Particularly in the U.S., whose markets have thrived under a psychological uptick from Trump and the current administration, I fully expect to witness the historical pattern that accompanies my “psychology in the short term, fundamentals in the long” economic mantra.
While people are spending like no tomorrow with the hope of future earnings, more air is simply being put in the bubble as all the excess is financed by debt. In the global Ponzi scheme of financing debt with debt, this will only lead to a much louder pop when the bubble bursts.
The psychological persuasion has its benefits though, as it encourages those of working age not to simply bask in the ocean of fake money but to work harder to bring a better future. A huge boost in psyche is needed since this working generation has to produce almost thrice as much to make up for the excess spending of future productivity by baby boomers — the generation that constitutes the wide top of today’s inverted population pyramid.
The problem is there are more ways for the bubble to pop. Both a burn out and a withdrawal from the psychological high are set to occur. A so-called “black swan” event can still happen. The continual extension of the inverted population pyramid as a result of eroding family values and rising economic infeasibility of raising children places constant pressure on the bubble.
The economy must correct as it cannot maintain this unrealistic promise of future earnings. Something must be done to address the debt at both a national and household level. Defaulting and hyper-inflation or a great depression have been in the cards for quite some time, and now more of those cards are added to the deck, increasing their likelihood of being drawn each passing year.
In 2018, I can imagine how the continuation of 2017’s trends will mimic the Gilded age of the late 1800s. A lot of parallels can be drawn between then and now. From Wikipedia:
As American wages were much higher than those in Europe, especially for skilled workers, the period saw an influx of millions of European immigrants. The rapid expansion of industrialization led to real wage growth of 60% between 1860 and 1890, spread across the ever-increasing labor force. The average annual wage per industrial worker (including men, women, and children) rose from $380 in 1880 to $564 in 1890, a gain of 48%. However, the Gilded Age was also an era of abject poverty and inequality as millions of immigrants—many from impoverished European nations—poured into the United States, and the high concentration of wealth became more visible and contentious.
In Canada, there has particularly been a much larger influx of immigrants, and perhaps worse than it was in the Gilded age as the majority of new arrivals are not of the economic type. Generally less-skilled workers are coming in, and coming in in the midst of the housing bubble means that the supply of affordable housing becomes much more strained. This does not necessarily make the concentration of wealth more visible but rather highlights the lack of productive ability of the growing lower and middle-class segments.
I will blame the Wikipedia authors for suggesting that inequality is an issue here. If everyone as a whole was wealthy despite being unequal (i.e. everyone is contributing and producing value, just to varying degrees), there wouldn’t be an issue. Similarly, the rising annual wages aren’t indicative of economic growth either, particularly if the purchasing power is not maintained due of inflation.
Social problems derive from the misplaced expectation on newly arriving unskilled workers having the same lifestyle as those that have created the expanding economy.
Railroads were the major growth industry, with the factory system, mining, and finance increasing in importance. Immigration from Europe and the eastern states led to the rapid growth of the West, based on farming, ranching, and mining. Labor unions became important in the very rapidly growing industrial cities. Two major nationwide depressions—the Panic of 1873 and the Panic of 1893—interrupted growth and caused social and political upheavals.
Railroads were driving the economy back then similar to how the Internet and computer technology drive a large segment of the economy now. Rampant speculation in railroads led to the panic depressions. I fully expect the rampant speculation in tech stocks and cryptocurrencies to be the convenient scapegoats for the next depression and the unwinding of today’s over-leveraged markets. Whether this happens in 2018 is a guess, and the probability of it happening hinges on whether the current psychological stimulus, known better by its euphemism, “confidence”, can be maintained.
The political landscape was notable in that despite some corruption, turnout was very high and national elections saw two evenly matched parties. The dominant issues were cultural (especially regarding prohibition, education, and ethnic or racial groups), and economic (tariffs and money supply). With the rapid growth of cities, political machines increasingly took control of urban politics. In business, massive, powerful, and wealthy trusts formed. Unions crusaded for the 8-hour working day and the abolition of child labor; middle class reformers demanded civil service reform, prohibition, and women’s suffrage. Local governments across the North and West built public schools chiefly at the elementary level; public high schools started to emerge. The numerous religious denominations were growing in membership and wealth, with Catholicism becoming the largest denomination. They all expanded their missionary activity to the world arena. Catholics and Lutherans set up parochial schools and the larger denominations set up numerous colleges, hospitals, and charities. Many of the problems faced by society, especially the poor, during the Gilded Age gave rise to attempted reforms in the subsequent Progressive Era.
I don’t think I have to comment on how similar this looks to today’s situation, particularly if you replace the religious denominations with postmodern and cultural Marxist cults. Academia, media and other institutions have already demonstrated the rise in this new form of “religion”.
Given that hardly anyone cares about history nowadays, particularly a large segment of youth about to enter the workforce that stand firmly with communist and socialist ideals, I suspect in 2018 we will simply repeat history rather than learn from its mistakes. I just hope I don’t have to revise this prediction to say that instead of repeating the Gilded era, we will instead repeat China’s Cultural Revolution. It’d be just too ironic that my parents fled from a murderous communist regime only to arrive at a country, supposedly a place of refuge, approaching the same fate.
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