The Times They Are a Changin’
Ten predictions for the coming year
The slaughter in Gaza continues. (I refuse to call it a ‘war’ when one side has all the tanks, artillery, and fighter jets.) It seems possible the Arab world will abandon the Palestinians, but I wouldn’t count on it.
Even if the carnage in Gaza doesn’t spiral out of control, there are some serious storm clouds on the horizon. Here’s my predictions for ten things that I’m reasonably sure will happen over the next twelve months:
A Global Recession is Coming
Europe’s economy shrank just a little over the past three months. It seems almost certain it will shrink some more by the end of the year, which will put Europe officially in recession.
With US consumers spending down the last of their savings, maxing out their credit cards, and resuming payments on their student loans, it seems highly probable the US economy will join Europe in recession very soon.
I know the media talking heads are saying the US economy is ‘incredibly resilient,’ but the US Government juiced the US economy with 1,000 billion dollars of borrowed money over the past three months and economic output only increased by a paltry 417 billion dollars. Call it ‘surprising strength’ if you like - but I think ‘an economy on life-support’ would be more accurate.
Interest Rates Will Continue to Rise
I agree with Jim Grant and Peter Schiff that the era of low interest rates is now officially over. The coming global recession may put a temporary damper on rising interest rates, but unprecedented levels of all kinds of debt worldwide means there are are going to be too many borrowers and too few lenders for the foreseeable future. Interest rates will stay painfully high. The US Federal Reserve may delude themselves into thinking they still have some control over interest rates, but that horse has already left the barn.
Inflation Won’t Disappear
Too many governments are borrowing too much money for inflation to disappear. It may moderate somewhat during the coming recession but it won’t disappear. Just as important, the big price increases we’ve seen over the past two years won’t be rolled back.
Debt Will Become Problematic
When interests rates were practically zero, governments, corporations and individuals could gorge themselves on debt with few consequences. Higher interest rates have put an end to that fool’s paradise.
The US Government is now caught between a rock and a hard place. If it doesn’t rein in its multi-trillion dollar deficits, the US debt will spin out of control. If it does clamp down on spending, it will make the impending recession that much worse, which will massively increase government expenditures while decreasing government revenues - with the same ugly result.
Housing Prices Will Fall, Eventually
At the moment, no US home-owner with a fixed-rate 30-year mortgage would sell their home voluntarily, knowing their mortgage payments on any new home they could buy would be at least double what they currently are paying. This has artificially reduced the pool of potential sellers enough to keep housing prices relatively stable.
As recession increases the pool of involuntary sellers and decreases the already small pool of those able to buy, house prices will start to drop. (Prices are already falling if you subtract mortgage buy-down costs from the official sale price of many new homes.)
Commercial Real Estate Will Continue to Crater
Work from Home is a little less ubiquitous than it once was, but it hasn’t diminished enough to keep commercial real estate from crashing due to unoccupied office space. The problem will only get worse once a recession hits.
As loans on commercial real estate come due, interest costs on any replacement loans will typically double. Whether this is just a problem for the owners of said real estate, or becomes a problem for the banks that loaned them the money, remains to be seen.
BRICS will get Bigger, and Perhaps Heavier
I strongly suspect, by this time next year, BRICS will receive membership applications from pretty much every Arab and Islamic country in the world. I also think it possible, at some point in the future, that the BRICS nations might decide that a mutual self-defense pact would make all BRICS members feel more secure.
Ukraine Is Toast
The US and NATO countries were already short of ammunition and military hardware after 18 months of donating massive amounts of such hardware to Ukraine. Now the US is donating huge amounts of military hardware to Israel.
America and NATO, now suddenly facing the possibility of war with Iran - or worse - must be desperate to hold on to whatever remaining military stockpiles they have.
For Ukraine, that basically means whenever their current stock of ammunition, tanks and artillery is gone, there will be no more forthcoming.
Some will try to claim that the Ukraine war is a ‘stalemate’. It is not. Russia is merely waiting for Ukraine’s inevitable collapse. The US media has already started to prepare Americans for that eventuality.
Biden Is Toast
A year from now the US will likely be in a recession, with high interest rates, moderate inflation, and crashing real estate prices. The war in Ukraine will have ended almost as ignominiously as the war in Afghanistan.
By then, the Republican Party will have enough material be able to put together a full-length movie of Biden stumbles, falls, vacant stares, faux pas and word salad. Assuming that Joe Biden hasn’t already been impeached, or died of dementia.
No amount of Orange-Man-Bad will be able to save Biden, or the Democrats. I am also willing to predict that many Democrats will belated recognize that the decision to disown Robert Kennedy was an own-goal of spectacular proportions.
Something Will Break
My final prediction is that something important will break in either the US economy or the global economy sometime during the next year, and that whatever breaks will cause other dominos to fall, similar to what we saw in 2001 and 2008.
If I had to guess where the first domino will fall, I would say that US regional banks must be on very thin ice at this point, between owning billions of long US bonds that are worth less than half what the banks paid for them, billions more in 3% mortgages, and yet more billions in commercial real estate loans that will never be repaid.
All ten of the above predictions are based on the fingers-crossed hope that the conflict in the Middle East doesn’t escalate. That war with Iran is avoided. That World War Three doesn’t happen. That the Arab world doesn’t decide to place Israel, Europe and the US under an oil and natural gas embargo and drive the price of oil to $150 per barrel. That the Arab and Muslim Worlds don’t crash the US dollar by dumping all of their US Treasuries to punish the US for aiding and abetting Israeli war crimes in Gaza.
So, be forewarned, the above list of predictions is my best case scenario for the coming year...
Thanks for the insight. Buckle up, the coming months are going to be a wild ride.