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2013 Economic Predictions Revisited

It’s time for the mid-year audit of my 2013 economic predictions. I learned from last year and throttled back a little this year. While luminaries like Marc Faber predicted a great economic collapse in 2013, I decided the government has a lot of energy to keep powering through a bad plan. It would be almost better if things did collapse so we could learn our lessons and start the actual rebuild; but government isn’t going to learn anything, and its ability to ease the economic pain is sufficient to keep many believing the economy is is some kind of recovery mode.

That is, in essence, what I said at the beginning of the year, and six months I hold to it. Republicans and Democrats are still caught in exactly the same foray while nothing really gets much better. Obama has as much vision as muddy goggles, and Republicans would rather make sure that anything he tries doesn’t succeed than actually do something to save the country. Belief in trickle-down economics maintains its religious fervor. Never mind that the results after a quarter century are obvious. The queen banker is very, very fat. Too fat to fall. One percent of the hive gathers around. These are the queen’s guards – the politicians and Wall Street wonders who are too fat to fly. They are  dripping with honey brought in by the other 99% who are drones. The drones, on the other hand, have tattered wings, but they keep letting the queen’s guards have all the honey breaks. They say, “Please continue to give yourself huge breaks on the honey tax so that you, the worthy ones, can have more … so that we can hope some of your honey will drip upon us. We wish for you to succeed in order to feed our dreams that we may someday be as fat with honey as you.” They live for a dream they never experience; but seeing that some do givens them hope that they may, too.

If there were another banking collapse, we’d bail out the same banks all over again, even though it accomplished nothing the first time … as would be obvious by the fact that we had a second time so soon after the last bailouts. So, the citizens of the country learn nothing. They are cast in the Democrat and Republican divisions.

 

My economic predictions at the start of 2013

The leaders of the world would continue to believe they could resurrect the dinosaur economy by trying to pump it up with debt. It is what worked before and what worked before that, so it is all they know, and all they’ll try. They will do all they can to save the economy through low interest rates, designed to entice people to to buy homes and take on debt again.

 

In January, I said,

Since quantitative easing has never righted the situation for good, it should be evident that is nothing more than a prop … a crutch…. I have said from the time the first quantitative easing was promised by the Fed, that it would fail to have any lasting result, and each round has failed as soon as it stopped…. So, I predict the dinosaur economy I have written about will continue to breathe awhile longer, but this kind of economy will never again thrive.

 

And, so, it hasn’t. It is flatlining right now. It is doing exactly as I predicted at the start of 2013. The second the Fed breathes a word of backing off on the Q.E. accelerator, the economy begins to stall. What appeared to have been gained begins to roll back at the mere hint of easing the Easing. The past month has seen interest rates escalate and the stock market falter all because Ben Bernanke said there was a slight chance that Q.E. III could begin to taper sometime this year.

What we have seen in recent years is not a recovery at all. It merely the intoxicating effect of trillions of dollars mainlined into banks for free. It lasts as long as the drug lasts and is not, in the least, sustainable. Time and again, over the last couple of years, we have seen the Fed start to back away from Quantitative Easing and immediately seen the economy go right back into decline. Take the patient off the feeding tubes, and he begins to die.

So, my first 2013 economic prediction was that we’re going to live with this half life we have for some time because “No one is willing to give up the candy of newly minted money.” That restricts the Federal Reserve’s ability to stop creating the flood of new money because the illusion of recovery is over when they do. Thus, there will be …

 

No spectacular end in site for the economy in 2013

Nouriel Roubini, and Jim Rogers also predicted an economic collapse in 2013. The three parties mentioned all believed it would be triggered by the “fiscal cliff” we would slide off of at the start of the year. I believe they are right that greater economic collapse is coming, but I did not believe their timing. Instead, I predicted, “we are more apt to see a long and worsening economic malaise than an imminent crash.” I still think that’s the smartest bet on the table.

I noted that the Fed will continue Q.E. until the job market recovers and that job market had faltered every time the Fed backed away from the Quantitative Easing it had been doing:

 

I have believed and said for years now that Q.E. will always fail to bring us out of this Great Recession, no matter how many times it is tried because it is the wrong solution. So, the Fed will hit its end limit, and it’s repeat failures to accomplish anything that sustains itself are solid evidence that I am right.

 

I think people favor a spectacular end over a long malaise toward inevitable death. I know I do. It’s not just the drama of it, but who wants the bad drawn out. In this case, though, the banks and governments that work together in nearly fascist cooperation have a lot of power and a lot of incentive to keep sustaining the economy that brought them great wealth.

We are out of recession only because quantitative easing continues at a huge level. As said above, that locks the Fed into continuing it. They may try to taper it, but when they do the results will cause them to accelerate it again. Another reason the Fed is stuck buying U.S. debt is that the U.S. government would have to start paying higher interest to attract enough buyers, and it has a whole lot more debt to pay interest on now than it did before the Great Recession. The Fed is already acting as the United States’ funder of last resort. Others have left the table. So, if the Fed backs away from Q.E., interest rates on the national debt will climb. The exception would be if Europe falls or other great economies fall, so that money flees those countries and takes even a faulty refuge in buying U.S. bonds over no refuge at all.

There is a high chance that failure elsewhere will keep the U.S. government from having to pay high interest on its towering debt:

 

My second economic prediction for 2013

I stated that the the next decline — the second major dip of the Great Recession — would be seen first and foremost in Europe. If there is a crash, it will begin there, where the banking system is most fractured and independent states are less cohesive than the United States. I said that governments will not change their misguided courses, and they certainly haven’t. They are all still desperately trying to make the solutions of the last five years work. Good luck with that.

We saw the first serious ruptures this year in Cyprus. The European economy continues to slide deeper into recession all across the E.U., as I said it would. Even Germany is sliding into recession. The decline of Europe will negatively impact the U.S. economy, yet will help sustain comparatively lower interest on U.S. debt if the Fed does try backing out of Q.E.

 

2013 predictions for the Iranian reaction

While the New York Times, at the end of last year, was saying there were signs Iran was beginning to concede on nuclear regulation, I considered The Times “surprisingly naive.” I said Iran will continue its course. It has, and it will, even with a more moderate president.

 

Islamic prophecy teaches that the 12th Imam will return and set up his global Islamic caliphate when the followers of Islam are engaged in a holy war against the Jews. Naturally, they need that to be a war they can win. For a believer of such prophecies, the religious hope of a global Islamic caliphate clearly outweighs what would be regarded as the righteous suffering of one nation in order to bring that long-aticipated event about.

 

People need to realize that Iran’s move toward nuclear weaponry is religiously driven, not politically or economically. Iran is far more interested in a grand destiny, given to it by Allah, than it it is in forever towing the line to keep the U.S. happy. I ventured the following at the start of the year, and I think it is still the most likely scenario:

 

2013 is almost certain to be the year when war with Iran does happen because the president of the United States has stated emphatically he will not allow negotiations with Iran to extend beyond 2013.

 

The election of someone believed to be moderate (compared to Ahmadinejad) is giving hope to some that Iran will change course — probably the same some who worked at the New York Times when it thought Iran’s conversion of some of its nuclear material to medical spoke of a political conversion in Iran’s drive for nuclear military strength. The hope people see in having a somewhat moderate president coming online will give nuclear negotiations a little more life, but Iran isn’t going to capitulate to the United State’s demands.

(If you’re new to the site and want to read more about the prophetic beliefs that guide Iran’s top leaders, read “THE IRANIUM REACTION: Is Jihad Rising?“)

Finally, I said that war with Iran could be a trigger that would cause more rapid economic collapse than the slow malaise I described above.

 

In conclusion about my 2013 economic predictions

While war or some other massive event could bring rapid economic collapse, I still think the most likely scenario is continued economic malaise — long, slow death of an economy that never gets itself off the ground again without continuous life-support. Expect economic decline to malinger. Expect the government and the Fed to struggle their best to keep pumping the economy along at its present laggardly pace.

War with Iran would be a shock to the system, but not as much of a shock as it would have been, had it broken out when I first started writing about the Great Recession. The U.S. has found a new and vast source of oil and has begun tapping it. We’ve had time to mitigate the possibility of Iran blocking oil in the Persian Gulf. There’s a chance we could weather such an event better than most of the developed world; but we’d certainly feel its impact.

Every possible effort to keep the bankers rich and to save the banks that are too big to fail by merging them with others to make them bigger still, to reinflate the dollar, to lure consumers to buy things on credit … will be employed. We will not take the remedial action that would avoid another economic plague like the present one by dividing large banks into organizations that are no longer too big to fail because we are addicted to bigness. We will not stop the tax breaks for rich bankers and brokers. They will continue to keep a lower capital-gains tax rate. They make all their money off of capital gians, not from their salaries like the rest of us poor dopes, so those gains will continue to be sheltered by a government that favors the wealthy as a path to creating jobs for the rest of us by giving them better tax rates.

Saving banks at all costs will continue to be the general drift of government. A spectacular collapse into financial ruin would have a lot more spectacle about which I could speculate and cash in on with exciting articles, but I’m keeping my money on continued government and central-bank efforts to revive the dinosaur economy.

I predicted more of the same for 2013. That’s what we’ve had, and that’s what we’ll continue to get.

 

The End of Ethics and A Way Back: How To Fix A Fundamentally Broken Global Financial System

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