The End of the World as We Know It... and I feel fine... recession time is here

REM's 1987 hit threw more lyrics at us then most of us could handle.  Doing a BMX freestyle at my sister's 1989 high school graduation after party (Del Mar High in San Jose), I remember this song getting played, and groups of kids singing every word while dancing like maniacs.  Now, 31 years later, this song sums up our U.S. economy, at the moment.  Things are changing in massive ways.  It's the end of the world as we know it... and I feel fine.  But a whole lot of people don't.  It appears "the next recession" is here to stay.

As I write this on February 27, 2020, the U.S. stock market has been plummeting for the last five days.  The Dow Jones Industrial Average, for over 100 years considered a sort of pulse for the U.S. economy, was down 3,542 points this morning, from it's February 12th record high of 29,551.  It's rebounded about 500 points this morning, from today's early drop, but at this moment, at about 26,766, it's still only about 100 points above the high it reached on January 26, 2018... two years ago.  The much hyped U.S. stock market hasn't moved much at all in two years, as of right now.  That's reality.  This recent slide is due to fears of that illness happening in China, and now several other countries.  This disease is having catastrophic effects on business in China, and now supply chains for other businesses worldwide.

(Blogger's note: 1:21 pm Pacific Time, Feb. 27, 2020- I just came back to proofread this post.  The Dow Jones Industrial average closed at 25,766.64 today, down nearly 1200 points on the day, far worse than it was this morning.  By comparison, that's a point it first hit about January 12th, 2018, about two weeks after the Trump Tax Cuts were signed, and about two weeks before the January 26th 2018 peak at 26,616.  The Nasdaq ended today at 8566.48, down from it's all time high, 8 days ago, of 9,817.18.)  

In reality, the U.S. went into a severe financial crisis last September, when a little mentioned part of the economy, the Repo Markets, froze up.  The same thing happened in 2008, while we were already in a recession that hadn't been acknowledged yet, and 100+ year old investment banks Bear Stearns, and Lehman Brothers went out of business suddenly.  That was when the 2007-2009 recession became apparent to most people.

This time, in September 2019, the Federal Reserve started "injecting liquidity into the financial system."  In plain English, that means they basically made money of thin air, and handed it to major banks to prop up the economy (Ok, that's an over-simplification, but close to how things work).  The Fed started pumping 40-50-60 BILLION dollars A DAY into the financial system.  That has happened nearly every day, for 5 months now.  That emergency program was supposed to last a week or two at first, at most.  But the system was so shaky, they had to keep doing it, to keep the stock market from going down hill, which would cause other markets to fall.  So Wall Street took all that money, and they borrowed more, and pumped it into stocks.  Since The Fed's repo market program started, the stock market has surged significantly higher.  But it was already at crazy high levels, and some veteran investors started wondering (and commenting online), about what "black swan" event would come along and pop the stock bubble.  It seems we have our answer.  

So what does this mean for the average person?  To start, it means your 401K, or retirement mutual funds are losing ground.  This econmic downturn will also mean lots more layoffs from major, and smaller companies, in the coming months.  We will see major, well known businesses go bankrupt, and many will go completely out of business.  Good jobs will get harder to find.  Lame jobs will get harder to find.  People with lots of student loan debt, credit card debt, and car debt will really be in tough times, especially if they lose a good job.  For the majority of people, it's a time to buckle down, live more within their means, and struggle through. We appear to be in the early stages of a serious economic downturn, which is already about three years overdue, by historical standards. 

 As the illness effects ripple through countries outside China, including ours, it means we may see some stores shut down temporarily, possibly people quarantined, and some people will get sick.  It will be pretty gnarly, some people will lose their lives, and loved ones to the illness, which is terrible, of course.  But our nation, as a whole will survive this disease. 

But something else has happened, this illness, the one all over the news these days, appears to be the "black swan" that was a tipping point for our stock markets, and that will send a domino effect through the U.S. (and other nations') economies.  A "black swan" is a very unlikely event that most people think won't happen, but has very large consequences if it does happen.  Imagine if actual aliens, from another planet, landed at the Super Bowl with hundreds of millions of people watching, for instance.  Yes, that's ridiculous, but that's the point.  That's something most people think would never happen.  But if it did, in a few minutes, it would change the way we look at outer space, and our planet,and life itself,  forever.  That's a crazy example of  a "black swan event."  That term, "black swan," comes from the 2007 book, The Black Swan (not a paid link), by Nassim Nicholas Taleb, looking at how these low probability events affect our world.

This economic downturn, though, will be different from previous ones.  There are several ultra-long term cycles and trends that are all converging right now, and this economic downturn will see far more change, and far more different kinds of change, than any in modern history.  I'm a weird sort of dork that is fascinated by this kind of thing, and I've been reading and learning about these long term trends for 30 years now.  I've been putting my thoughts on this subject into a free online book, of sorts, published as a blog, called, Welcome to Dystopia: The Future is Now. 

I'm thinking of this economic downturn, which we appear to be visibly entering now, as "The Phoenix Great Depression."  It will be crazy, it will be scary, like all economic downturns.  We will see fundamental parts of our society change dramatically, more than we've already seen.  But... this next few years, this next decade, will also offer more opportunity to build amazing new things, more than any time in modern history.  So while the economic downturn will cause a lot of chaos and destruction, we will also have the opportunity to have a better form of human society rise from the ashes.