The next Great Recession & How it might affect you…

It’s going to be a pretty harsh 18–24 months coming up for most of us in the 99%. Buckle down and strap in for a hard ride ahead.

Its no secret that the last few years have been challenging — Covid isolation causing it’s own pandemic recession and the odd double whammy of supply/demand going wildly out of whack along with the resulting inflation making life really expensive and difficult for those of us in the 99% bracket. But IMHO this next downturn will make the last couple years look like a cake walk…

I need to qualify myself here — I’m not an economist, nor a financial expert. But I’ve been around the block enough times and have been directly affected by the downturns of the past 40 years. From the time I was a teenager in the early 80’s and having extreme difficulty finding summer and part time employment to put me through college, through the 90’s when jobs dried up in my first chosen career path of television and radio (thanks to automation…) and the three (some say four) major downturns since I got into the technology field. Being a software engineer though, I recognize patterns and cycles, and identifying root causes — and for each of the previous downturns you could point to a root cause that was entirely based on some variation of human greed that overheated and then crashed spectacularly.

The Covid recession though really was caused by a comedy of errors that was a spectacular result of short-sightedness because of human greed over the preceding 3 years (see: Tax Cuts and Jobs Act 2017). The dissolution of the NSC Pandemic Response Unit in 2018 essentially led to the misidentification and profoundly poor response to Covid by the White House in January of 2020 — which led to the March 2020 global lockdown that encouraged manufacturers to lay off record numbers of employees in the manufacturing and service sectors (see: https://www.cnbc.com/2020/04/03/this-chart-shows-which-industries-saw-big-job-losses-in-march-2020.htm — 701k jobs lost in March 2020 alone). And that same short-sightedness that caused supply issues as well as a terrible misjudgment in commodity pricing (see: USA-Saudi 2 year agreement to reduce output of crude oil to raise prices — April 2020) leading to the runaway 40 year record inflation of 2021/22. It’s this record inflation and the efforts to get it back to the 3% target of a healthy economy that will push us into another recession that will be if not a duplicate of then reminiscent of the recession of the early 1980's.

I’ve included several links in the text above — at this point in time each of these specific events are historical and documented, showing actions that were taken by the administration in power that had downstream effects 2–6 years down the line. I’m going to briefly write about three specific actions that will be the cause of our next recession.

Firstly, high deficits and public debt resulting from corporate tax reductions and new investment loopholes like carried interest and treating capital gains differently from normal income reduced net tax collectable, leading to a nearly 30% increase in the total debt between 2016 and 2021. Combine that with a petty action to restrict or eliminate the SALT (Sales and Local Tax) deductions that should have been made permanent law years earlier, in an effort by the GOP to punish high tax high cost of living states that have generally voted Democrat in years past. Just from a personal impact, the 2017 legislation limiting SALT deductions to a total of $10k/yr eliminated some $23k of tax deductions from local property taxes and state sales tax from my tax return, taking me from a refund position to a owing position thereafter. That legislation also limited the mortgage interest deduction to the interest on a $750k loan — for most living in New York, California, Washington and other high cost of living states, this in effect cut their deductions in half as purchasing property in any of these states especially today with the inflated property values means that more than half the interest paid to the lender is now being double taxed — you pay taxes on the money above that threshold, and then the lender pays taxes on that money as income. Prior to this, the threshold was $1M — while I personally was below that new threshold while in Washington State, when we moved to California for my job that essentially made purchasing a home there impractical. The net effect in high cost states is that the salaries which seemed astronomical in Mississippi or Alabama were just middle class in California, turning those people into life long renters because home affordability was out of reach both in the purchase and in the deduction…

Secondly, dismantling the NSC Pandemic Response Unit in 2018, which in 2015 was highly praised in keeping both Zika and Ebola from spreading across the USA (I bet you weren’t even aware we in the USA were at risk of Ebola between 2014–2016…), and the ignoring of the WHO and CDC in late 2019 was the primary reason Covid became the terrible situation it was in 2020/21. In fact, the CDC had experience already with strains of Covid through SARS and MERS in the 2000’s — early research led to mRNA vaccines being developed 10 years ago for each of those outbreaks, and were the running start to get Covid vaccines ready within such a relatively short time by end of 2020. Anyone who thinks the mRNA technology was “new” in the1, sense of brand new missed the facts that it had already been around, researched and tested since the 1960’s — the people who were publicly questioning the safety of this technology were those who weren’t in the least qualified and who habitually and actually benefitted through the spreading of misinformation. Had the Pandemic Response Unit not been eliminated, the early signals from China in late 2019 would have been reviewed, samples tested and vaccines developed, and health policies published and adhered to even earlier, potentially even eliminating the need for the hugely damaging lockdowns around the world implemented to attempt to reduce the impact of this virus. In this regard, the USA used to be one of the true leaders in the world in identifying, assessing and containing deadly virulent contagions UNTIL 2018… Instead of being a leader in stopping disease we became a sales agent for chloroquine and snake oils including bleach and ultraviolet immersion to do reactive control of infections. Now, imagine if instead of being Covid that spread around the world, it was Ebola…?

Lastly, and this is where the most fatal of greed positions sealed our fate for severe recession — how the Government and the Federal Reserve reacted in the face of severe job contraction (8.8% job loss in March 2020 alone) really put us in the spot we’re in today. Several actions took place that drove us to the 9.1% annual rate in May 2022.
* PPP Loans✎ EditSign to small/medium business and corporations designed to eliminate layoffs during the emergency lockdown in 2020. Originally an 8 week program, it not only extended but became a cash giveaway and fraud opportunity that many many people, including congresspeople and senators, as well as relatives of the Administration abused to their personal benefit. A simple search using the terms “PPP Congressmen forgiven” will find a significant list of elected individuals who defrauded the program for their own benefits… and I guarantee you’ll find a pattern of abuse there.
* in March/April 2020, the price of crude oil dropped to negative values — the oversupply around the world triggered by global lockdowns meant that suppliers were paying to dump their surplus. Saudi Arabia was moving to cut production profoundly, but Russia refused since that was their primary export and what their entire economy relied on. Russia’s refusal triggered a price war, but the OPEC+ price war was short lived. After just a month the cartel resolved its differences and agreed the biggest production cuts in its history — a 2 year deal brokered by President Donald Trump — but the damage was already done. The world’s oil infrastructure started to choke on the flood of crude unleashed by Saudi Arabia. By the end of March the price of a barrel had reached $20 a barrel and was still falling, and by April 20, 2020 the price of West Texas Intermediate Crude hit -$40/barrel — a crisis that then had all the major oil companies cutting production profoundly, and smaller oil companies experiencing bankruptcies and being swallowed up by the larger ones. By year’s end, prices returned to $65/barrel but where before the crisis this would trigger increased output and more investment into discovery and development, the industry refused to do this given the risks of a return to oversupply. This contraction of production was further exaggerated when Russia invaded Ukraine, and the Russian oil and gas embargo was implemented. Speculation drove the price of oil to $130+/barrel, resulting in the huge price spike in gasoline and diesel around the world. Incentive to increase production was very low as OPEC+ and Big Oil were making money hand over fist, rewarding shareholders (the greed beneficiaries) royally. One of the terrible impacts of this increase in the price of gasoline is the cost of goods that rely on shipping. Goods were already in a state of high demand, due to production cuts from Covid and delays in ramping production up again post-Covid. Now you have runaway inflation and consumer price indices approaching 1980’s levels peaking at 9.1% in May 2022. This then triggers the next bullet point…
* The US Federal Reserve, and by extension the Central Banks around the world start to raise the cost of borrowing. Starting in Q2'20 the central banks dropped interest rates back down near zero to try to stave off a pandemic induced financial crash — which worked only too well. The result was companies borrowing at near zero interest to buy back their stocks, driving up the stock markets artificially and enriching anyone who held stocks at that time. People who were now more wealthy (and that is primarily the top 1%) started to reinvest in real estate, as the shutdown caused people to go on a home buying spree that drove property values up some 35–40% in most urban areas NOT in high tech centers. You see, people were now working remotely and could live anywhere — so places like Orlando, FL started seeing a huge influx of people trying to escape high tax cities and states in favor of the no income tax and lower property value states. When you have this huge influx of people, there aren’t enough properties to go around so the ones available inflate in value. Builders couldn’t and indeed wouldn’t increase construction, remembering 2008, and they were indeed benefitting from the inflation themselves. Locals who now were being priced out of the sellers market now had to contend with a scarcity of rental properties, which also went up in price quickly. This has been a two year phenomenon — which I didn’t think back in summer of 2020 would happen at all, I thought the opposite as I believed people would hunker down instead of migrating out. Once inflation hit the 8–10% mark this spring, the Fed reacted, leading to…
* Prime Lending Rate increases — the quickest increases in history. Prime Rate has gone from near zero in March 2022 to 2.4% in July, with the promise of another 0.75% increase in Sept 2022. This is most certainly the final move that can be made, with the Fed promising to continue raising rates until inflation drops from the present ~8% YoY to the 3% target set.

Impacts of prime rate increases take time to be felt in the markets — usually 2–3 quarters or 6–9 months in consumer time, but with the rate of increase in the last four months and to continue through end of year, the hope for a “soft landing” of the economy is now just a dream. This will, if it hasn’t already as GDP has been negative the last two quarters, drive us into recession by end of year. The cost of borrowing — and this includes charges on credit cards, home equity loans, mortgages, car loans, etc… is going up significantly. Demand for non-essential goods like new cars, new homes, etc… will go down, meaning manufacturing will reduce output, which means companies will reduce their workforces through layoffs/terminations, which means less money for people to go out to restaurants, concerts, sporting events, etc… and that will drive us into a pretty darn deep recession…

Here is the concluding paragraph of my essay — how might this affect you?

For the past 18 months, people have had the advantage of scarcity of talent to the number of jobs available to drive their salaries up. The Fed sees this as a prime driver for inflation, so therefore if people start losing jobs and there are fewer jobs around increasing competition for the jobs instead of employers struggling to find people — salaries will flatten or go down. People wont quit their jobs to go to higher paying jobs if it’s not as certain they will find one, or if that role wont exist beyond today. Already, big employers in the tech sector have closed open headcount for new people and frozen hiring anticipating a big drawdown or a big downturn in revenues. People who signed and accepted new jobs are finding those jobs have been eliminated even before they get to sit in the chair — unemployment is starting to slowly tick up, with the number of jobless going back to 3.7% for the first time in a long while. Yes this has been one of the longest periods of job growth, but it simply got us back to pre-pandemic levels, which because of the situation and competition to get back to that level and that productivity provided workers with the opportunity for wage growth for the first time in decades — but was it truly wage growth as inflation exceeded the increase in salaries by some 2–3%? For those who stayed in their jobs the result actually was a stagflation as even cost of living increases that have been at most 3% for decades meant that their take home pay decreased by at least 5–6% assuming they owned their property or were in rent controlled units this entire time.

Put this together for yourselves — reduction in forces for employers, more competition for existing jobs, no salary increases that are normally associated with changing jobs, rising costs of food, utilities, gasoline, rent, mortgages…

It’s going to be a pretty harsh 18–24 months coming up for most of us in the 99%. Buckle down and strap in for a hard ride ahead.

Please Note: Nowhere in this article of mine (okay, well in one paragraph I might have mentioned it) did I really bring up politics or specific names in a way that was personally vindictive or partisan. Every item mentioned, even the ones where I was personally affected by the legislation, is based on fact that can be proven out easily. Given that fact, I am preemptively stating here that there is no reason to personally attack me or accuse me of any partisan affiliations — particularly since I am a centrist who is pretty horrified by positions being taken by those at the extremes on all polarities. I do have a prejudice against stupid people, especially those who inflate their own intelligence and worth, so just as I haven’t invoked any inflammatory invective here to provoke anyone — respect that and keep to the facts, not false flag propaganda.