Richard Duncan: Tens of Millions Will Lose Their Jobs

Depressed Businessman
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Not much action in stocks…or gold. So, let’s go back and see what we’ve figured out recently. For one thing: The middle class can no longer afford a middle-class lifestyle.

We’ve also confronted an awkward truth: America is more of an oligarchy than a democracy. A recent university study found that Washington often snubs the will of the democratic majority to serve the desires of the dirty dealing special interest groups.

And we coined a new word — ‘poligarchs’ — for the teeming masses who enable it.

Former World Bank economist and author Richard Duncan came to visit yesterday. You may recall Duncan has developed an interesting theory about how excess liquidity affects asset markets:

Milton Friedman said it was the supply of money that mattered. But he based that view on his analysis of the Great Depression. He was right. But about 40 years ago, credit money started to replace real money.

Now, it’s not the supply of currency that matters. It’s the supply of credit.

And here, we simplify Duncan’s conclusion: As long as credit is increasing at a healthy rate, markets and GDP go up. When they don’t increase, expect recession and bear markets.

Credit expansion began when Ike Eisenhower was still on the golf course. It has been expanding ever since, with more than 50 times as much today as back then. And today, finance and industry — not to mention asset prices — depend on it as though it were cheap beer and cable TV. Cut it off, and the economy goes into a gloomy funk. Says Duncan:

The Fed knows credit must expand, or we have a depression. And today, debt levels are so high that a depression would be catastrophic. The disaster would be worldwide, not just in the US. And people would die.

Because a depression in the US would mean tens of millions… maybe hundreds of millions… of people in China and Southeast Asia would lose their jobs. Businesses would go broke. Governments would go broke. People living at the margin – with no savings – would soon be desperate. I don’t think our civilization would survive.

That’s why the Fed will not allow a real credit contraction.

For the moment, the sun still shines and credit is still expanding. Asset prices are still going up. But all that is set to change. Duncan:

In the third quarter, excess liquidity will fall sharply. We should see much more volatility in asset prices. My guess is that before the end of the year we’ll see a disturbing drop in the stock market. The Fed will pause… interrupting its ‘taper’ program. Then, depending on how markets react, it will probably hint at another QE program for 2015. That should send markets back up.

Duncan sees the situation much as we do. Up to a point. He sees the dependence on ever-expanding debt. He sees the catastrophe that comes when debt expansion stops. He expects, as we do, that the Fed will respond with more QE.

All right so far. But he lacks our deep cynicism and insensitivity. He sees the tunnel, but he thinks he sees a flicker of light at the end of it.

Governments can still borrow…and still expand credit. One way or another, they are going to try to keep the credit expansion going. So, instead of throwing money away, they might as well invest in things that might expand future output — new technology, new infrastructure, and new industries.

Ah…but that ignores the oligarchs, poligarchs and the nature of government. Government’s primary concern is not to protect its citizens or their economy. Instead, it aims to transfer more power, status, and wealth to the elite who control it (the oligarchs).

And to do that, it must keep the masses (the poligarchs) sedated. As Charles Hugh Smith, chief writer at OfTwoMinds.com, explains:

‘The State has two core mandates: enforce quasi-monopolies and cartels for private capital, and satisfy enough of the citizenry’s demands for more benefits to maintain social stability. If the State fails to maintain monopolistic cartels, profit margins plummet and capital is unable to maintain its spending on investment and labor. Simply put, the economy tanks as profits, investment and growth all stagnate. If the State fails to satisfy enough of the citizenry’s demands, it risks social instability.’

The feds will be the borrowers of last resort. But the money won’t be invested in a brighter future. It will be pilfered and squandered.

And then what?

Tune in tomorrow…

Regards,

Bill Bonner
for The Daily Reckoning Australia

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Bill Bonner

Bill Bonner

Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
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2 Comments on "Richard Duncan: Tens of Millions Will Lose Their Jobs"

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slewie the pi-rat
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gee. looks like Duncan’s prophesy is for some systemic trouble just before the election. same script as last election cycle, right down to CH Smith’s ‘analyses’. weird. perhaps Central Planning is a tad more ubiquitous than some of the more plodding ‘retail’ punditry may be aware. however, if saving the world from its own follies once or twice each decade is Central’s scripted music, the partisan has no choice but to play the tune or give up his/her seat in the orchestra to a fiddler, a drummer, or a flautist who will. but the score lacks justice… the audience keeps… Read more »
Rando
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Wow… this guy pulls no punches, but he’s spot on. This ‘man-made’ financial disaster will be horrific enough on its own, but add what our Creator may have in store for us, and these economic woes could end up being a side-show.
I believe we’ll see Isaiah 24:18-23 by the end of this Blood Moon tetrad. Seek protection with our Savior, as there will be no other refuge.

wpDiscuz
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