Did you like this post? Subscribe to my Substack now for additional insights and content.
It's time to face the facts: a recession is here. Not “officially,” of course — the NBER would need to provide a ton of highly revised and finalized macroeconomic data before it could publicly declare that fact — but “technically,” and in a widely felt way, a recession is here.
The first quarter of 2022 marked the first time this cycle (i.e. the cycle that began after the mini-recession caused by the COVID pandemic) that real GDP was negative, and only the third (but most significant) negative quarter since the end of the Great Recession in 2008 (excluding the COVID catastrophe).
Add to that the fact that the Fed itself is forecasting a second negative growth rate in the second quarter of 2022, and it's becoming pretty clear that the economy is in the midst of a major downturn that's only going to get worse as the impact of each major headwind becomes fully realized.
The data visualization below (click to see a larger version) shows the percentage change in real GDP from the previous quarter (blue on the left axis), the Atlanta Fed's GDPNow real GDP annualized rate estimate (red on the left axis), and the Chicago Fed's key subcomponent of GDP, Brave Butters Kelly (BBKI) (green on the right axis): In summary, real GDP actually contracted 1.6% in the first quarter from the previous quarter, and while the Fed is currently forecasting a -2.0% annualized contraction in GDP, one of the Fed's high-frequency models is forecasting it to be almost -3.0% going forward.
The economy is currently battling rising consumer prices due to general monetary inflation fueled by the Fed’s own “easy money” policies over the past 13+ years, skyrocketing food and energy costs with notable product shortages, an ongoing stock market crash with an endgame of collapse looming, a rapidly deteriorating domestic housing market made vulnerable by speculation and loose lending and traumatized by a sudden interest rate reversal, global uncertainty due to the now obvious quagmire of the Ukraine war, and stalled supply chains with a China unwilling or unable to return to normal order post-COVID.
This is a challenge tough enough for even the most capable government and economic system to handle, but the current “leadership” seems so woefully underpowered that it can't even mount the most modest and effective response to even one of these many problems.
With all this gloom and pessimism spreading, where do we go from here? The answer is quite simply catastrophe, or in other words, a decline. And not just a slight decline, but one that will continue to decline beyond 2008 as the real facts finally catch up with the Fed's economic fiction and the real returns on the terrible, misguided investments that were the solution to the Great Financial Crisis turn negative.
It is now recognized that the reckless policy response by the Federal Reserve and the Federal Government after the Great Recession of 2008 of pumping endless amounts of money, provisioning and support in an attempt to simply “postpone the problem” and soften the blow to vulnerable groups at the time came at a great cost to the wealthy who are totally FUBAR today, and a “real great recession” is looming.
However, this “catastrophe” does not necessarily represent only misery and gloom.
With radical “creative destruction” ravaging an economic system that is in a bind, with no way out and no way forward other than through the pain, a grand economic liquidation would offer enormous opportunity.
Businesses will fail, families will go bankrupt, paper wealth will evaporate into memory, and the speculation fueled by the craze for “easy money” will disappear, while local, state, and federal governments will be severely constrained and will be unable to do much more than try to keep the peace.
It's a bleak outlook, to be sure, but as famous Stoic philosopher Seneca the Younger said, “Nothing lasts forever, very little lasts long, and everything is subject to some form of decay. Moreover, everything that begins must come to an end.” Or, as Semisonic recently put it, more optimistically, “Every new beginning comes from the end of another beginning.”