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Predicting a 2015 Economic Collapse

Dorothea Lange [Public domain], via Wikimedia Commons

The entire globe is now descending into an economic collapse that will be far worse than anyone alive has ever seen or even heard of, and I can readily show you why you should believe this prediction about a 2015 economic collapse. I will show you with a level of verification that most people cannot offer.

The premise is simple: if my 2014 economic predictions were accurate (and they are all recorded before my readers on this site), then you have good reason to believe my 2015 economic predictions will be accurate. Moreover, the things I predicted at the start of 2015 are happening exactly as I presented them.

I’m going back over the past, however, for a more important reason than establishing a track record. The headwinds that I predicted for the economy in 2014 are the same forces that are pressuring our dying global economy in 2015 and that will grow in force.

The economy is not falling because of the things I’ll be talking about below. The global economy is falling, as I’ve always maintained, from its deep internal faults. The U.S. stock market is about to fall because all the money that was created out of thin air to push the market up has stopped. That’s why the market has been going sideways. However, the pressures I talk about below will continue to build just as I said they would last year, eventually overwhelming the global economies fragile and flawed existence.

 

Looking back to the future to see the 2015 economic collapse already coming

 

In the spring of 2014, I predicted the following headwinds would batter the U.S. and global economy by fall of 2014:

 

  1. The “Russian Rampage” that had just started in Crimea would broaden to other areas, and there was no chance that Putin would back down when faced with Western sanctions. Russia would keep Crimea and seek to spread its reach. Russian sanctions would endure in the standoff as a headwind to Europe’s economy almost as much as to Russia’s economy.
  2. A storm in the East would develop as China increased its aggression in the South China sea, “making waves that could readily wash over islands that have long been under contention between China and Japan.” Tensions with Japan and the Philippines would grow.
  3. China’s economy would not crash in 2014, as some were fearing it would, but it would land as a dead weight on the rest of the world’s economy. China would no longer be the savior it tended to be in the early days of the Great Recession, and that would cause the rest of the world to bog down more in the sediments of the Great Recession.
  4. Russia and China together would do their best to diminish the U.S. dollar as the world’s international trade currency and would back out buying U.S. bonds. They would start their own petro dollar and take other measures to establish the Chinese yuan as a competing global currency.
  5. Abe’s stimulus money in Japan would accomplish nothing sustainable and would, in fact, not even have much immediate impact.
  6. The “Iranium Reaction” would continue in the doldrums. The summer deadline would become a fall deadline, which would pass with no deal in sight because Iran is just stalling.
  7. Finally, I concluded it would be a stormy fall, but the economy would not collapse.

 

I’m not a perma-bear who predicts economic collapse every year until it happens. In fact, if you’re new here, you’ll see in the following discussion that I’m quite the opposite, often proclaiming certain bad things will not happen in a given year. However, when all of these forces did continue to converge into a stormy fall, I eventually expanded my forecast to predict the stock market would collapse with the end of quantitative easing in the fall. Yet, it did not.

However, the stock market did take its biggest drop in a couple of years, which began on the first day of fall, and the bond market retched at about the same time in what everyone is now calling the “flash crash.” Nevertheless, things righted themselves temporarily, in part because Q.E. didn’t wholly end, as the government stated it would. The Fed continued to create free money for banks at about double the clip that it does during normal times of economic expansion.

If you want to call me out on the technicality that a 7% drop in the stock market and a crash in the bond market is not the same thing as a “stock market crash,” you’d be right. But I’m going to ask you to pause before you draw your conclusion and consider how that sharp jog in the stock marked a complete sea change in the market and the larger economy.

 

I bet my blog on one of my 2014 economic predictions

 

In the spring of 2014 I wrote that “the economy will not do better this year.” Consider that I wrote that when 95% of analysts and economists were ebullient in their belief that the cold winter with its discontent had abated and that the economy was suddenly surging forward with robust enthusiasm. 95% were certain we were finally solidly on the road to recovery since we could emerge from such a dire winter into such an economically hopeful spring.

What a sourpuss I must have been to douse everyone’s joy with statements that became true. I was so certain that things would not get better that I added, “I will quit writing this blog if I’m wrong on that prediction.” I averred, however, that the economy would not collapse but that it would simply become quite clear in the fall that 2014 had not become the year of our recovery.

For some, the failure of recovery did not become clear in the fall. Statistics emerged in the fall that looked extremely positive. Growth in Gross domestic product shot way up. I maintained my position, and those statistics were revised down at the start of 2015 to be somewhat lackluster. Throughout the first half of 2015, I think, it has become increasingly clear that 2014 did not close as a year of economic improvement, but as the start of a new downturn or, in the very least, a great flattening.

While the stock market didn’t crash in the fall of 2014, the bond market did by everyone’s agreement. The bond market has looked increasingly perilous since then, until, in the past week numerous economic experts have started talking about running for the hills to get out of bonds. What was called “the flash crash” has returned with an apparent vengeance.

While the U.S. stock market rebounded from its plunge, it was never the same after that heavy blow either. It has gone essentially sideways ever since. Though the market bulls continue to bellow brainlessly about a bull market, where is it? Show me this bull market they have been proclaiming . There has been no bull market for half a year! Their continuing to bellow about it only shows how truly bovine they are in intelligence. I notice, however, that the bellowing bovines are diminishing in number. Their sound is growing quieter like summer fading into fall.

So, I would say the illusion of recovery did end in the last quarter of 2014. The perception of recovery may still linger for some, but the facts are clear if you step out of economic denial that the stock market has gone virtually nowhere since the end of last year. A recent poll says, “72 Percent Fear Economic Crash, Concern ‘Highest Ever.’” Clearly, the hope of recovery did start to end last fall.

Sure, the S&P 500 and the NASDAQ have broken records since, but that is all pomp and no substance. Apparently 72 percent of the public has caught on to that. Every time The S&P 500 and NASDAQ have nicked fractionally past their previous record, they have immediately settled right back to where they were. A graph of the stock market shows it has been bouncing off a flat ceiling for months. The bull market has died, but the bulls haven’t that out yet. They’re slow like that.

 

Dow Jones Industrial Average from Spring of 2014 to June 2015

Dow shows major change happened at the start of Fall 2014.

 

The above graph tracks the Dow Jones Industrial Average from March of 2014, when I made my predictions, up to the publication of this present article. Notice how the market was maintaining a consistent upward trend throughout the spring of 2014 and the early summer with almost no volatility. That’s why 95% of the experts back then were proclaiming the “recovery” had finally arrived. Then, in August the market coughed, and on the very first day of fall in September, the market plunged. By mid-October, U.S. stocks shed about 7% of their value and never looked as promising thereafter.

While the stock market recovered to a new high, notice how it was with much greater volatility than it had seen in a long time. From that point forward, it has been maintaining an average that is horizontal at 18,000. That’s a ceiling. The bull is dead. It’s essentially flatlining. But it doesn’t know it yet. That massive heart-attack in October completely changed a market that had been on a predictable rise that matched the influx of Q.E. for years. Once the easy money of Q.E. tapered to a close, the stock market lost all the wind from its sales. It barely remains aloft.

I wiped my brow when I reread my predictions in 2015 to see that I had been smart enough not to go so far as betting my blog on a 2014 economic collapse. While I did predict the stock market would crash, I only bet my blog on the statement that the economy would not recover in 2014 and that things would grow much rougher in the fall. Though the stock market didn’t exactly crash, it clearly suffered a massive heart attack that started on the first day of fall and that marked a major change in the patient’s health from that time forward. While the market didn’t completely crash, the world’s longest bull run clearly ended, and that marks a sea change for the global economy.

 

Now look who is joining me in talking about a 2015 economic collapse

 

While the bulls owned the public discussion during all the months I was writing those dire predictions, many analysts and major investors are now joining me in saying the bull has little or no life left in it. Some of the worlds biggest bond traders are also now saying the bond market is jockeying toward a major crash. Look at this week’s headlines to see how much the economy is shifting and how many people are finally starting to sound like me:

Analyst Maierhofer: This Stock Market Is Starting to Resemble 2011” Maierhofer finds troubling similarities between the present stock market and the stock market as it looked before the major drop it took in August 2011, which drop I also predicted a month before it occurred.

Icahn warns markets ‘extremely overheated,’ especially in junk bonds” Billionaire investor Carl Icahn, who has rightly predicted markets and made billions by doing so, says essentially “get out now!” He likens the way investors are acting now in naive bliss to how they did in 2007 just before the big crash that left us in the Great Recession. . “It’s almost deja vu.”

Hussman: Get Ready for Stock Crash Along Lines of 1929, 2000 & 2007 ” “The financial markets are establishing an extreme that we expect investors will remember for the remainder of history, joining other memorable peers that include 1906, 1929, 1937, 1966, 1972, 2000 and 2007.”

Hulbert: Declarations of ‘Stock Picker’s Market’ Are Bearish Sign” Mark Hulbert says the bulls have changed their story from saying stocks in general are going to keep rising to now singling out only particular stocks that are going to rise. That, he says, is a dying bull’s argument in that they have an ever smaller number of stocks they can base their optimistic claims on. This narrowing of their arguments portends something bigger: “Fewer and fewer stocks participate in a bull market as it approaches its top.” The bull market, he says, “is getting extremely long in the tooth.”

Warren Buffett: Derivatives Are Still Weapons Of Mass Destruction And ‘Are Likely To Cause Big Trouble’” Yes, the overhang of those nasty investment inventions, which played a central role in causing the Great Recession, has only grown worse. Even the Optimist of Omaha says derivatives are going to cause major trouble again, though he doesn’t indicate when. Remember, though, the Oracle first called them “weapons of mass destruction” five years before they actually blew up. Looking back, we see that history proved he was right that time. So, why would he be wrong now in making the same prediction when U.S. financiers are creating more of these cobbled-together time bombs than ever before?

It’s hard for me to imagine how anyone thinks the present economy is safe when we have so many more of those junk bond derivatives out there and when we know they played such a devastating role in the last economic collapse. It’s like we are incapable of learning.

On top of that, we have piled up so much more debt and used up all of our stimulus tricks.

What the analysts above see as now happening, I saw a year ago as going to happen. So, that’s why I say I’m looking back to the future. In their observations above, they, too, look to the past to see patterns that help them understand what is happening today. Those who don’t learn from the past are likely to get clobbered by it in the future.

In conclusion about 2014, now that we can see it with some perspective from 2015, I think it turned out almost exactly like I predicted and that the analysts above are starting to realize a major change in the economy has, indeed, happened beneath their feet.

Let’s take a closer look at where my predictions have gone now that we have half of 2015 under our belts because I believe these trends continue toward a convergence point this fall.

 

The Russian Rampage

 

The Russian Rampage certainly continues in 2015 exactly as I said it would do in 2014. Again, my reason for pointing these things out is to say that, if the trend is going exactly as predicted, then you have better reason to think what I have to say about where the global economy is headed in 2015 has merit. The sanctions that hurt the economies of Russia and the West also continue, putting strain on a greatly dilapidated global economic system.

Just a week ago NATO announced that it is starting to seriously build up heavy armaments all along Russia’s Eur0pean border. Wow! Talk about spreading wider than just Crimea, which was all Russia had made a move on at the point where I said tensions with order ambien sleeping pills Russia would broaden in area. NATO, at this point, is concerned about moves on all of Europe. Russia responded to NATO’s announcement last week by saying NATO’s plans will certainly result in “consequences” from Russia.

Though NATO said it’s not looking at getting into a new arms race, that’s wishful thinking. Surely, they must know, if they expand their armaments all along Russia’s border, that Russia will seek to top that. My prediction for the remainder of 2015 is that NATO will trigger an economically exhausting arms race. While that won’t by itself exhaust us this year, it will add to this year’s impacts and will have lots of help from other sectors of the globe.

Tensions with Russia will mount higher. Sanctions will not bring Putin to his knees. Russia’s alliance with China will continue to grow, empowering both to become more aggressive. In lockstep, they will continue monetary moves intended to cripple U.S. economic dominance on the world stage.

 

The Storm in the East

 

Earlier this year I said that the one prediction where it appeared I may have been wrong was in claiming that the South China Sea would continue to build as an area of global conflict that could have economic consequences. When I said I might have been wrong, there was talk that China and Japan were forming an agreement. Suddenly, however, the tension and conflict are all back in the news bigger than ever.

China is not backing down in its claims over the area. Japan and the Philippines are not backing down. Read: “Japan, Philippines make second flight near disputed waters.” Natural resources make this a coveted area that none of these nations is going to cede to the others. China is staking its claim by building military islands on the reef where these resources are located. So, it’s all about economics.

For a good summary of the growing conflict between China and the U.S., I recommend the following article: “12 Signs That The United States And China Are Moving Toward War.” Said China just last week: “We do not want a military conflict with the United States, but if it were to come, we have to accept it” and “if the United States’ bottom line is that China is to halt activities, then a US-China war is inevitable in the South China Sea.” Inevitable.

So, conflict is, after all, continuing to build in that area, as I said it would in 2014, even to the point where China started building islands this year to serve as naval bases in that area. This will put a strain on the U.S. to support its allies in this region at the same time that Russia strains NATO along the other side of Asia. draws the U.S. in deeper. It’s all more war than a weak economy can readily handle at a time when we cannot afford more debt either.

As for an economic crash from China, whose economy I said would not crash last year or the year before and which did not, forecasts have to be adjusted for this year. China did not collapse due to backing its foot off of the economic accelerator, as many wrongly feared it would. Since then, however, it has opened a stock exchange that has quickly turned into an enormous bubble. That stock exchange is now in the process of crashing, and that crash will certainly have negative consequences for China and for the global economy, too.

 

Wars and Rumors of War

 

At the same time, the U.S. is getting more deeply drawn into the perennial quagmire of the Middle East. While the ability of the U.S. to be the world’s cop in all directions is going to be strained, the Middle East (ISIS in particular) is going to start bringing its wars to the U.S..

Ask yourself one simple question: If thousands of children from Central America could sneak across the U.S. border without their parents — as we have heard all about this year — do you really think that thousands of skilled and highly motivated adult, ISIS terrorists have not already done the same? If the Obama Administration cannot even stop children from flooding across the Mexican border, why would you think it is capable of stopping trained terrorists? Just because you want to think that? It’s not rational.

Maybe the knowledge that they’re already here with their locations unknown is why the House Intel Chair says we are running at our highest threat level ever and why operation Jade Helm is placing military personnel and armaments throughout the southern states and hiding thousands of soldiers among the civilian population.

The U.S. has involved itself in so much  conflict that we could find ourselves embroiled in the East and in the West and in the Middle East and on the home front, too. Suddenly, the great surging beast could be taken down by so many little animals jumping upon it that it can no longer stand. I’m not saying our military problems will go that far this year, but that is the direction forces are building toward, and we cannot afford any of it. As John Boehner said long ago, “We’re broke.” He said it, but apparently he didn’t believe it because he keeps spending as if we had unlimited ability to finance simultaneous military operations.

 

The Iranium Reaction

 

Meanwhile, we are counting the days until … what is it, the fourth final deadline for nuclear negotiations with Iran? The stalemate I predicted for 2014 continues into 2015 as we now come a year around the clock from when the deadline was pushed off until fall. Again, the major parties are (predictably) talking about the need to extend the deadline “just a little.”

My position on these talks has been consistent for years: Iran will stall as long as it can, and the U.S. will keep falling for extensions because it wants a deal so badly it could spit. The last thing President Obama needs is a major war with Iran at the same time that we’re spending money to arm NATO against Russia, trying to have a stronger military presence in the South China Sea, and struggling without great success to beat ISIS and Al Qaeda in the Middle East.

For Iran, these talks are all about stalling while relieving some sanctions pressure (as was accomplished by Iran months ago when it entered talks). For three years now, these talks have been following exactly the track I’ve been saying they would. So, expect more of the same

When the talks fail to reach an agreement by June 30th, there will be another extension of the deadline or a period of talk about whether the deadline should be extended and whether talks should resume, rather than war with Iran. The most we are likely to see from the Obama administration is an effort to renew sanctions; but with disintegration of relations between the U.S. and Russia and between the U.S. and China, those sanctions may not be so easy to resume. Policing Iran in the Middle East will also continue to be a cost the U.S. has to bear.

HOWEVER, the main question on how much impact Iran has on the global economy in 2015 is “How long will Israel continue to endure this growing risk?” The fear of a war that goes out of control with the likelihood that any victory would be only temporary keeps Israel at bay; but someday impatience may prevail.

If the talks succeed from the U.S. point of view, it will only be because Iran has worked enough wiggle room into its agreement with the West that it can continue clandestine efforts to get a bomb. One of the articles linked above, which I wrote about a year ago, describe in detail how Iran’s current president boasted of using the talks to stall while secretly advancing Iran’s nuclear program.

An article in The Washington Times yesterday, gives further examples of Iran’s stalling and deception: Iran nuclear deal clouded by long record of deception.

I do not think talks will succeed even on the surface. Expect delays, interpretations and re-interpretations, problematic votes of Iran’s parliament and congress; but don’t expect actual progress or security. Even if they do succeed, you can still expect the same outfall of problematic votes and delays on inspections and arguments of interpretation. All to buy time.

And all of this happens while the Palestinian conflict builds, the U.N. prepares to acknowledge Palestine as a state, and Jews increasingly talk of having a greater presence on the Temple Mount in Jerusalem while plotting a new temple that will require the destruction of Muslim holy sites, and the Arab spring grows more rangy, and ISIS grows stronger, slaughtering Christians in horrendous ways for their faith, and advancing toward the borders of the U.S. If those are not black and stormy skies for the remainder of the year, I don’t know what is.

 

The Great Greek Exit in 2015

 

I did not say anything about Greece in my 2014 predictions because I figured the situation was stable enough to make it through that year without having much impact. So, I was right to leave it out of 2014 predictions, but I think it plays a major role in the coming 2015 economic collapse. In my 2015 Economic Predictions, I wrote, “While I wouldn’t bet another blog on it (because I don’t have another one to bet), I am sure Greece will leave the Euro, and I suspect pressure will build high enough in 2015 to make this the year.”

While stocks went up earlier this week because things looked favorable (in the eyes of the perpetually self-deluded) for a resolution of the Greek problem, they tumbled later in the week as last-minute talks fell apart. No surprise. This has gone on just like the Iran negotiations. Meanwhile, the European Central Bank (ECB) gave Greek banks their fifth injection of emergency cash to keep the ongoing run on the banks from breaking the banks. Quite simply, the Greek banks would have gone bust this month if Europe had not kept injecting major cash loans into them to cover all the withdrawals.

But all of that just means Europe loses more money in the end, leaving the European Central Bank weaker and all of Greece’s continuing financiers weaker for having put good money after bad. A large part of Europe is ready for a split. Greece needs to split, as it will never be able to pay off its debts. A Greek default is inevitable. It’s a fool’s game for Europe to even pretend that Greece can pay off its debts.

Even if the present talks come to an agreement on Saturday, shortly after the publication of this article on my blog, it will only be because Greece agrees to Europe’s demand for higher taxes on Greek citizens, but Greece cannot afford higher taxes. It’s economy has collapsed further under the taxes of the last bailout agreement, making the present repeat bailout talks essential. That means, if these talks succeed and create additional taxes, the Greek economy will certainly stagger all the more under the increased load and become all the more unable to pay off the next bailout. It’s a death spiral.

So, Greece is going to default this year. Remember, I’ve been saying in past years, “Not this year” and left Greece out of 2014’s list of problems altogether; but Greece has now spent its bottom dollar. A deal probably will be struck on Saturday because neither Greece nor the other Eurozone nations want to see the Eurozone start to break up, but Greece’s situation will be all the more hopeless by fall.

For further reading, I suggest: Why Greece Must Default or Restructure Its Debt.

If Greece falls out of the euro sooner than that, it will definitely weaken many institutions and wound some institutions severely and even kill off a few. That means it will create new cracks throughout the global economy, making the faltering global economy all the more ready to fall in the fall. Think of Hoover Dam with cracks suddenly appearing all over the face of it and knife-hard sheets of water squirting through the cracks. Are you going to keep standing on the dam, watching the water squirt?

The global economy could collapse sooner than this fall, of course, with the right surprise hit, but otherwise, I think it has about that much staying power before it just cannot hold its pieces together any longer — especially if Greece goes first.

 

And what will be the October Surprise that brings economic collapse in 2015?

 

When pressures like those above build, it is still usually some surprise event that takes the economy down. Some call it a “black swan event.”

What will it be in 2015? A super volcano eruption? (“Indonesia’s Lake Toba Supervolcano Threatens Global Volcanic Winter“) An asteroid impact? (“Huge Asteroid Heading To Earth 09/2015!?” “Asteroid Impact Apocalypse 2015: Mass Anxiety As Conspiracy Theorists Predict Catastrophe“) The shutting down of the U.S. power grid by terrorists? (“U.S. Power Grid Being Hit With ‘Increasing’ Hacking Attacks, Government Warns“) Some other terror attack within the U.S.? (“House Intel Committee Chair: US Is At ‘The Highest Threat Level We Have Ever Faced In This Country’“) A Greek default on its debt?

The list of possibilities backed up by daily headlines that show the plausibility of such a surprise (some sources more reputable than others) can go on as long as one wants to make it. Each of the above, however, is an actual current risks according to various news articles, warning of the possibility, but each of these possible surprise events are still statistically unlikely in any given year.

If I could tell you which surprise will hit, it wouldn’t be a surprise. At the end of the day, it doesn’t matter what surprise hits at the right time. What I am seeing is that the number of forces acting against the U.S. economy and against the global economy and the number of plausible major surprises is growing quickly now toward an overwhelming level. I expect the global economy to start buckling under from some combination of these stresses in October, but the right surprise could come sooner, and there appear to be many strong contenders.

Take, for example, that super volcano in Indonesia, the largest known to exist in the world, and one known to have created global volcanic winter in the past, which brought mass extinctions. The people who live over it are now complaining that their tile floors are getting hot; toxic gases have started coming out of the ground around them; and the next nearest volcano started spewing ash and lava about two weeks ago.

None of these headwinds and surprises will be the underlying cause of economic collapse. The economy is already a dead man standing because of all the internal flaws that I’ve gone over in this blog for years. However, these forces are piling on rapidly now with increasing pressure on a deeply flawed and corrupt structure. That, I believe, makes a 2015 economic collapse a very likely bet.

The first region of the global economy to go will be Greece, of course, and that will leave the rest of the Jenga structure all the more ready to topple.

 

[Finally, two other predictions for 2015 to follow up on: I also predicted that oil would drop to about $40 a barrel, but not lower, and recover to somewhere between $60 and $80 per barrel by the second quarter of this year. So it did … both for the low and the recovery point. The only thing that has done a little better than I predicted is the jobs market, but I don’t think the government’s numbers tell the story accurately (as I’ve described in other articles). However, as I said in making my 2014 and 2015 economic predictions, it will not be the jobs market that decides where the U.S. economy goes, much less where the global economy goes; it will be these other major headwinds mentioned above plus some surprise out of left field that hits the global economy behind the knees when it is ready to drop.]

 

You may also be interested in this article, which gives a sense of the scale of economic collapse I’m talking about:

Simple and Clear Reasons the Next Economic Crash Will be Worse Than the Last

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