Depression, Stagflation, Stag-Depress-Flation

The United States suffered through a deflationary depression in the 1930s. Stock prices crashed, currency in circulation declined, commodity and real estate prices fell hard and human misery prevailed.

President Roosevelt revalued gold from $20.67 to $35.00 per ounce in 1933 – a substantial devaluation of the dollar. Make-work and government spending programs were implemented. War followed the depression.

Then the United States suffered through the “stagflation” of the 1970s. The economy stagnated and inflation rose to previously unheard of levels. The Vietnam war, inflation and social protests dominated the news, gold shot upward from $42.00 to over $800 per ounce and the dollar bought much less. Government spent massively on the Vietnam War and social programs.

 

Those two eras had a number of commonalities – war, more government programs, excessive government spending, social unrest, and escalating gold prices.

Both were periods of weak or negative economic growth. The 1930s were deflationary and the 1970s were inflationary.

Stag-Depress-Flation of 2017 – 2025 might be next:

 

How and why? Everything is wonderful – we have new DJIA highs and a new President. Yes, but:

  • Official National Debt is nearly $20 Trillion, an outrageous sum. Corporate and personal debt, including mortgages, credit card debt, auto loans and student loans are huge and difficult or impossible to pay.
  • 95 million Americans are without jobs but are not included in the calculations so we are told the official unemployment rate is low.
  • Most people live paycheck to paycheck and have little savings and minimal retirement funds.
  • Interest rates peaked in the early 1980s and declined until last August. A 35 year trend that has reversed suggests interest rates will increase for years or perhaps decades. Those increasing interest rates portend bankruptcies, declining corporate profits, higher unemployment, derivatives crash, and increasingly squeezed Americans overloaded by excessive debt, even if they retain jobs.
  • Higher interest rates will weaken the real estate market – already happening – and most certainly will hurt the refi market – already happening. The auto market will suffer – already happening.

CONCLUSIONS:

 

  • Economically the U. S. is in trouble. We have far too much debt, too many regulations, a deeply entrenched establishment taking more than their share and massive but ignored unemployment.
  • Social mood is deeply divided. Replay the SAG awards for a sample, or look at the number of protests in the past month.
  • The country and populace are divided. The “left coast” and Hollywood are convinced that nothing good can come from a Trump Presidency, while “flyover America” rejoices and traditional media outlets fan the flames of anger, resentment and betrayal. Eight years of disgust with President Bush begat eight years of disgust with President Obama which begat the President Trump era. The country is more polarized than at any time since the anti-Vietnam War marches in the streets of America.

Another example of a divided country is the picture and comment shown below.

  • The Fed deeply fears deflation because the risk of an economic crash is high, tax revenues decline during deflationary episodes, and everything leveraged with debt is vulnerable.
  • Expect the Fed to do whatever is necessary to increase inflation, “print currency,” promote QE, and more. Currency in circulation will increase rapidly.
  • As currency in circulation increases, consumer prices rise. Stocks are already overvalued, bonds are declining (interest rates rising) so expect the newly created fiat currencies to flow into commodities. Prices will increase in commodities, gold and silver, as occurred in the 1970s.
  • Hemmingway said, “The first panacea for a mismanaged nation is inflation of the currency; the second is war.” Consumer price inflation – never mind the official numbers – is here and increasing. Next is more war.
  • Stagflation: Too much debt is a drag on the economy. Rising interest rates suggest bankruptcies and declining earnings – hence minimal or no growth. This is the stagflation part of the scenario.
  • Depression is an extended period of negative or low growth, such as in the U. S. economy since 2008. Many believe the U. S. entered the “Greater Depression” and never emerged.
  • Inflation: The military believes that war is good for the economy. The previous President, who won a Nobel Peace Prize, dropped 26,171 bombs on foreign nations during 2016. Expect more war. Consumer price inflation always follows war.
  • Expect much more inflation, like the 1970s and worse, as government and the Fed “stimulate” the economy with currency printing, QE, war, and spending. Congress likes spending projects and wars. The Fed likes devaluation of the dollar and inflation of the currency. The dollar has lost, compared to gold, over 98% of its value since 1913. Expect further devaluation of the dollar.
  • President Trump may be wonderful or the worst, but can he fix 100 years of mismanagement and corruption?
  • Expect Stag-Depress-Flation in the coming years.
  • Expect much higher gold and silver prices in upcoming years.

Gary Christenson

The Deviant Investor

8 thoughts on “Depression, Stagflation, Stag-Depress-Flation

  1. I think people often do not look at the “Labor Force” as a group of people that earn enough money when they work each week, to support themselves and their family (if they have one). 55 years ago, the average High School graduate could easily find employment with at least a 40 hour work week, in many different fields of work. The minimum wage would support an individual each week, with a little bit left over at the end of the week, again, based on a 40 hour work week.
    Fast forward 55 years. The minimum wage is worthless to survive on these days, because the majority of part time jobs are only 20 hours a week and that is not a sustainable wage to live on their own and pay their own way. Because of that fact, a very large share of minimum wage workers either live at home still or combine wages between two or more workers to rent a low rent Apt. or home (also a rare find).
    All of that was simple basic survival costs. It has nothing in their budgets to cover medical or dental expenses when they arise.
    In 55 years, a predominately Democratically controlled country has allowed immigrants to move in and take jobs our graduating classes used to rely on to get started in lives of their own. They have turned our country into a welfare nation, promoting the ideals that the government can give them more by going on welfare and having children, than they can make themselves with a job on their own. They have promoted that Free is better, free food, free rent, free electricity & gas, free phones, free transportation and free medical. So, if you don’t work at at, vote for Democrats, you get a free ride in life on the tax payers dollars. If you do work, then the same Democrats will punish you by making you pay back what you were given for free. I keep saying Democrats because for the past 55 years, these are the people that pushed and made these dramatic changes for our youth to get into the patterns of self sustaining livelyhoods. In the past 55 years, Republicans never really got with a program to reverse the damage done and thus, nothing was done or changed by them. Now we have a Republican who is ready to put our nation back on course to putting Americans back into the work force, off of welfare and out of Mommy and Daddy’s house and out on their own.
    22 years ago, President Bill Clinton addressed Congress and received full support from both Democrats and Republicans to revamp our immigration problems and policies, but it was one of those sound good ideas that was never implemented, and subsequently, it evolved into the mess that it is now.
    So now we have teenagers and up to the ages of 30’s & 40’s (many of them) in support of illegal immigration based on the very basic and simple knowledge that we are a nation of immigrants. That is a TRUE statement. However, we are also a nation of LAWS to protect the LEGAL citizens of our nation. The ones that followed all the proceedures under our laws to become a bonafide citizen that swears an oath to uphold our laws. So, because the younger supporters of illegal immigration, and their lack of education in the history of how our immigration system works, decide that they, by their sheer numbers can change the policies that are controlled by existing laws without punity.
    We as a whole country, cannot fix immigrants problems in their country, by bringing them into our country. We as a nation cannot support these immigrants financially when we already have many needy American Families, Homeless people and Homeless and wounded Veterans in our country. Think about this: Homelessness has steadily increased since the end of the Vietnam war. Not one President has been able to change or reverse that problem since it started.
    I think if any of these protesters wanting to bring immigrants in without checking their backgrounds, knew a person, friend, classmate(s) or family that were homeless or needed assistance and were actually a friend of theirs, why would they want people allowed into our country and take away that support they need to get a lift up themselves?
    Unless each protester is paying taxes INTO the system in excess of $5K or unless they all start a Go-fund-them account and be able to support them outside of the tax payers monies going into our government, I think they might want to be a lot more careful of what they say and to who. Protesting does not fix the problem.



  2. Gary,

    You state that “95 million Americans are without jobs but are not included in the calculations”. You are obviously referring to the 95 million who are “not in the labor force” that gets reported each month. You seem to mistakenly believe that these people are unemployed and should be included in the unemployment rate when in fact most of them are not unemployed. I have seen many others make this mistake. Most of those 95 million are retired persons, full-time high school and college students, disabled persons and stay-at-home moms.

    I am going to go into some detail here about this subject so hopefully you will get a clear picture. Now there are about 160 million people in the “civilian labor force” category. This category consists of both employed and unemployed persons. Out of the 160 million people in the civilian labor, there are about 15 million people who are unemployed (about 7.5 million are completely unemployed while the remaining 7.5 million work part-time but want full-time work). The remaining 145 million people of the 160 million in the civilian labor force are employed (about 125 million of them work full-time while the remaining 20 million work part-time but do not want to work full-time because most of them are retirees or are school students or they have a disability). So we have about 160 million people in the civilian labor force of which about 145 million are employed and about 15 million are unemployed. This comes out to be a 9.4% unemployment rate. This is called the U-6 unemployment rate which is the government’s broadest measure of unemployment.

    Now there is another category called “not in the labor force” in which there are about 95 million people. These people are neither employed or unemployed according to the government. These are people age 16 years or older who do not work nor do most of them even want a job and for good reasons. About 38 million of them are retired persons. About 22 million are disabled persons, either permanently or temporarily. About 15 million are full-time high school or college students and about 10 million people, mostly women, stay at home because of family responsibilities. These are estimates based on information that I got from numerous websites. So about 85 million of the 95 million are not unemployed workers who can’t get jobs as some in the ALT media believe. As far as the other 10 million that are “not in the labor force” for some other reason, I am not sure who they all are but at least some of them are long-term discouraged workers who are able and available to work. They are called long-term discouraged workers because they have not worked in over a year and are not currently looking for work. Some are homeless. The government no longer counts them as being unemployed in the labor force but they are wrong not to count them. The government counts discouraged workers (meaning short-term discouraged workers) in the U-6 unemployment rate so why not also count long-term discouraged workers? If we assume that all of those estimated 10 million are long-term discouraged workers and we add them into the labor force as being unemployed then we get 170 million that are in the labor force of which 145 million are employed and 25 million are unemployed. This gives us an unemployment rate of about 15%. John Williams of Shadow Stats however states the unemployment rate is about 23%. He takes the U-6 unemployment rate, currently at 9.4%, and adds to it his estimate of long-term discourage workers. However there are several reasons why I think his unemployment rate is too high and it is probably closer to that 15%.

    Then you have people like David Stockman counting everyone 16 years and older who does not work, no matter what the reason even if they are in a coma, as being unemployed and coming up with a ridiculous unemployment rate of over 40%. You do not calculate the unemployment rate by including people who are unable or unavailable to work. Retired persons, school students, housewives and disabled persons have never been included in calculating the unemployment rate in the past so why are people trying to include them today?

    Lastly there is a third category of people which I will call the “can’t work” category which totals about 70 million people. This category consists of 65 million children who are under the age of 16. The other 5 million people are active military personnel and institutionalized persons such as inmates. If you add up the 160 million in the “civilian labor force” category, the 95 million “not in the labor force” category and the 70 million in the “can’t work” category, you get a total of 325 million people which is the estimated population of the U.S.



  3. WoW! You hit the Bulls-eye of the Bulls Eye. I feel so unprepared for “the long haul” and years of stressful change that is coming. Although I’m debt free, your article has caused me to refocus on hardening my finances and the security of my home and property…..

    Bill


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