What If Everything You Believed About the Economy Was False?

There are very few absolute certainties in life.

Sunrise in the east, sunset in the west.

Even those old chestnuts, death and taxes, are not absolute certainties.

Biotechnology is looking to unlock the code to immortality. Who knows what scientific advancements await future generations.

And, there are some countries — called tax havens — were governments don’t put their hand in your pocket/s.

Centuries ago, the mere thought of being a non-believer would have seen you burnt at the stake. These days, according to National Geographic…

The religiously unaffiliated, called “nones,” are growing significantly. They’re the second largest religious group in North America and most of Europe. In the United States, nones make up almost a quarter of the population. In the past decade, U.S. nones have overtaken Catholics, mainline protestants, and all followers of non-Christian faiths.

Belief systems evolve from our experiences. We project those beliefs into the future…extrapolation.

Beliefs like ‘property values always go up’ and ‘in the long-term share markets always rise’ and ‘you can’t go wrong buying bank shares’.

But as shown in the 3 December 2018 edition of Markets & Money, extrapolation is horse s**t.

What if everything you believed to be true, was actually only true for a specific period of time and for a unique set of circumstances?

And, that in wanting to persist with a truth built on falsehoods (future taxpayers should fund generous welfare programmes; asset prices must continue to rise; wages must grow; debt levels can continue increasing) we are taking the system to a point of collapse?

‘There is no reason to believe that the democratic decision made by the living in the face of their present needs and desires will be the decision that would maximize the chance of long-term system survival. The unpleasant conclusion is that it is possible for a society to choose economic collapse.’

The End of Normal — James Galbraith

What if everything we’ve been told about how an economy functions was based on a false premise?

What if the past 40 to 50 years of economic growth and financial market performance has been an aberration and not the normal?

What if the next 40 to 50 years is completely unlike what we’ve experienced since the 1960’s?

In his book, The End of Normal, James Galbraith raises these questions.

Roughly translated, the extract is telling us: ‘if we keep doing what we’ve been doing, we’re in for a world of hurt.’ The system will collapse under the lies.

The dynamics that propelled western economies to, what 70-years ago would have been an unimaginable level of prosperity, are no longer in play. That was yesterday. Not tomorrow.

The system we have today bears no resemblance to the post WWII world.

The strategies that produced the stellar (and as we now know artificially created) growth of the 1970 to 2007 period are no longer applicable.

In fact, the compounding effect of debt and demographics is toxic to the world we live in today.

In failing to recognise the changed conditions and refusing to alter course, our esteemed policy makers are threatening to take the system beyond the brink of collapse.

Revealed: The truth behind our ‘unofficial’ GDP. Download the free report today.

The Sweet Spot

After WWII, the western world hit the perfect sweet spot. There was a convergence of events that created a clear economic division between the West and the Rest.

  • Access to cheap and abundant oil
  • Industrialisation
  • Population growth via the ‘baby boom’
  • Improved health care — increasing life expectancies
  • Military power — providing secure access to energy resources
  • The opportunity to rebuild from the ashes that were created by two decades of financial and social upheaval.

The following graph tells the tale of the two worlds from 1950 onwards.


MoneyMorning 07-11-18

Source: wikimedia commons

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A few decades of prosperity created a culture of growth in the West.

Growth has come to be expected. We’ve been indoctrinated to believe growth is normal and perpetual.

Year after year, every utterance from government officials, IMF, CEOs is all predicated on delivering growth. The message is that without continual growth we are doomed. Taking a breather is not an option.

The upshot of the perpetual growth myth is each generation believes it’s entitled (earned or unearned) to a better standard of living than the one that preceded it.

Government and their central banks were the self-appointed arbitrators on how much the perpetual growth machine needed to deliver to meet society’s expectations.

Any interruption to growth — a recession — was cured by a dose of fiscal (modifications to government spending and taxation) and monetary policy (interest rate adjustments). 

The following chart shows eight of the eleven post WWII recessions responded to the prescribed medicine within a couple of years.

However, the economic patient is developing a resistance to recession antidote.

The recovery time for the last three US recessions (1990, 2001 & 2007) has progressively become longer.

It’s also taking far more central bank intervention to engineer a jobs recovery — even a phony jobs recovery based on a very loose definition of what constitutes employment.


MoneyMorning 07-11-18

Source: Business Insider

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Given the sheer magnitude of the intervention (from all central banks) in the last recession, what happens when the next recession hits?

Is the next recession/depression the one that’s going to bring the system crashing down?

If you want to protect your family wealth, you need to know why this financial expert is predicting economic collapse. Find out more here.

What gives?

‘The unpleasant conclusion is that it is possible for a society to choose economic collapse.’

The technology genie is well and truly out of the bottle. At a rough guess, there’s probably a few million ‘tech heads’ in the world looking to develop a multi-billion-dollar disruptor for all sorts of industries.

The future pace of technological advancement is going to make the achievements of the past decade seem glacial by comparison.

In the face of all this disruption, society is not about to give up on its entitlement doctrine…wages growth, retirement at 65, and welfare. These are remnants of an era that cannot possibly be repeated. Therefore, these expectations cannot be delivered upon…but as they say in the movies ‘we’ll die trying’.

Governments that even hint at realigning their budgets and labour laws to reflect the new world are destined to suffer at the ballot box. Minus the hard decisions, the rather unpleasant conclusion is we hit the wall…in a 2011 Greek type scenario, only more severe and more widespread.

Two powerful forces — the legacy of our past and the wholesale disruption in our future — are destined to meet.

The economic reality is, our future cannot afford our past.

What gives? My guess is the system of industrial relations, welfare and healthcare as we know today will be vastly different to the one that exists in a decade’s time.

Minimum wage rates, free health care, the plethora of social security payments will all be talked about by future generations in terms of ‘can you believe this once existed?’

What we fervently believe in (or think we were entitled to) will seem absurd to our children’s children.

There’s no doubt the world will enjoy another age of prosperity…depression also do not last forever.

However, the excesses of the current era must first be expunged. And secondly, the next wave of prosperity will not be for the west to enjoy in isolation.

The shattering of long held beliefs is going to create enormous disruption to peoples’ lives.

Those who are expecting the unexpected will be best placed to capitalise on the incredible opportunities that are certain to arise from this period of upheaval.

Regards

Vern Gowdie,
Editor, The Gowdie Letter


Vern Gowdie has been involved in financial planning since 1986. In 1999, Personal Investor magazine ranked Vern as one of Australia’s Top 50 financial planners. His previous firm, Gowdie Financial Planning was recognized in 2004, 2005, 2006 & 2007, by Independent Financial Adviser (IFA) magazine as one of the top five financial planning firms in Australia. He has been writing his 'Big Picture' column for regional newspapers since 2005 and has been a commentator on financial matters for Prime Radio talkback. His contrarian views often place him at odds with the financial planning profession. Vern is is Founder and Chairman of the Gowdie Family Wealth advisory service, a monthly newsletter with a clear aim: to help you build and protect wealth for future generations of your family. He is also editor of The Gowdie Letter, which aims to help you protect and grow your wealth during the great credit contraction. To have Vern’s enlightening market critique and commentary delivered straight to your inbox, take out a free subscription to Markets and Money here. Official websites and financial eletters Vern writes for:

To read more insights by Vern check out the articles below.


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