08-23-2017, 05:40 PM
David Horn Wrote:I agree with your analysis and conclusions, but I'm at a loss about applying them to today. We have no chance of raising taxes, when lowering them seems to be the theme. Rising wages are considered good until they do, then they're suppressed, as you noted. We're locked into a neoliberal model, and I can't see any escape. Even the Great Recession didn't dent the model enough to force new policies, and the Dems don't have any to offer, unless the Sanders-Warren wing of the party takes charge. I don't see that happening unless some external event precipitates the change.Here my analysis. This expansion will end someday. And the stock market will enter a bear market. Here is where we have a test of my hypotheses. The capitalist crisis hypothesis holds that the stock market has a stealth overvaluation so bear market declines will be greater than normal. Using this idea and the Stock Cycle model (which has made successful calls in 2000, 2002 and 2008) I projected that the S&H500 would fall below 1100 without a financial crisis, or as low as the 600’s with a financial crisis.
Now back in 2015 the forecasted decline w/o crisis was slightly less than 50%, similar to that in 2000, which did not see a financial crisis. But with the S&P over 2400, such a decline would be over 55%. Declines of this size have occurred only twice in the post-Civil War era, in 1929-32 and 2007-9, both of which saw financial crises. I find it hard to see how equity valuations could fall this far and leveraged investments not run into problems giving rise to financial crisis. So, let’s assume financial crisis, serious recession, and collapsing markets two years after the stock market decline begins.
As the market falls and unemployment starts to move upward, Trumps poll numbers fall. Now imagine this happening with President Trump angrily tweeting about how Wall St short sellers, Democrats, Congressional Republicans, Obama, and Hillary Clinton are responsible for this (but doing nothing about it). Unless the stock decline begins like right now, the scenario described above won’t arrive until after the November 2018 election. Assume this is the case, and Republicans, after taking losses in 2018, and losing control of half a dozen state legislatures, are still (barely) in control of both Houses of Congress.
Under this scenario, how willing will Congressional Democrats be to vote for a TARP II in order to bail out the financial system and the Trump administration? I will say not willing, because the base hates Trump and progressives hate Wall Street. Republicans didn’t even support TARP I, so I would argue they won’t support TARP II either. So there will be no TARP II and no stimulus this time. Now Republicans will say they don’t believe in stimulus, but every Republican president since Eisenhower has employed stimulus, so obviously Republican elites believe in it, even if their base doesn’t. Democrats as a rule and most economists believe in stimulus, as do I. Based on this I expect that if a financial crisis and equity crash happens that is unopposed by stimulus/bailouts, there is every reason to expect a 1929-like collapse of the economy. This is consistent with the predicts for both Turchin’s secular cycle and the S&H cycle working together. (If it doesn’t happen it casts evidence against one or both cycles).
If this happens, Republicans are swept from power in 2020 like they were in 1932. It will NOT be like 2008 because the collapse will happen earlier in Trump’s term and most of the pain will happen on his watch. Furthermore, Republican leaders did not like Trump in 2015 and they do not like him now. If his administration is taking water because of a declining economy in 2019, they may decide to throw Trump under the Bus, blame the whole mess on Trump, impeach and remove him from office--all in an attempt to lessen the loses down ballot. It will mean the end of Pence’s career, but he made his bed when he signed on with Trump.
This would be both the Great Devaluation and the Crisis of 2020 predicted by S&H. Now it is up to Democrats who will be back in power. The key to the solution is this: the probability of this happening according to the best neoliberal economic science available, according to what all intelligent neoliberals believe is ZERO. Not low, but zero. The scenario I am presenting here is impossible--not gonna happen.
But then the impossible happens, like it did in 1932. Neoliberal elites (that is, most of them) face a world that their worldview says cannot exist. So, what are they going to do, ignore the evidence of their senses and carry on, or believe their lying eyes? If our ruling class were truly delusional, then I would argue they could not retain their wealth and power, someone who is not delusional would have taken it from them. So, I argue they would believe their lying eyes.
The fact that the reality they find themselves is totally incomprehensible to their neoliberal eyes, they would be paralyzed by fear and indecision, looking for someone with the vision to lead them out of the abyss they find themselves in. This is like Wall Street in 1932 who rallied in anticipation of their savior FDR, who in short time they would come to hate.
Democratic elites solved this problem last 4T. They had a more advantageous starting position since the Republicans of that time did not object to tax increases. But they had the disadvantage of not knowing what to do. I believe Democrats can still do a New Deal type policy if faced with the situation (described above) that makes it politically possible. This is because FDR is still a Democratic hero, despite the fact that he was head of a racist party. But I fear the social justice warriors, who may soon make this impossible by making FDR the equivalent of Robert Lee.