Did The Economy Just Stumble Off A Cliff?

Tyler Durden's picture

Authored by Charles Hugh Smith via OfTwoMinds blog,

The signs are everywhere for those willing to look: something has changed beneath the surface of complacent faith in permanent growth.

This is more intuitive than quantitative, but my gut feeling is that the economy just stumbled off a cliff. Neither the cliff edge nor the fatal misstep are visible yet; both remain in the shadows of the intangible foundation of the economy: trust, animal spirits, faith in authorities' management, etc.

Since credit expansion is the lifeblood of the global economy, let's look at credit expansion. Courtesy of Market Daily Briefing, here is a chart of total credit in the U.S. and a chart of the percentage increase of credit.

Notice the difference between credit expansion in 1990 - 2008 and the expansion of 2009 - 2017. Credit expanded by a monumental $40+ trillion in 1990 - 2008 without any monetary easing (QE) or zero-interest rate policy (ZIRP). The expansion of 2009 - 2017 required 8 long years of massive monetary/fiscal stimulus and ZIRP.

This chart of credit change (%) reveal just how lackluster the current expansion of credit has been, despite unprecedented trillions of stimulus pumped into the financial sector.

Here are two other snapshots of debt: margin debt and private credit. Both have hit new highs.

Note the tight correlation of margin debt to the S&P 500 stock index: when punters borrow more on margin to buy more stock, stocks keep rising.

When credit stops expanding, the economy stumbles into recession.

Back in the real world, have you noticed a slowing of animal spirits borrowing and spending? Have you tightened up your household budget recently, or witnessed cutbacks in the spending habits of friends and family? Have you noticed retail parking lots aren't very full nowadays, and once-full cafes now have empty tables?

According to the conventional economic statistics, everything's going great: there are millions of job openings, unemployment is near historic lows, GDP is expanding nicely and of course, everyone's favorite signifier of wonderfulness, the stock market, is hovering near all-time highs.

The possibility that the real economy just stumbled off a cliff creates instant cognitive dissonance, as the official narrative is the economy is expanding slowly but surely and everything is nominal: there's plenty of everything, from oil/gas to consumer credit to jobs to student loans.

Nonetheless, I feel a disturbance in the Force: once credit expansion slows or ceases, the economy will roll over into recession, as wages have been stagnant for the past 17 years, and the bottom 95% of households can only spend more if they borrow more.

Recessions are not mechanical processes; they are ultimately measures of human emotions and assessments: greed/complacency gives way to fear and caution, and denial /magical thinking is brought to Earth by reluctant acceptance of less-than-ideal realities (for example, we really can't afford to borrow more, it makes no sense to buy negative-interest rate bonds, etc.)

Though it's bad form to mention it, everyone's favorite signifier of wonderfulness, the stock market, is by most measures overvalued and priced to perfection.

Meanwhile, after failing to normalize interest rates and its balance sheet years ago when the economy had already recovered some stability, the Federal Reserve (and a few other central banks) are hurrying to make a grand show of ticking rates a bit higher before the next recession reveals the systemic failure of their 8-year long campaign of permanent monetary stimulus and near-zero rates.

Everything that could rescue the stock market from swooning has already been done: buy hundreds of billions of dollars of stocks via index funds? Done. Constantly communicate the god-like powers of central banks to fix anything and everything in global equity and bond markets? Done, to the point of boredom.

How can anyone trust a market that has been massaged and manipulated for 8 long years? What sort of price discovery is possible if central banks have been major buyers for years?

Beneath the surface of complacent tranquility and absolute faith in the god-like powers of central banks, a skittish awareness of risk and fragility is rising. I would contend that this is true not just in moneyed circles with access to the best private research, but in households that are sensitive to the first tremors of the coming earthquake, and alert to the note of alarm in the canary's warblings down in the coal mines of the economy.

I suspect all those who have placed their trust in everyone's favorite signifier of wonderfulness, the stock market, have forgotten that signifiers can work both ways: nothing signals recession and a panicky urgency to sell everything that isn't nailed down like a sharp swoon in stocks that fails to respond to a "buy the dip" buying frenzy.

The faith in "buy the dips" (i.e. "the Fed has our backs") is not based on an immutable law of Nature; stocks can (gasp!) actually succumb to gravity. And when they finally do feel the tug of gravity, the belief that "buy the dips" is a permanent strategy will be revealed for what it is: a long, heavily-juiced run that eventually ends.

The signs are everywhere for those willing to look: beneath the surface of complacent faith in debt-fueled permanent growth, the economy is stumbling. Recessions are typically identified after months of squinting in the rearview mirror, but we don't need an official declaration to sense that something has changed.

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junction's picture

The economy never fully recovered from 9/11.

Organic Patriot's picture

Nor the people.  Trump will never MAGA until/unless the 9/11 lie is exposed as a CIA inside job and those responsible are held accountable.

chubbar's picture

OT, here is some comedy gold. An antifa protestor takes a shot to the nuts with a pepper ball. http://12160.info/video/phoenix-protester-nut-shot?

Shocker's picture

The economy has been beaten down for several years now. Even with good policies there will still be a rough recovery ahead

Layoff / Closing List: http://www.dailyjobcuts.com


svayambhu108's picture

Wake me when it hits the bottom.


What about that Civil War?

When you export too much civil war around the world there is glut and you will have more of your product home if you cannot export anymore. Same with Jihadims.

Ghost of PartysOver's picture

OK fine, the economy just fell off the cliff.  What does that have to do with the markets?  When was the last time stocks were related to fundamentals?  Just say'n

HopefulCynical's picture

A very fair point. Markets will be ruled by [CTRL+P] - until they aren't.

stizazz's picture

The economy has been comatose for a while, that's for sure.

Save_America1st's picture

4th quarter is just around the corner.  Don't all big crashes usually occur around Sept. or October as people get spooked towards the end of the year and start to run for cover?

This could be the big one.  But something tells me 2018 may be the real big one.  Not sure if the cartels are ready to rip the rug out from under the world just yet.  But it sure does seem closer than ever.

AlphaSeraph's picture

yes, Sept-Oct is the historical crash season, with August usually offering up many of the signs. 

Chief Wonder Bread's picture

Pigs get fat, hogs get slaughtered. I just noticed that I'm sitting on gains of ~10% from equities purchased in June. Why be a hog? That's a decent gain.

DWD-MOVIE's picture

I’m making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do… http://disq.us/url?url=http%3A%2F%2Fwww.jobproplan.com%3A68UoF1LgzM-Yo3S...

Stuck on Zero's picture

Financialization of the economy is not complete yet. The Fed doesn't own everything.

ArgentoFisico's picture

even AFTER the cataclysm, i guess 

HungryPorkChop's picture

The die has already been cast in stone what they plan to support no matter what happens to the economy. 

San Francisco level housing and rent prices coming to a neighborhood near you along with DOW 40,000.  It'll be wonderful with people dancing in the streets as new home buyers pay $1.0 million for a fixer upper.  Or rent for a small 1 bedroom apartment approaches $2,500 / month. 

Seems pretty obvious that's where they are trying to push the economy.

Anon2017's picture

I wonder what I will be able to buy with a 20 billion Reichsmark stamp issued in 1923? It has been sitting in my stamp album for about 60 years. 

tion's picture

If the American race war efforts fail to provide the desired results on their own,  very wicked and desperate people will start with the financial fuckery games, what will they 'pull' first? I'd like to think they'd know better than to start pushing over the wrong dominos, but the hubris drips off of them and their own getaway locations have been purchased and secured, they would prob enjoy it if blood started running in our streets or if they could watch starving people in the hood on their nightly news. If there is a huge downturn the inner city violence will be hard to keep a lid on. Could even start seeing more non-blacks being lynched in broad daylight, already, just stealing seems to be becoming unsatisfying for some of these thugs. It's sad though, there are lots of kids here in the hood that are good kids, just trying their best to survive and thrive in a hostile environment without becoming little thugs. When SHTF I hope we can remember to judge the character and actions of individuals.

Mr Hankey's picture

When is the last time ANYONE got lynched? How many niggers got lynched in the  last 100 years vs. Whites getting raped, assaulted & murdered in last 25? YT is not going to survive you."We're not listening anymore"tm

kochevnik's picture

Today, in USA democracies of Iraq and Libya

froze25's picture

The Civil war that will absolutely hurt and kill many in urban centers? yeah its gonna suck for many. I don't think there is much to avoid it unless the Main Stream media decides to actually start holding people accountable and calling them out on the Radical Left side. I don't expect them to do that. Jeff Sessions is still sleeping so no help from the Justice Department. These ANTIFA fools think that just because they call themselves Anti Fascist some how that makes it impossible to be fascist. So now we wait, we prepare. ANTIFA still doesn't get that the Cities have about 3 days worth of food. Once that food is gone, all hell breaks lose in the concrete jungles.

Fundamentals went out the window in 2008 with the TARP bailout.

MrSteve's picture

Re: three days of food- Aldi has low prices on dry beans. I haven't checked their canned beans (cheap) vs. higher priced brands for actual bean content vs. water. Canned beans are cooked so they consume less fuel to heat and eat, if that becomes an issue; dry beans require a long soaking and cooking unless you use a pressure cooker (carefully) to avoid plugging the safety valve.... A pressure cooking canner is an often -overlooked "economy" and fuel-efficient cooking device.

stormsailor's picture

if you have seen the "inner city" denizens, most look like huge, fat, walrus, particularly the females.  They may not like the no food available, but with all that blubber closer to a month would be needed just to shrink them to normal size.  all that stored energy from decades of gimme dats.

tion's picture

Get a bag of dried beans for the long haul as well as a bulk bag of sprouting seeds like brocolli. Dried beans, whole wheat grains, seeds, have very long shelf life and can be sprouted - sprouts are very nutrient dense and sure beat having to wait forever to have fresh veggies. Some bean sprouts can be turned into amazing kimchi also. Don't forget the rice for the complete protein goodness. Ladies, you can use the rice soaking water as a hair and face rinse. Fermented rice punch, porridge, wine, and vinegar are also not too shabby.

kochevnik's picture

Better to keep store of fat like pig belly for survival, in particular for cold climates. Nutrition is an luxury when you must carry all needed to stay alive

TheReplacement's picture

You can bet that the group(s) with the best arms will quickly assert themselves and send their new recruits out to the burbs and countryside to forage.  I would include the police in that calculus.

mygameon's picture

You can't possibly be talking about southern Iowa country. You'd never get within 50 yards of our compound before anyone in my tribe put 2 in the chest and one in the head. Plus inner city folk don't blend in so well around here Both girls and boys can bring it to any interlopers following your scenario

Anarchyteez's picture

That laugh was a great way to start the day.

krispkritter's picture

Smacked him right in his pussy. Antifa members have no balls.

curbjob's picture

The upside is that now he may never be able to breed.

Mr.BlingBling's picture

No. The economy has been DRIVEN off a cliff by the unholy alliance of the govt., Wall St., and the Fed.

Best case study of RICO I've ever seen . . .

GUS100CORRINA's picture

Did The Economy Just Stumble Off A Cliff?

My responseL The CHART that just 'BLOWS ME AWAY' everytime I see it is the DEBT MARGIN chart.

Everyone is ALL IN and there is NO CASH on the sidelines despite popular opinion. The exception to this rule are people like Warren Buffet and other elites. They are all waiting for the fall so they can buy assets for pennies on the dollar just like JFK's father did during the early 1900s.

Kotzbomber747's picture

The economy jumped off a cliff a long time ago, but it's kept aloft due to massive money printing and massive propaganda.

I sometimes think we're in a similar situation as the USSR in the early '80's. Lot's of cracks in the façade, but the people/sheeple are still gullible and naive enough to believe the propaganda. Things are not yet bad enough for the people to snap out of their cosy dream.

I also think we're still quite a while off before the systemic collapse comes. There is still plenty of room to manipulate the masses, still plenty of savings/pension funds, still plenty of totalitarian initiatives like a cashless society, that can be used to postpone the next crisis.

Truthoutthere's picture

Think Wil.E.Coyote's legs furiously spinning in thin air.

HopefulCynical's picture

Agreed. The systemic collapse will happen, but we do have a while yet, probably a few more years at least. I'm thinking more of when Wil. E. runs off the cliff in a cloud of smoke, then carefully reaches down below his feet to verify that, yes indeed, he's hanging in mid-air.

We're just waiting for the smoke to dissipate and him to hold up the little sign that says, "Bye!"

The Ram's picture

Good assessment.  A couple of things on the horizon could be deal breakers for the 'gradual landing' of the economy:

--Increased medical insurance premiums (10-50% per annum)

--Increase in Food prices as 10% or more per year

--Increase in medicaid and other STATE supported 'entitlements' could break the fragile state and local governments

--Huge violence in urban centers that totally spooks the herd (both wall street and main street herds)

Yes, 'they' have some time, but lots of co-factors around to kill their 'gradual' sinking of the real economy


HopefulCynical's picture

Every one of those can be papered over, I'm afraid.

Well, until they can't, of course. That which cannot continue will not continue; everyone who has read ZH for more thsn a month understands this.

But in the same way that "markets can stay irrational longer tha you can stay solvent," unsustainable conditions can persist longer than you think possible.

The Ram's picture

Pray tell, how does one 'paper over' extreme violence in urban areas?  How does one paper over unpayable increases of medical insurance payments without direct subsidies to people?  If you are literally talking about 'helicopter' money directly to people, that may work for some time.

HopefulCynical's picture

Pray tell, how does one 'paper over' extreme violence in urban areas?

If they don't televise it or publicize it beyond the locality in which it occurs, most people will never even know it happened.

How does one paper over unpayable increases of medical insurance payments without direct subsidies to people?

What makes you think that won't be how they do it? Either that or, if they're white, write 'em a scrip for opioids and wait for 'em to OD.

They hold all the cards - until they don't. Them's the facts.

secretargentman's picture

Even if they don't, it won't matter. Things like that are always "somewhere else" for the vast majority of the population. 

Iskiab's picture

You guys are all missing the root cause of the problem: demographics. The baby boomers have been saving for retirement and it's been their savings that created Wall Street as we know it. They're retiring now and the percentage employed has dropped like a rock.

The unemployment rate is low but the employment rate as a percentage of the country never recovered after the financial crisis, and won't because those people exited the workforce. Right now returns are low so even those retired are still in the market, once it starts dropping it will create a run. There's no investment by business' because there's no demand, or not enough, why build a factory when no one wants to buy your stuff?

All the Feds policies have been to try to keep the party going despite changes in the economy. It's doomed to correct.

shovelhead's picture

There is no next crisis. We're in it. We're just waiting for the natural result when the money pump meets it's head limit.

It may take the appearence of a crisis but it will just be a devolution to actual price discovery. You just ain't gonna like what happens to prices of things you and eveyone else NEED to buy.

Guess where all that fake-o money is going to run to while the lawyers fight over who owes what to who? Printing to outrun hyperinflation is like trying to outrun a bullet so don't look for help from the Fed and Treasury.

Like Joey said: "They fuck you at the drivethru."

JRobby's picture

By design.

Followed by destruction of rights and due process / surveillance state.


Cloud9.5's picture

Maybe and then again maybe not.  There are a lot of us sitting out here on the sidelines who have no intent to get in line and march down to the Local FEMA camp.   The people are jaded.  We are suffering a burn out from all the charlatans, charismatics and messiahs that were going to lead us to the promised land.  Some of us are starting to understand that there may not be a political solution to what is at hand.

We are in decline. The key undercurrent of this entire dynamic is the reality that we have reached the end of growth. Pension plans, entitlements, state and local budgets, bond issues are all zero sum games. Exponential growth is now sustained by exponential currency creation. Fiscal responsibility is an impossibility in the current political and economic environment. There will be rapid injections of liquidity into too big to fail institutions that are about to collapse. Whether it be banks, governments or major oil companies, these injections will continue right up and until the moment the currency collapses. No sane politician is going to be party to blood in streets as long as a single mouse click will forestall it. Trying to predict when systemic collapse happens is a bit like trying to predict when a school of fish will change course on a reef.   There are too many variables for a viable prediction to be made.


What we have observed with the death of money is that it happens slowly at first and then all at once.  Hemmingway was spot on on that one.

Thought Processor's picture



Nice post Cloud9.  And a very accurate summary.  It's basically all one big ponzi scheme at this point.  And things that can't go on forever, don't.

centerline's picture

If I could give you more than one upvote I would.  I completely agree.  Anything and everything will be done to avoid something major from breaking.  But, failure is inevitable.  It is just time.  Demographics.  And all the other variables that come to bear on this like a perfect storm.  When failure does finally arrive - it likely will be swift.  What's on the other side?  I haven't a clue.  All bets are off.

shovelhead's picture

So, business as usual. Only broker.

Give Me Some Truth's picture

If the economy did "stumble off a cliff" ... but there was no one there to see him careen over the edge, or to hear him scream, of if someone was there but chooses to remain silent about what he just saw ... did the economy really stumble off a cliff? 

Or: What if a "reliable witness" said he saw the economy and it was rocketing up to Mars and every media outlet gives ample coverage to this witness's account. Historians might one day prove the witness was lying (he knew that the economy fell off the edge of the Grand Canyon), but does that matter today?

What if "reality" is whatever perception is and the people who are in the perception- creation business are master con artists?

Okay, enough riddles.


Countrybunkererd's picture

Survey says: "Jackson CornHoles"


What is:  "Jackson's A-holes?"

HopefulCynical's picture

The rules of propaganda state that perception > reality, especially in the short and even median term. Only on "a long enough timeline" does truth finally out, when the pendulum simply cannot be prevented from swinging back the other way.

We're getting close, though.