‘…if governments and corporations succeed in hacking the human animal, the easiest people to manipulate will be those who believe in free will…Humans certainly have a will — but it isn’t free. You cannot decide what desires you have…Every choice depends on a lot of biological, social and personal conditions that you cannot determine for yourself. I can choose what to eat, whom to marry and whom to vote for, but these choices are determined in part by my genes, my biochemistry, my gender, my family background, my national culture, etc. — and I didn’t choose which genes or family to have.’

—Yuval Noah Harari, 21 Lessons for the 21st Century

The Dow closed down yesterday. Last Friday marked five straight weeks of losses on the index. It hasn’t done that in eight years.

Then, yesterday, it tried to rally…and failed.

The yield curve — the difference between short- and long-term bond yields — is inverted…a classic sign of a recession.

Retail sales are headed down. Appliances, too. GDP growth. Industrial production. Hours worked. New hires. Durables. Manufacturing new orders (excluding defence). Construction spending. All down…

A recession is approaching. And our Crash Alert Flag is up on the pole…flapping…waiting…warning.

The signals are there. They are unmistakable. But we don’t know the future. All we know for sure is that almost everything that is said about the economy of the present is fraudulent, incorrect, or misleading.

It is ‘solid,’ say the folks on CNBC. It is ‘doing great,’ says the Fed. It’s the ‘best economy we’ve ever had,’ says Donald Trump, and it’s going to get a lot better.

None of this is true. Zero.

Fake, fragile, and failing

The numbers, the charts, the anecdotes, the old-timers, the tea leaves, and the stars tell us to take cover. This is almost exactly the same economy that we had under Barack Obama — fake, fragile, and failing.

Put real interest rates back up to 5%, and it would shrivel up and die in minutes. Take away the fake money, and the net worth of America’s richest families would fall by some $30 trillion (as we will see in a moment). Come the next crisis — the whole shebang falls apart.

And now, shuffling along, bent by age, infirmity, and self-delusion…one of the longest expansions in history is nearing its end.

That is important enough…since it will unleash some nasty beasts: a stock market collapse, a depression, Modern Monetary Theory (MMT), inflation, money-printing, $2 trillion deficits, foolish, ‘shovel-ready’ infrastructure programmes, negative lending rates…and more!

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Where’s the money?

But we have even bigger, more important dots to connect today.

Markets make opinions. Today, we linger over what opinions markets are making now. Household net worth is at an all-time high, at 535% of GDP. Surely, people must feel fat and sassy, no?

And with the Dow near its top, people think ‘stocks for the long run’ is a pretty good idea. No matter what else you may say about Donald J Trump, they think, ‘He’s done a great job with the economy.’

But these are opinions, not facts.

Real growth rates have been sinking for years. Officially, GDP growth per person now creeps along at about 1% per year. As low as that is, it doesn’t really tell the full story.

Nor does household net worth (HNW). The total wealth of US households is about $105 trillion. It puts the average over $800,000 per household.

But half of retirees have saved nothing. And 40% of households can’t scrape together $1,000 for an emergency.

So, where’s the money?

It must be concentrated in a very few hands — at the top. Real wealth is created by the economy. And HNW normally measures about 380% of GDP. For every dollar of GDP output, the capital markets score about $3.80 worth of capital value (in housing, stocks, bonds, and other assets).

Occasionally, markets get ahead of themselves. HNW hit a high of 450% of GDP in the dotcom bubble of 1999…and then, it hit 486% in the housing bubble of 2007. Both were followed by corrections.

And now, at 535% of GDP, HNW is not only higher than ever…it’s about 150% of GDP higher than usual. With GDP around $20 trillion, that means it must reflect about $30 trillion of wealth that wasn’t produced by the economy…

The average person got none of this fake wealth. Real wages have remained almost unchanged for nearly 40 years. But prices for average things have gone up. Medical care and education, for example, are far more expensive than they were during the Carter Administration.

Zeitgeist shift

But let’s stick with the basics. Technology and credit have made today’s houses and pickup trucks bigger and better than 1979 models. But the poor working stiff only has his time to sell, and he has to sell twice as much of it to buy them.

What kind of progress is this? And what opinions do you develop when this happens to you?

You are not getting richer; you’re getting ripped off. The positive-sum game has become a negative-sum game.

Over the last couple of weeks, we’ve identified the shift already taking place. It is a shift of attitude…of the zeitgeist…from win-win to win-lose.

It is happening not just in the US, but all over the world. And not just in trade policy, but in foreign policy, monetary policy, and domestic policies, generally.

It is a shift away from risk…away from open societies with open markets…away from independence and free speech…away from the European Union…away from the free movement of people and goods…and away from the ‘liberalising,’ ‘globalising’ trends of the last 70 years.

And where does it lead? Towards what? Is that civilisation itself we see backing up?

More tomorrow…

Regards,

Bill Bonner