2015 Economic Predictions

I start the year by ending my blog in fulfillment of my bet, so this will be my last post, even as I lay out my 2015 economic predictions, which I think will be my best to date. Last year, I predicted that the economy would become particularly volatile in the fall — especially the U.S. stock market. That volatility would begin to show, I said, when the Federal Reserve’s quantitative easing ended, even though it would be due in part to the exact set of forces that we see working against the economy right now, and I named what those headwinds buffeting the economy would be.

The key factor, however, would be the end of Q.E., which propped up the failed economy on artificial life support. When the prop was removed, I said the economy under so many global pressures would immediately begin to shudder. Since it shuddered quite heavily some readers may wonder why I’m ending my blog, which I’ll come to. I later said that I thought the U.S. stock market was likely to crash in the fall.

There is in my mind little question that great economic volatility became a true prediction in the fall. Still, the year has ended, and it remains to be seen whether the bouncing around that the economy took this fall is the end of an illusionary of recovery.

The stock market has taken two significant dives, but it hasn’t, at this point, become something I could truly call a “crash,” as in the kind of big plunge that you don’t just rise right back out of. I didn’t bet my blog on the prediction of a likely stock market crash in the fall; but the fact remains that both predictions hang in the balance.

Because the outcome remains unclear, I think it only fair to honor my bet and stop writing my blog unless it should become clear that this fall really did mark the top of the stock market and the beginning of a major fall.

 

Why have I boasted so much about my economic predictions?

 

While I have never hesitated to point out when my predictions were right on this blog — and they almost always were — I have also been totally up front in saying when they were wrong, and I have been slow to declare them right unless it was clear that they were. I think it is not so egotistical to point out when your predictions are right  if you are also equally straight up in stating when they are wrong or unproven. Then what I state one way or the other is more a matter of honest self-evaluation along the journey.

Another reason for pointing out all the times my predictions were right was to poke a stick in the eye of trained economists (which I am not) as they continually missed most of their predictions year after year, including entirely missing the coming of the Great Recession (which I did not). It was intentionally to shame them for doing so poorly in the area of their own expertise.

A third reason that I’ve pointed out whenever my predictions were right is that I usually make them, at least, six months in advance. After half a year, regular readers may easily forget I said a particular thing would be happening. Other readers are new to the site and, so, have no idea I ever predicted the current event that is happening. Both groups will miss seeing the thing I want to stress most — that the event unfolding was a completely foreseeable and, therefore avoidable, event — unless I point out that I did, in fact, predict it.

It’s important to learn that these events can be seen foreseen if people understand the economic fundamentals involved. It is likely that the person who can accurately see what is going to happen in the economy based on forces at play and fundamental flaws in the economy, also knows what it really takes to fix the economy.

I’m not talking here about me being right about every force that I said would be working on the economy but about being right as to which way the economy would turn … particularly when it would go down even when nearly everyone else was saying it would go up. There were also times I said it would not go down when the permabears were saying it would crash.

In fact, I originally started 2014 by saying the fall would be volatile but it would not turn into an all-out economic crash or stock market crash. Later, I upped the anti and went for the stock market crash, and it’s not apparent at year’s end whether that was right or wrong.

My hope has always been that people will ask, “Why do we not see these economic downturns coming when someone else does? Why do we keep saying recovery is right around the corner when it never is? Why did we miss seeing the Great Recession coming in the first place … even when it was right on our horizon?” More importantly, “Why did all our experts miss it?” That’s my hope for my 2015 economic predictions as well.

People will default to assuming they did not see these things coming because they are unknowable unless someone points out that they are knowable. They are predictable. The important realization to be gained is that people don’t see these things coming because the outcomes do not fit their beliefs, theories or wishes. They simply don’t see what they don’t want to see … often because their egos won’t let them.

They are Democrats, or they are Republicans, and they cannot see outside of those boxes because that would mean giving up on the party line. Giving up on the party line means losing your membership in the club, and that means being ridiculed by all the friends you’ve made in the club for no longer believing in the club. It is much more comfortable to belong to a club than to stand on your own and have both major clubs think you’ve been breathing nitrous oxide.

Until we can see clearly past our ideologies, we will never find our way to a vision for a sustainable national and global economy, and we have massive changes to make if we ever want an economy that is strong, vibrant and equitable for all in opportunity to those who are willing to contribute wisely.

So, making predictions is also a way to show that maybe my vision for what the economy needs is right. Maybe it helps me to see how things are actually going to fall. Maybe those who don’t see it fail to see because they look through their own failed ideologies. So, I’m going to lead into this with a recap of my economic prediction for 2014.

 

Recapping my 2014 economic predictions

 

Had I stopped with my original prediction of major volatility by fall of 2014, I probably could say now with credibility before everyone that I was right. That spring prediction, like most made over the years on this blog, was contrary to what most columnists and economists were saying at the time because they are wedded to a flawed understanding of what the economy needs.

Even the forces of volatility that I predicted — the situation with Russian and Ukraine, Japan’s sinking economy, the faltering European economy, the lack of any clear progress with Iran, increased Middle Eastern tensions, and the end of quantitative easing — all continued to build as headwinds, just as I said they would. My prediction was that the global economy would not have the strength to stand up to those forces because it is far from having recovered. It is far from being repaired. It is merely propped up, so the end of Q.E. in the U.S. means the prop falls out and everything gives way under these pressures, revealing that the recovery was a failure.

I was right to suspect, as well, that these growing forces would be joined by some, at that time, unknown surprise event that would tip the balance against any idea that the global economy is recovering. That is almost always how these things work. When you have something enormous in inertia but weak in structure, it usually takes some triggering event to get it to start to fall. It falls because of its own dead weight, but something unexpected pushes it over the edge.

Ebola created a sudden scare at just the time when these other forces ganged up. As a result, the U.S. stock market completely erased all of its annual gains in just about every major index. It didn’t erase those gains because of ebola, but ebola rattled the market far more than it would have if the structure was sound. Suddenly and for several days, all commentators were talking how ebola fear was tipping the balance and asking whether this would be a “correction” or a crash. It looked like adding a stock-market crash to my predictions for the end of the year was going to be the right move.

In reality, the market buckled, but didn’t cave. It has not been the same since, however, and I think that means a significant change occurred. It could be that we’ll look back at a graph of the stock market and see that the final quarter of 2014 marked the top of a market and the volatility of that season marked the first shocks of a crumbling market; but the year has gone by, and I’m going to go by only what is known for now. That’s why I’ll honor my bet and stop posting articles.

I know that major stock market crashes like Black Tuesday in ’29 or Black Monday in the 80’s don’t just run over the cliff. They are always preceded by a massive increase in market volatility. The cliff comes as much as a year after the big spikes of volatility begin. When you’re talking about an enormous engine, it doesn’t lose all of its momentum easily. Before it completely dies, it begins to surge. When a big engine surges, its surges are, in themselves, frightening. It may be that before long we’ll see that is what this fall was all about — that it was the beginning of the end. It’s just not verifiable yet.

We saw that kind of preliminary surging even with the crash of 2008. The Great Recession started with the economy topping out and then stalling and surging ahead again a few times before it went completely over the cliff. Since I already knew that the world’s largest stock market would likely experience several major surges before it goes down, I should have factored that more into my statements about their being a likely “crash” in the fall.

Nevertheless, it hasn’t proven to be all of that yet, and so I have a bet to honor based only on what we know at year’s end. That’s why I am ending the blog to honor my bet; but I’m going to end it by making my 2015 economic predictions. Beyond this, I’ll only write more articles on this blog if, in fact, it turns out that the plunges and surges of 2014’s final quarter were the formation of the market’s top as it lurched its way to the cliff and ultimately died of its own hideous monstrous flaws.

 

My 2015 economic predictions

 

My predictions for 2015 stay the course. I am still as confident of them as I was a year ago and see the same forces building in the same direction.

With that said, not every detail below is likely to happen as predicted. That’s not the point. I’m not working with a crystal ball here nor claiming a direct prophetic line to God. My point in stating which way many things are going is to lay out a trend that will affect the global economy overall and the U.S. economy in particular. A few details going a different way is not going to change the overall trend.

I’m also staying with my central proposition that the ganging up of the following forces is going to stamp out hopes (or illusions) of recovery in economies that are deeply flawed in how they operate. Because of those flaws, they lack the resilience to thrive in such times of upheaval.

 

U.S. Stock Market Crash Predictions

 

Let’s start my economic predictions for 2015 where we ended. One thing that saved the U.S. stock market when quantitative easing reportedly ended this past fall was that Europe’s economy tanked. Euro investors ran for cover in U.S. stocks and bonds, giving a crutch to the U.S. market right when it needed it. That money is likely to stay in the U.S. for awhile and provide some help to the U.S. market over others. That, of course, is secondary to the affect of the Fed’s continued expansion of its balance sheet, which has been the primary crutch throughout these years of the great recession (which I consider ongoing, but masked by and utterly dependent on the Fed’s crutch).

The U.S. stock market is further aided by the fact that the dollar has been increasing in value relative to other currencies, and U.S. stocks are valued in dollars. So, even if U.S. corporate stocks don’t rise, their value overseas, relative to someone’s home currency outside of the U.S., is likely to increase. U.S. stocks can even lose a little in value and still be worth more euros or rubles or rupees in a year than what overseas investors cashed in when they paid for the stocks. So, if your money is made in euros, it looks good to bank them, so to speak, by purchasing dollar-denominated stocks.

This is a a lucky situation for the U.S. that is helping to keep its stock market rising at present, even while other stock markets in the world are struggling. This monetary relativity is another factor that I didn’t consider when saying the U.S. market would fall when the big money from Q.E. ran out in the fall. The failing economies all over the rest of the world dumped more money of refuge into the U.S. market at exactly the same time the Fed implied it was going to stop creating money, and foreign central banks promised to increase their quantitative easing at the same time the Fed ended its. So, free money abounds and continues to inflate the stock market.

That float from outside of the U.S. is something that may keep the U.S. stock market propped up for some time, stalling off what I predicted; but ultimately these U.S. companies are facing a world that is increasingly unable to buy their products. As the hot air goes out of the global economy, everything is going to fold inward, and that will eventually include the U.S., even if it winds up settling on top of the disaster, rather than being the weight that pulls the rest down as happened last time. Already, the Fed’s money printing and the inflow of European money is struggling to keep a top in the market, much less push it to new heights.

While the U.S. stock market may bob along on such outside help, it will certainly be more volatile than it has been in years, which we can already plainly seen by looking at a graph of the Dow or the S&P 500 for the last half of 2014. Because of these outside props, it may be that this market maps out more as a long volatile bear run than as a crash over the cliff — not a straight-down waterfall, but the kind that runs forty-five degrees through narrow gorges and over class-five rapids. The Fed, after all, isn’t going to give up on its unacknowledged goal of propping up the stock market, nor is the flight of money from other nations going to find any truly good sanctuary in the storm. The U.S. simply looks like the best horse on a truck headed to the glue factory.

 

Predicting More EuroCrisis … Again

 

I won’t try to predict Greek elections, but I do think there is a high likelihood Greece will exit the euro, and 2015 is looking like a good bet for that exit; whereas I did not think that would happen at all in 2013 and 2014. The Greek austerity program has a long, long way to go before Greece is out of debt and out of trouble, and it is clear the populace is becoming increasingly restless about shouldering that burden. While Greece may deserve to pay that price because its own internal corruption, lies to the Euro Zone when it entered and socialist/welfare work ethic all helped bring this upon the country, I doubt the Greek populace will prove willing to pay that price. Leaving the euro and writing off all debts owed is a temptation that grows stronger every year that austerity is endured.

While I wouldn’t bet another blog on it (because I don’t have another one to bet), I think Greece will leave the Euro, and I suspect pressure will build high enough in 2015 to make this the year. Even so, the Greek exit won’t be as devastating for Europe as it once would have been. It is not what Greece adds to Europe for economic strength that matters in this equation, but how many financial institutions might fail if they have to write off the huge amounts of money Greece owes them. Enough time has gone by since the crisis first erupted that these institutions now have had a lot of opportunity to reposition themselves, so many will be able to weather that default, but not all. This will add to Europe’s troubles, and Europe cannot easily absorb any more trouble.

I have always said that the euro is ultimately doomed because the economies it serves are so different. In the U.S., one dollar serves all states, too, but there is very little difference between the states compared to the scale of differences that exist between European states. European states are a mixture of iron and clay that cannot bond economically with any strength under a common currency. Tectonic movements exist between the states of Europe, and a single currency is not likely to endure such tensions along the fault lines where those states are pressed together.

In the U.S., most people put their country ahead of their state for their states are only semi-states, not autonomous nations, and they have a common history. It is more important to most people that they are a U.S. citizen than that they are from Oregon or North Carolina. The differences in people and culture are much greater in Europe where people are more inclined to put their own state ahead of the union. The economic abilities and needs of European states are so different that I think the currency is ultimately doomed to being overstressed.

Greece would clearly be better off to cancel all debts and start out fresh, even if that means no one wants to do business with it for awhile. The burden erased from Greek citizens would be enormous and would free them from needing national credit anyway. The very reason bankruptcy exists is so that people are not enslaved for life due to bad economic decisions, and it is inconceivable to me that the Greek people will vote to remain under those chains much longer.

Greece will not single-handedly be the euro’s undoing, but it will be the first major piece of the continental shelf to break away. When that happens in 2015, it will cause the European recession and the flight from European stocks to get worse. The bottom line is that recovery for Europe is a lost concept. However, these problems in Europe will help the U.S. in the short run, as the U.S. economy will continue to be the place of refuge for Europe’s wealthy, but in the long term (2016 and beyond), it has to be bad for the U.S., too, to have such a major market spiral downward. The U.S. might wind up on top of the heap, but King of the Heap isn’t much of a title.

 

2015 Oil Futures

 

Oil will go lower but not for long because it can’t. It is priced now at a point where a lot of production is already going offline because it is no longer profitable. That will decrease the oversupply and cause prices to rise later in 2015. The potential for production to pick back up is easily there as the price goes back up; so the market will find a new equilibrium that balances supply and demand. Given the costs of extraction of oil and gas by fracking, which is the biggest driver in the current over-supply, oil will likely find its most stable price area somewhere between $60 and $80 per barrel with a price around $80 being most likely, but definitely not lower than $60 after the first quarter.

The big fear with oil is that it may cause banking defaults among those institutions heavily invested in new oilfield production. It will also dampen or reverse the economic expansion that is happening in oil shale areas. In just one day CIVEO’s stock (a company that provides temporary housing for oil workers) plunged 52%.

I don’t know any better than anyone else whether that suppression of economic activity and addition of bank failures will be fully offset by the increase in economic activity that comes when consumers and other industries benefit from more spending power due to lower fuel prices.

Oil is the dark horse here because its hard to see what lines this industry will fracture along. Here are some early examples, though, of how the drop in oil prices can cause major breaks and tectonic economic shifts: Billionaire investor Carl Icahn’s investment firm (Icahn Enterprises) was sterling in 2014 … until the drop in oil, which caused a major third-quarter net loss. John Paulson, who made a fortune by his foresight in betting on the housing market collapse of ’08, saw his biggest losses of the year from his oil investments. Paulson took a bath in oil. These were highly profitable institutions with billionaire leaders. The same kind of hit to a major institution in shakier financial condition could bring it down, and then you have that whole domino affect of the to0-big-to-fail problem to worry about all over again.

Which domino will fall first, and will it be large enough to cause major ripples through the U.S. economy? The likelihood of some spectacular crashes is clearly present for 2015.

 

The U.S. Jobs Market

 

The drop in oil prices will result in a loss of jobs in the oil industry (which has fueled job gains for the past two years). It will also cause a drop in businesses that built up around the oil boom towns, such as housing, restaurants and stores in boom towns. Those job losses will offset job gains expected by many in other industries. Those gains are expected because many think the economy is recovering but also because some industries may expand as a result of lower fuel costs, but that expansion will lag way behind the job losses in the oil industry as business expansion tends to move more cautiously than corporate cutting … in part because people don’t know how long the lower oil prices will hold. So, I expect to see a slump in the U.S. jobs market through the first half of the year.

I believe the good news about November’s job gains was due to seasonal hiring more than it was to any enduring improvement of the job market. Already, we’re seeing the numbers turn around a little. I think we’re about to find that the jobs market really isn’t any stronger than it was prior to the recent uptick.

We had a burst of jobs and economic activity heading into the holidays, and that was another thing that helped reverse the stock market’s plunge — some good news right when it was needed. I don’t think the job improvements will hold up because holiday sales were not all that great. I’ve been right at each point during the Great Recession where I said that job increases wouldn’t hold, and I don’t see any reason to think it will be any different this time.

More importantly, there has not been a jobs recovery in the U.S. since the Great Recession began in 2008. All we’ve seen is a lot of people giving up on finding a job and dropping off of the unemployment benefit roles. That creates a statistical improvement that the government likes to report; but, if we measured joblessness in the same way we did in the thirties, unemployment today would be just about as bad as it was during the Great Depression. The government numbers are hugely misleading.

I think holiday sales give a little perspective on the job reality, regardless of what the job numbers in November said. Sure, holiday sales were up 4% year-on-year, but consider that retailers extended hours, doing more Cyber-Monday and earlier Black Friday activity. Then they also cut prices to the point where profits may actually be down for the final quarter of 2014, though volume was up. In addition, the large drop in gas prices timed perfectly to give people more money in their pockets to spend along with a feeling of exhilaration about the low gas prices being here to stay for awhile. Moreover, conservatively priced and heavily discounted items are where buyers spent their money. If sales are only up 4% with all that extra effort and cash saved at the gas pumps, then I’m thinking jobs have very little to do with the 4% improvement in holiday sales.

Even though there was some gain at the end of the year in job statistics, most gains have been in lower-paying jobs than the jobs those same people had prior to the Great Recession. That’s not recovery; it’s mere survival.

 

The Iranium Reaction

 

I have said all along that Iran has no intention of stopping its pursuit of nuclear weapons and that it is only buying time. The recent lengthy extension confirms how little progress is being made after years of talk. It is certainly in line with my perpetual claim that they are just stalling for time.

Iran’s nuclear ambitions are based on religious beliefs held by its religious leaders, and sanctions have not been able to trump Iran’s desire to destroy Israel and bring in the 12th imam. That all sounds strange and conspiratorial to secular Western thinkers, but therein lies the problem with getting people to believe my predictions, especially when it comes to Iran (which hasn’t disappointed my expectations yet): people think others think like them. Iran does not think like people in the West. It seems crazy that they would crash their economy because that runs against self interest. In the Iranian religious mind (and the country is a theocracy) they only need to be valiant and strong in order to bring on the prophesied end. Then they will be rewarded all the more for their sacrifice … just like a suicide bomber.

So, I predict, as I have for a few years with just as much certainty, that Iran will not capitulate to U.S. interests in 2015. It certainly remains far from doing so, considering all the years of talking that have gone on. Iran’s current president has boasted in the past about how he used negotiations to buy time to expand Iran’s nuclear program. Even if Iran does come to an agreement with the West, that will not stop their pursuit of nuclear weapons. The agreement, itself, will be façade. Expect endless stalling after an agreement is reached … IF it is. Whether an agreement is reached will depend on the naiveté of the West.

However, I have no idea whether it will become clear that talks have failed this year because it is in the interest of all sides but Israel, it seems, to drag them out in order to avoid what happens if they do fail — war. We all know it is likely Israel will respond with a military attack on Iran if the talks clearly fail. So, I think a sham deal is more likely than no deal.

Already, the U.S. has been willing to ignore Iran’s breaches of the interim agreement. The Institute for Science and International Security reported that Iran had broken the spirit of the agreement, if not the exact letter, by feeding uranium hexafluoride gas into a research centrifuge at an enrichment facility at the Natanz nuclear site. The U.S. turned a blind eye. In another situation, when  the International Atomic Energy Agency said that Iran had tried to obtain parts for continuing the development of its heavy-water plant that were primarily useable for creating plutonium for nuclear bombs, the U.S. refused to characterize that as cheating, too.

Because of the apparent desire of all parties to drag out talks, rather than admit they have failed, I think a sham deal, like the sham interim deal may be more likely than no deal. It’s hard to say, therefore, what impact Iran will have on the economy in 2015. A sham deal will only buy Iran more time to covertly move toward a nuclear warhead. Iran hangs like the sword of Damocles over the global economy. One doesn’t know when it will drop. My opinion is that it is increasingly likely that the first time we know Iran has a nuclear bomb will be when they use it.

Islamic prophecies state that Islam cannot start the final war against Jews, which Muslims believe must happen for the end-times to arrive; but if Israel starts it by bombing Iran’s reactors, the prophecies state that Islam will finish it and be victorious, and the 12th Imam will begins his reign over a global caliphate. Belief in the victory of a global caliphate run form Iran is a powerful driver, so I’m sure Iran is ready to go to all-out war if Israel does attack it. Fanatical belief in afterlife rewards for extreme actions now propels people to become suicide bombers, and Iran is run by Islamic Fundamentalist fanatics.

The longer the West bargains, the more likely Iran gets the power it needs. It’s like that toy time bomb you toss around a circle in a game, hoping it doesn’t go off in your hands. The longer you toss it, the greater the likelihood is that it will go off each time you catch it. Only this time bomb is real. It could be tossed to Israel on a missile; it could go to Rome on a ship or to the U.S. Iran hates them all.

 

The Middle East Mess

 

Israel’s Prime Minister, Benjamin Netanyahu, looks likely to win Israeli elections again, but who knows if he can put together a coalition government out of Israel’s many factions? I suspect it is most likely he will, and that means the stalemate in the Middle East will continue to get worse, except that the Palestinians won’t let a mere stalemate continue. They will grow increasingly violent.

Netanyahu is clearly not willing to negotiate in any manner that Palestinians will accept. So, his re-election will only make Palestinians more desperate and frustrated, more determined to follow other paths than peace negotiations. At the same time, Jewish Fundamentalists are increasing tensions at the Temple Mount by becoming more forceful in their demands for allowing Jewish religious activity on the Temple Mount.

Palestinians have clearly already increased hostilities on their part in the past year as Mahmoud Abbas has encouraged them to defend the Temple Mount, and Abbas has turned away from negotiations in preference for greater efforts to create a Palestinian state without Israeli consent via outside parties.

At the same time, Netanyahu and Obama clearly do not like each other.  Relations between the two have become almost as frosty as between Obama and Putin. The acrimony has largely been created by Netanyahu sidestepping Obama and slighting him to make his own direct appeals to the U.S. congress and by his decisions to increase construction in areas under contention. Even his longtime friend, John Kerry, seems to be growing weary of him. I believe the Obama administration will grow increasingly impatient with Israel because of how intractable Netanyahu is and because of how he inserts himself in U.S. politics, challenging the president.

At the same time, the new Republican congress will support Netanyahu’s positions and decry Obama’s. It’s their political desire to make Obama look as bad as they can, but there are also religious motivations driving Republicans from the fringes of the party. The religious right believes God’s plan for the world is for the present secular nation of Israel to rise in power, causing a global holocaust. Then Christ will return to save the Jews, and they will all convert to become followers of Christ. The problem here is that some Christian Fundamentalists with strong connections to the Republican party are willing to try to make those prophecies happen so that the prophesied end will come more quickly … just as surely as Iranian Muslims are trying to make Islamic prophecies happen. The prophecies, then, become self-fulfilling.

Many Christian Fundamentalists do not believe it is their place to try to make these prophesies happen, such as to encourage Israel toward acts that will likely bring about war, but some do. Some are actually contributing financially toward construction of a Jewish temple on the Temple Mount that would certainly cause WWWIII in the Middle East if even one cornerstone is raised to the Mount. They are supporting Fundamentalist Jews who already have created cornerstones that they try to bring up the mountain on a flatbed truck every year.

Israel — Jerusalem in particular and its Temple Mount in the bullseye — is a tinderbox, and there are people on all sides pushing the two main parties involved toward war by encouraging intractable positions and extreme actions. How long until they get lucky and somehow prevail?

In a land not far away, war against ISIS has not been going well for the West. ISIS just won a massive victory, which they claim was due to their serving Allah. They managed to route 200,000 U.S.-trained and well-armed Iraqi soldiers out of Mosul in about four days with just 300 ISIS soldiers, even as the West stepped up its own attacks against ISIS. To them that is a miracle on a biblical (or Koranic) scale — larger in their eyes than the six-day war in which Israel took control of the West Bank and took Jerusalem away from Arabs.

It’s now almost impossible to fight ISIS without helping Syria’s King Assad. As you know, Iran is also in the fight. So, the civil war there has devolved into a complete quagmire where you cannot fight one enemy without helping another. ISIS is emerging as a formidable Islamic Fundamentlist enemy that is stronger than al Qaeda and is gaining support from people who once were part of al Qaeda due to all of the ISIS victories.

Libya is a civil war mess, and Hezbollah is more heavily armed in Lebanon than ever. It’s been a long time since the Middle East and Arab world has been this embroiled in conflict. These conflicts are going to grow more intense now that people in those lands see ISIS gaining in victories, and that will entice them to join the ISIS side, making ISIS even stronger.

My prediction, based on how these forces are colliding and my understanding of the beliefs that drive them, is that conflict throughout the Middle East will grow hotter, heavier, and more explosive throughout 2015. No doubt, then, the Middle East will add more pressure against the global economy. Markets get volatile when so much fire gets close to so much oil. The winds that batter the global economy from all sides are getting much stronger now.

 

The Ukrainium Headache

 

But the conflict that is going to create the most economic pressure in 2015 is the Russia-Ukraine conflict. The U.S. stands on hypocritical low ground here — and I rarely take the step of saying that about my own country. It is supporting a Ukranian government that came into power by a coup d’état against a democratically elected government. There can be little doubt that the U.S. facilitated that junta, even though coups are the route to governmental change that the U.S. has always said are wrong (unless they are U.S. sponsored, and notice you don’t hear the U.S. saying anything about Ukraine’s coup being wrong). Apparently the U.S. only supports democracy when the people of a country elect a government that the U.S. can work with. Let them elect a government that desires closer ties with Russia, and the U.S. will help overthrow that government.

That is why Putin sees Obama as the aggressor here and why it is easy for him to convince the Russian people that the U.S. is the cause of this conflict. That keeps his people at his side during the pain of sanctions. Of course, two wrongs don’t make a right, so the coup is no excuse for Russia to ignore Ukrainian sovereignty and annex Crimea; but Russian citizens love the achievement of getting balmy Crimea back. They see only that the U.S. is backing a coup against a Ukrainian president who was friendly to Russia and that the U.S. is causing Russian citizens pain by also pressing sanctions against them. They see their own president as someone who heroically stepped in to help the people in Ukraine who speak Russian who voted for the leader that was deposed so irreverently and illegally.

That all means Putin isn’t going to cave into sanctions, just as I said he wouldn’t last spring. Whether or not the U.S. was involved in supporting or even causing the coup, it certainly looks that way, so that is what Russian people believe. And that is important to understand because it means Putin isn’t about to back down. Moreover, many Russians love the dream Putin has created of returning to the days of being a Russian super-power. There is glory and national pride in such a dream. We all saw it illustrated in the Olympic shows. It’s something to live for, rather than living with the disgraced belief that you are citizens of a perpetually weakening nation.

Instead of caving in to sanctions, Putin will seek to retaliate with as much economic trouble for the West as the West is creating for Russia. Expect the Russia-Ukraine conflict to afflict the global economy more and more. Obama is supposedly trying to find a secret way to work with Putin to navigate through these problems, and I hope he succeeds, but sanctions are not going to work, nor will Putin do anything that diminishes Russia’s power.

It’s an almost impossible situation because the West cannot just sit back and let Russia take over Urkaine, but we probably helped start the conflict by supporting, at least, the idea of a coup. Sanctions are leading rapidly into economic war — a cold war of competing sanctions flying both ways. If the cold war gets any chillier, expect cyber attacks from Russia that are equal to those apparently made by North Korea. Expect more cold-war conflicts and re-armament costs. Russia will lose the economic battle first but will take as many Western nations into the vortex with it as it can.

 

The entire world is experiencing expanding and intensifying conflict, and that will make the overall economic situation worse because governments are already too deeply in debt to spend more on conflict. The short of it all is that global conflict is the new world order for 2015 and will be the primary current of economic destruction.

 

My #1 Economic Prediction for 2015

 

I predict that the global economy will definitely become worse in 2015. So, expect that clarity I predicted for the final quarter of 2014 to come into clearer focus throughout 2015: there has been no economic recovery. You’ll find out, as the larger picture now begins to emerge, that the mirage of economic recovery began to fall apart as soon as quantitative easing ended last fall, and if that bears out, I’m not sure I’ve lost my bet.

The reason I know this prediction will come true is that nothing of any substance has been done to correct the problems that created this economic crisis. (See my previous article for the kinds of things that could have and should have been done to make a sustainable recovery.) The Great Recession continues, even if GDP doesn’t say we’re in a recession, because the underlying flaws that created that recession continue and because the problems created by that recession all continue. We merely had relief from feeling them as much as we should have because of trillions of new dollars being created out of thin air by the Federal Reserve. Thin air is hot air in this case.

Until we learn to see the real underlying causes of our economic collapse clearly, we will never resolve them, and people are still far from seeing the causes because they don’t want to. Even when it becomes clear there has been no true recovery, it’s unlikely we’ll find a consensus as to why. Instead of finding real solutions, the government will want to immediately rush back to quantitative easing as a cure. Having to do so SHOULD tell people that the economy has become addicted to money printing to where it cannot live without it, which is clearly not sustainable recovery.

2015 is the year in which the falsity in every recovery belief really begins to emerge. Get ready to get real!

 

My prediction on where I go from here

 

One reason I bet my blog is that I have other writing projects I want to focus on now — some ebooks, and maybe some screenwriting and crime novels as well as a few select freelance projects. So, this is the last of my writing here unless the stock market porposes up and down into a full-blown stock market crash.

If the volatility of 2014’s final quarter graphs out in the first quarter of 2015 to look like the start of a lurching downturn of the U.S. stock market, I may say, “Those fall plunges were the foreshocks of a great crash; it just didn’t all unfold within the fourth quarter, but it started there.” (We are, after all, just one day past the fall quarter at the time I publish this.) In that case, I may return. If, on the other hand, the economy continues to bounce and falter along in slow suffocation as its been doing for years or if it actually improves some, then I was wrong about a stock market crash in the fall. As I cannot prove one way or the other, I stop my blog writing until and unless fall of 2014 proves to be the turning point in the market.

I made the bet because I’m not interested in tracking more years of endless slog. I’ve made the points I’ve intended to make in the course of writing this blog and have laid out the things that needed to happen for true economic recovery, but my blog has aroused no reaction for change. (Those writings can still be found here even though I stop writing articles here.)

Over the years, hundreds of economists and commentators have crowed, “The recovery is here,” and they have been wrong year after year. They, too, should have the dignity to stop writing. Throughout all of those warm springs in which everyone was cooing about “the recovery” and the “end of the Great Recession” — as if it ever really ended — I consistently told a different story. Each time I would say that in a few months the numbers will turn sour again, and each time they did. (Not because I’m dismal but because the essential economic repairs were never even attempted. If you keep all the old rot in place, future rot is inevitable.) Sometimes I said, “The data is surely wrong,” and then the government’s data were revised in the next few months, proving the numbers were wrong.

Simply put, prosperity cannot be built on rapidly accumulating mountains of debt. (Only the illusion of prosperity can — the pleasure of living beyond your real means.) National prosperity can never be built on the backs of a shrinking middle class either or with a serious decline in high-paying jobs. (Who will buy the things the rich make?)

And prosperity rarely trickles down from the rich to the poor, but it will always bubble up from the timorous hands of the poor into the grasp of the rich because the rich know how to get their hands on everyone’s money. They also know how to hold onto their own money. So, few crumbs trickle down to the underside of the table. If you still want to believe they do, then continue with your belief and stay poor.

Our rising debt has done nothing but fund the great casino known as Wall Street in the world’s wildest game, which only the rich can play. And, so, the top one percent have grown obscenely more wealthy during the Great Recession in spite of their colossal, greedy and stupid failures. Your government rewards them, and you allow it to happen.

As I end this blog, the moguls of Wall Street are wealthier now than ever, but are any of the rest of  you? My guess is that 99% of my readership would have to answer, “No.” The wealth has not trickled down. It seldom ever does, but the dream that it will drives the world. The rich, however, have recovered gloriously. They usually do. And, as long as you sit there and accept tired ideas, it will keep happening.

2 Comments

  1. Ping from Andrey:

    You should check a dictionary before using word junta. I am not saying that current Ukrainian govt is super legitimate but it is not junta in any sense.

    • Ping from David Haggith:

      It seems like a junta to me (although that’s a word usually used for coups that happen in Latin America). I saw lots of rioting, tires and cars being set on fire, people storming “the palace” so to speak until the Russian-leaning leader fled the country to save his life. That didn’t look like the removal of a leader by democratic process, nor through the courts. It looked more like a mob storming the palace and routing him from the country via physical violence.

      Defn: “junta … a political group that rules a country after taking power by force.”

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