Tuesday, June 3, 2014

Don't lose sight of the slow-motion economic train wreck

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.

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.



Anonymous said...

Regarding the inventory cycles. Have you seen the pictures of new car inventories? They seem to be piling up all over the world.

Paul said...

It is like going broke. Things work until they don't. When they start scrapping those new cars to build yet more new cars rather than sell them at a "loss" you will know we have reached the end.

Pascal said...

Re new car inventories.

Could it only be too costly and crappy that is an issue?

Or does consumer calculation include avoiding the risk that the government can choose at its whim to shut down any new car remotely via satellite command? Or applying the brakes right in the middle of a left turn in front of an on-coming bus? Mistakes happen would be the certain explanation, with no apoloties.

Anonymous said...

I'm in an area that is doing pretty well (for the moment). But I'm noticing: all new jobs are part time, people are not buying big ticket items, and I'm seeing more little (or not little) signs about domestic appliance repair, shoe repair, and the like. The library is busier and the book store less so. I'll be curious to see what transpires over tourism season.