Cool super-slo-mo footage of balloons popping. That's a pretty good metaphor for the rest of 2020 in the American (and many other parts of the world) economy, in my opinion.
This Welcome to Dystopia idea was spawned by an insight I woke up to one morning, last November (2019). For many years, a whole series of inter-related ideas, about the future, long term social cycles, and the economy, have been rattling around my brain, feeding off of each other, and coalescing. By November, they were a network of ideas that were all somehow connected, but not well organized, or ever written down in an intelligent way. Writing this book/blog thing here, I've begun to organize them. In a sense, Welcome to Dystopia is not my magnum opus, it's more like an outline for that great work, and several further works. Every chapter could be a book of its own. The theories I shine light on, and draw on here, from The Tofflers, P.R. Sarkar, and Richard Florida, are already written in several of their books, of course.
The main point to this whole mash-up book/blog thing is that we're heading into a really serious economic downturn, and that will lead to an great acceleration of the other changes I've been talking about in these chapters. Aspects of our American Industrial Age culture have been breaking down, and most often have been disrupted by new, information age versions. That's the Tofflers' Third Wave concept, as you now know. But there are still a lot of Industrial Age systems, institutions, organizations, industries, and businesses that haven't made the paradigm shift yet. Thinking these ideas through over the last several years, I became convinced this next "recession" would amplify the speed of these changes happening.
On average, the United States has had a recession or depression every 4-7 years, throughout its history. Why? In part because "bubbles" form in one aspect of the economy or another. People invest in stocks (or bonds, or real estate, whatever), and the prices go up. So those people make money, and more people start investing more money. These markets, whichever ones, get people excited. When this happens prices go up and up, and things like stocks, real estate, and other investments get overvalued. The $100,000 house costs $250,000 a few years later, as the bubble builds. The $40 stock gets bid up to $100 a share as that bubble builds. Just because the price of an asset goes up doesn't mean it's a bubble, only when things go beyond reasonable levels that they turn into bubbles. What is a "reasonable level?" That's always a personal opinion.
People are making money on the way up, and start thinking the rising prices will go up forever. It's stupid if you stand back and think about prices actually rising indefinitely, but almost nobody does. This is the "market euphoria" you hear business media people talk about. Investors, small and large, start to feel the hype, they're making money. And they want more money. Greed sets in. So prices get high, then really high, and thinking gets stupid. Then prices can head into the ludicrous realm. That's where stock market prices, by and large, have been heading as I've been writing "Dystopia," over the last four months, from late November 2019, until today, February 29th, 2020. As I proofread this chapter, and am re-writing it today, the stock market collapsed this past week, 12% to 13% on most stock averages. The Dow Jones Industrial Average was down over 3,600 points this past week. This past week has been the worst week in stocks since 2009, the depths of The Great Recession.
Have the bubbles popped? It looks like that may be the case. But there is always the chance this is a major correction. The trigger right now is the deadly virus coming out of China. The first infections are now showing up in the U.S., and the first death from this virus in the U.S. was reported just this morning. So this particular threat will play out for quite some time in the U.S., and around the world. But on the financial side of things, does this horrible week in the stock markets mean the current bubbles have popped? Not necessarily. This could turn out to be a much needed serious correction in the stock markets. Personally, because of all the underlying issues in our financial system right now, and because of these long term trends I've written about here, I think we're most likely looking at the bubbles popping right now (Feb. 29th, 2020), but we don't know yet. time will tell.
Several financial bubbles have happened in my lifetime, since I started paying attention financial things. In the late 1980's, real estate and stock prices got crazy. Bubbles in prices formed, things cost way too much. Boom, the 1990 recession happened. In the late 1990's, people went crazy with the "Dot Com" stocks as the internet emerged. That got even crazier, boom, the bubble burst, and we had the 2000 recession. In the early and mid-2000's, real estate went crazy again, especially with the sub prime mortgage lenders. Homes became over-hyped and over-priced. Boom, The Great Recession of 2007-2009.
That's when things got weird. The whole global economy was so close to catastrophic collapse in late 2008, that central banks (like The Federal Reserve, aka "The Fed," here in the U.S., and its counterparts worldwide), pumped hundreds of billions of dollars into the economy. They can, sort of, make money out of thin air. Then they buy government bonds or other "assets," which basically makes the money available to big banks. Particularly, major investment banks. While pulling money out of your ass (metaphorically) sounds awesome, it actually makes every dollar (or yen, euro, kronor, yuan, whatever) worth a little bit less. When they create more money, every dollar in your wallet or account, goes down in value. So when you go to buy something, you pay more, because the dollars are worth a tiny bit less. This is really what inflation is. Prices don't really "go up," the value of every dollar goes down, and so the stores charge more, over time. We pay a higher dollar value, but we're paying for the same item, with dollars that are worth less than they were a month, or a year ago.
It's weird and complicated, that's the whole idea. Anyhow, through a series of programs called Quantitative Easing (aka Q.E.), The Fed, and other central banks, pumped absurd amounts of money into our economy, and that of most major countries. This has the effect of basically "lubricating" the world's economies, helping them work smoother, and keeping them from seizing up, like a car engine with no oil.
The other major thing central banks do is to lower interest rates during tough times. They lower the interest rate they charge banks to borrow money overnight, or for short times spans. Then banks can then borrow money much cheaper, to invest or loan out. Those banks can also lower your rates (like for mortgages, car loans, credit cards, student loans, etc.). When interest rates are low, banks, other businesses, and people with good credit, can get loans easier, and pay them back with less interest, and lower payments. People with sketchier credit may get loans with somewhat lower interest rates as well, but higher rates than people with great credit.
In theory, businesses getting loans with lower interest rates, during a recession, will start new businesses, build new factories, create more good paying jobs, hire employees and pay them wages, who then spend their paychecks, and "stimulate the economy." So The Fed and other central banks did this in late 2008, and into 2009 and 2010. They all said these were "short term emergency measures," or something like that. The central banks were supposed to stop doing these programs, and move things back towards a more "normal" economic state. In a truly healthy economy, inflation would start rising, and The Fed and central banks could raise interest rates to a more historically "normal" level. While this means you would pay more interest on loans you get then, it also means you would make more interest on your savings, and maybe your checking account.
But the world economies grew really slow coming out of The Great Recession of 2007-2009. Wall Street, and other investment banks of the world, got used to all this cheap money, flowing like crazy. So the central banks just kept doing these programs. It's kind of like giving someone oxygen in the hospital when they're really sick. Instead of taking the oxygen away when they heal up, so they get back to normal, you just keep giving oxygen to the person. The person just starts walking around with an oxygen tank. They feel kind of high on it, and if you try to take it away, they freak out. Cheap money in the investment world is an addiction, and Wall Street gets really pissed when The Fed tries to take that crack pipe away. That's basically what has happened to the entire world economy for the last ten years. They're high on the Fed's supply, and they freak if central banks try to take it away by raising interest rates to a more normal level. And if they "get sick" again, meaning another recession, there's a lot less The Fed can do to help them. In effect, the world's economies are weak, growing really slowly, they're "on oxygen," and not healthy enough to deal with any serious crisis. Suddenly, as I've been writing this very chapter, we've run into a worldwide health crisis that is having huge effects on the economic world. As this plays out, with interest rates super low already, there's a lot less The Fed can do to help get us out of the next recession. We'll see how this plays out.
This 11+ years of cheap and easy money has not been put into building thousands of new businesses, or roads, bridges, faster wifi, paying for more research, or paying average workers higher wages. It is not being paid to you as interest on your savings. By and large, it's been invested in stock buybacks (where companies buy their own stock, usually raising the stock price), real estate in the tech hub cities (U.S. and worldwide), and all kinds of much riskier assets as well.
Technically, believe this or not, THERE IS WAY TOO MUCH MONEY IN THE WORLD. Really. There is. But it's concentrated in the financial markets, major corporations, and the super rich people's investments. By and large, it has bypassed the fiancial world of all of us regular people. This money has caused bubbles, like it always does. Even with all this money, many major corporations, particularly the older, Industrial Age ones, have gone into a lot of debt to make more money for their shareholders. The U.S. government debt has surged to the highest levels in world history. Credit card debt for consumers is huge. Student loan debt, the one we hear about most in the media, is the highest in history. Car loan debt is at ridiculous levels. Basically, a large chunk of the population, lots of businesses, and most every government has more debt than it could really ever pay back. That's what low interest rates for long periods do, they get people psyched to take on more and more and more debt. That's where we are now.
I started writing this chapter several days ago, before the huge, consistent drops in the stock market during this past week. My initial point in beginning this chapter was to point out that we have huge financial bubbles in the stock markets across the board, in real estate, particularly in the large tech hub cities. At the same time, the global economy is slowing down. The government bond markets have historically low interest rates, and even negative rates in some places. At that same time we have historically high levels of student debt, corporate debt, credit card debt, auto loan debt, and government debt. The stage is set for a really tough economic downturn. Personally I think we're heading into that right now. If I'm wrong, we'll head into that major economic downturn in coming weeks, months or years. When the current bubbles do pop, I believe this coming economic downturn will greatly accelerate the other changes I've written about here in this book/blog.
We are in the Dystopia for our times. It's not the Orwellian dystopia of 1984, or the post-apocalyptic dystopia something like in the Mad Max movies. Our dystopia is happening right now, in my opinion, and it is an extended period of incredible and rapid change, like nothing seen in our known human history. Dealing with great change, without getting really stupid as a society along the way, that's the challenge of our current times.
-Written by Steve Emig
Blogger's note- 9/12/2023- I have not changed anything in these posts since I wrote them in 2019-2020, except these notes at the bottom. I even left in the typos I missed initially. As of late summer 2023, I'm doing most of writing on Substack. Check it out.
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