Waiting For The Other Shoe To Drop

Well, here we are waiting for the other shoe to drop, which is an English idiom meaning we're waiting for something to happen, usually something bad. This definition comes from the always useful Urban Dictionary.

To await an event that is expected to happen, due to being causally linked to another event that has already been observed. Gets its origin from the joke in the example.

A guest who checked into an inn one night was warned to be quiet because the guest in the room next to his was a light sleeper. As he undressed for bed, he dropped one shoe, which, sure enough, awakened the other guest. He managed to get the other shoe off in silence, and got into bed. An hour later, he heard a pounding on the wall and a shout: "When are you going to drop the other shoe?" Thus the term "waiting for the other shoe to drop."

What are we waiting for? Another global economic crisis and another recession in the United States. What are the causes which create our reasonable expectation that we will have a crisis? That depends. Do we want to talk about proximate causes? Do we want to talk about ultimate (historical) causes? Or do we want to talk about very deep ultimate (natural) causes?

• The Proximate Cause — structural imbalances in the world economy, especially in balance sheets, have not been addressed since the financial crisis in late 2008. What we have mostly seen since then amounts to an attempt by governments and central bankers to fix solvency (debt) problems through the creation of more debt. All kinds of debt are far higher than they were in the 20th century, excluding the temporary debt accrued to fight World War II. This includes both private (financial, household, non-financial corporate) and public (government) debt.

• The Ultimate (Historical) Causes — This is the Empire's decline, trends which have been some 30 years in the making. In America, these trends include debt accumulation, health care costs, college tuition costs, loss of manufacturing jobs, wealth & income inequality, general cultural impoverishment, decaying infrastructure, loss of opportunity (upward mobility), Imperial militarism, and other destructive tendencies. Obviously some of these trends occurred in most of the world's "advanced" economies, including Europe and Japan.

• The Very Deep Ultimate (Natural) Causes — This is of course a reference to Human Nature. All human successes, no matter how brightly they shine in the present, are merely temporary. We can move from Dubuque to Boise, but we can not get away from ourselves. Failure and breakdown are baked into the cake. I'll quote the philosopher Immanuel Kant, and leave it at that—

  Out of the crooked timber of humanity, no straight thing was ever made.

So now we are waiting for the other shoe to drop. Any disruptive economic dislocation that happens now will make an already bad situation very much worse. How bad is it?

In an otherwise worthless column called Washington vs. The Middle Class, MSN Money reporter Anthony Mirhaydari cited some statistics gathered by economist David Rosenberg, who I have sometimes quoted on this blog. The list is incomplete, but indicative of where we stand. Here they are—

• Forty-five million Americans (one in seven) are on food stamps.
• One in seven is unemployed or underemployed.
• The percentage of those out of work defined as long-term unemployed is the highest (42%) since the Great Depression.
• Fifty-four percent of college graduates younger than 25 are unemployed or underemployed.
• Forty-seven percent of Americans receive some form of government assistance.
• Employment-to-population ratio for 25- to 54-year-olds is now 75.7%, lower than when the recession "ended" in June 2009.
• There are 7.7 million fewer full-time workers now than before the recession, and 3.3 million more part-time workers.
• Eight million people have left the labor force since the recession "ended" — adding those back in would put the unemployment rate at 12% instead of 8.2%.
• The number of unemployed looking for work for at least 27 weeks jumped 310,000 in May, the sharpest increase in a year.
• Just 14% of high-school graduates believe they will have a more successful financial future than their parents.
• The male unemployment rate for ages 16 to 19 is 27%; for ages 20 to 24, it is 13%.
• Because of structural problems such as negative home equity (which keeps people from moving for work) and skills erosion (from long-term unemployment), UBS economists estimate that the economy's natural unemployment rate has increased from 5.7% before the recession to 8.6% now. This acts as a speed limit on potential economic growth.
• Between 2007 and 2010, median family net worth fell nearly 40%, while median inflation-adjusted incomes before taxes fell nearly 8%.

Therefore it is obvious that another global financial crisis and recession in the United States will make any kind of "normal" life unachievable for millions of Americans over and above those who lives have already been disrupted. This could happen in the near future, maybe even this month or next, although one can never be sure of timing. That's why so many "bearish" investors (e.g. Jim Rogers, Jim Chanos, Gary Shilling, Hugh Hendry) are often too early in their predictions. They know what's going to happen well in advance, but sometimes mistakenly assume the disaster will happen sooner rather than later. Thus they are too early to short whatever market they're playing to make money off the crisis. Regarding timing, crises often occur in the fall.

This is the last in a series of articles I've published over the last two weeks on this subject. Now there is nothing to do but follow developments and wait. I'll move on other things unless events justify new posts on the coming global recession (e.g. such as its official arrival).

I was sad to see that my colleague "Bill Hicks" (obviously a pseudonym) has (temporarily?) suspended publishing his blog The Downward Spiral. From the tenor of his remarks, it appears that he quit in disgust. Naturally it occurred to me to chuck it all in when I saw that, and for many of the same reasons he cites, including his very important yadda, yadda argument—

Greece...yadda, yadda bailouts...yadda, yadda Obama/Romney/Paul/Gingrich/Cain/Bachmann's gonna save us...yadda, yadda lies damn lies and government statistics,...yadda, yadda The Bernanke...yadda, yadda Vampire Squid...yadda yadda muppets...yadda, yadda austerity...yadda, yadda stimulus...yadda, yadda fuck the hell off already

The main difference between Bill and me in this regard is that writing DOTE is still fun for me, but writing the Downward Spiral had become a burden to him. Otherwise I sympathize with his position completely. It is truly disgusting to witness the daily yadda, yadda. Revolting. Deeply offensive. It's enough to make me want to live the life of recluse in a location off the beaten path (and near the ocean) where I can keep my human contact down to a bare minimum. And one day I will do that, and publish for the public indifferently, assuming the intertubes are still up and running at that time. But not right now.

Comments

[MJJP]

I might just put your site in my favorites. This was enjoyable reading.