are cheating on their taxes - they fell because people are earning less, and therefore owe less tax. State income from taxation is being reduced at a time when more and more people are dependent on benefits from the state to survive. See a problem here?
- 'The US economy contracted sharply in the first quarter and bond yields have been falling at the fastest rate since the recession scare two years ago ... The slowdown comes as a key indicator of the US money supply flashes slowdown warnings ... The US now seems caught in a Japan-style trap, endlessly masking the effect by stealing a little extra growth from the future with artificial stimulus.'
- Incredibly, the European Central Bank is apparently seriously considering negative interest rates for the banks it serves. In other words, when those banks deposit funds with the ECB, they will pay interest on the funds they deposit, instead of receiving interest. It sounds absolutely cockeyed - and it is - but the reason is simple. Banks are refusing to lend normally, leading to a credit crunch throughout Europe. It's crippling businesses, particularly smaller ones, and having a dramatic effect on the economy overall. By making it more expensive for banks to hold on to funds instead of lend them out, the ECB is hoping to stimulate lending and ease the 'credit crunch'. I don't think it'll work.
Friends, put all these signs together and one sees the creeping economic malaise creeping ever faster towards us. Miss D. and I have just paid off our last-but-one major debt. There's one account to go, which will be settled during the second half of this year, then we'll be essentially debt-free. As soon as we've achieved that we're then going to boost our cash reserves and savings, to ensure we're in the best possible position to ride out the coming storm. I can only suggest that you do likewise. I have a feeling it's not going to be pretty.