U.S. recessions, courtesy of the Federal Reserve Bank of St. Louis. Begin with those blocks in the 1980-82 timeframe. After three-and-a-half years of spending under Carter and his Democrat-controlled Congress, America suffered from a severe case of inflation-stagflation. Prices rose, and wages were flat or declining. Sound familiar? By the late 1970s, much of the U.S. economy was played out. Many businesses were hanging on, just barely. After the inauguration in January 1981, Carter’s downturn became Reagan’s recession. If nothing else, Reagan walked into the White House and confronted eye-popping interest rate increases of former Fed chair Paul Volker, which hit the economy like a ton of bricks. Between Carter’s high inflation and Volker’s high interest rates to combat Carter’s high inflation, entire sectors of the economy wound down: for example, manufacturing, housing, autos, and much else. Plus, Carter mishandled America’s energy situation through inept foreign policies (recall the Iran debacle) and ruinous domestic price controls on oil and natural gas. Carter, the so-called “nuclear engineer,” made many truly dumb energy decisions. In January 1981, Reagan inherited Carter’s weak economy and high energy prices. By then, many sectors were on the verge of collapse. Rapidly, entire swaths of the country transformed into what is now known as the Rust Belt. I recall those days personally because I was there. In Western Pennsylvania, about 125 miles of the Monongahela River frontage, from downtown Pittsburgh south to West Virginia, were devastated. Along the way, mills, plants, factories, and entire industries succumbed. Workplace layoffs numbered in the hundreds of thousands, and nearly countless factory gates closed. Whole towns and counties were devastated. Don’t just take my word for it. Over the past four decades, many scholars and investigators have documented what happened. For example, John Hoerr’s superb 1988 book, And the Wolf Finally Came: The Decline and Fall of the American Steel Industry, explains how the mid-20th-century American steel industry imploded in the wake of the Carter administration. But this is all history, you may be thinking. What about now? I’m glad you asked… Jobs-Jobs-Jobs! Begin with this recent front-page story from the Wall Street Journal: | | WSJ, Jan. 11-12, 2025. | With a headline like this, what’s the problem? Biden’s economy is doing just great, right? It’s Biden’s so-called Build-Back-Better at work. You’re feeling no pain, right? Indeed, “The U.S. labor market has found its footing,” states one of America’s oldest business newspapers in the story leader. Well, it’s all good as long as you don’t turn the page and read the rest of the article. Because deeper inside, on page 6, the WSJ points out that “For all of 2024, roughly 75% of hiring took place in just three sectors: healthcare and social assistance, leisure and hospitality, and government.” Okay, think about that. Biden’s allegedly great economy has created jobs caring for sick people or caring for people with “social” issues, making hotel beds, working in kitchens, and working for the government. There’s dignity in work, to be sure; and good for anyone out there who has a job and earns a paycheck. Bravo! But pardon me while I point out that these types of job creation are not exactly the hallmark of an economy that’s building or rebuilding competitive, world-class manufacturing or creating significant value-added capacity. These job numbers don’t represent an economy that can or will resurrect America’s moribund working and middle class. Let’s be blunt. Most “healthcare” jobs are funded by massive government spending on Medicare and Medicaid. And “leisure and hospitality” is not exactly a high-paying field, as any barista or motel maid can tell you. “Government” jobs are just another way of saying that more and more people are pulling down more and more tax dollars. In these data sets from the Biden administration, where are the jobs that create fundamental wealth? According to the WSJ report, most new jobs of the Biden era represent paychecks based on taxes and monetary churn. We don’t see much in the way of capital investment that delivers long-term assets to the economy. By comparison, and say what you want about Franklin Roosevelt’s Depression Era spending, but at the end of the 1930s, at least the country had new energy projects, locks, and dams on rivers, new bridges, roads, etc. And the BLS Gets It Wrong… Often Meanwhile, no matter the nature of what passes for job growth, the U.S. Bureau of Labor Statistics (BLS) is notorious (definitely under the Biden Regime) for announcing strong job numbers, only to revise them down a few months later. Even long-time, Trump-hating CNN admits that BLS job numbers under Biden have been shady, in a manner of speaking. Here’s a pull quote from a few months back, after a dramatic downward revision by that same government agency: “U.S. job growth during much of the past year was significantly weaker than initially estimated, according to new data… [snip] … The Bureau of Labor Statistics’ preliminary annual benchmark review of employment data suggests that there were 818,000 fewer jobs in March of this year (2024) than were initially reported.” Oh, only 818,000 fewer jobs? You don’t say! Well, anyone can make a boo-boo. After Trump takes office, we can look forward to many other BLS corrections in job numbers. Perhaps we’ll finally begin to understand how bad the overall employment situation is out there across the dark plains of the Republic. And the critics will blame Trump. More Biden-Era Landmines for Trump Here are a few more reasons why outgoing Biden will hand off a recession to the incoming Trump. Interest rates are rising despite recent Fed rate cuts. Here’s another WSJ headline that says as much: | | WSJ, Jan 14, 2025. | Despite Fed rate cuts since last September, private and public bond markets are driving rates up. In other words, markets don’t buy the economic moonshine that the Fed is selling. These markets believe that the U.S. economy is weak, risks are high, and higher rates are the price to lend cash. Trump will inherit this weak Biden economy with its rising interest rates and built-in inflation. Of course, this will complicate Trump’s governance efforts while acting as a ball and chain on the broader economy. The U.S. auto industry is in horrible shape.Here’s another national-scale Biden legacy being passed on to The Donald: a weak, malinvested auto industry. This sector alone offers a recipe for economic upheaval on a broad scale, affecting major brand names, supply chains, and workers across the nation. Look for plant closings and even bankruptcies. For this crashing auto sector, thank draconian Biden-era mandates for near-impossible targets for fuel efficiency, coupled with unforgiving electric vehicle (EV) mandates that defy current levels of technology and manufacturing abilities. In short, Biden-era auto and related EV mandates have forced domestic makers to shift to nascent, unproven technology, based on the theory that their 125 years of business experience were no longer relevant. Meanwhile, much of the intellectual property (IP) for EVs has already been patented by Chinese makers, whose head start is ruinous when it comes to comparative price stickers on American-made versus Chinese vehicles. Good luck to the auto sector in years to come. The real estate mess is bad and getting worse.Post-Biden, Trump will inherit a real estate market with high prices and rents in many locales. The payment levels will challenge the ability of many businesses and people, young and old, to make a go of things. On the commercial side, there’s a national-scale issue of vacancies in downtown areas and many suburbs. Part of it is cultural, with the work-from-home shift in recent years. Part of it is simply that many people no longer wish to venture into dangerous and hostile cityscapes due to Progressive openness and tolerance of homelessness, drugs, and other crime. Places like San Francisco, New York, Chicago, and more come to mind. Speaking of bad governance, California and Los Angeles stand out for obvious recent reasons. The Golden State generally offers expensive venues and high taxes, yet for some strange reason, the governing powers can’t keep the fire hydrants charged. This isn’t Biden’s doing directly, but the ongoing disaster represents Biden-style misgovernance at the state and local levels. Meanwhile, loss estimates for LA alone are worth at least $150 billion, likely much more. These losses are highly likely to trigger local, regional, and even national-scale bank and insurance company insolvencies. Watch for collapses when cash flow dries up. Along these lines, keep in mind that the 1906 San Francisco earthquake led directly to the global Panic of 1907, when the U.S. government literally went broke and had to borrow gold from J.P. Morgan. In this sense, Trump has all the makings of a national economic crisis barreling down at him along Interstate 10. What to Do? The imminent inauguration of Donald Trump has already lifted markets and ushered in a measurable improvement in business confidence. Again, it’s just five more days! (Not soon enough, some might say.) Still, Biden is handing Trump an economy filled with problems, if not crisis-scale predicaments. The country suffers from much-too-high government spending, astronomical national debt, backbreaking interest on that debt, rising interest rates, dodgy job numbers, a mess in autos and other sectors, a bad real estate situation, and more. Right now, don’t be afraid to lighten up on high-flying stocks you might own. It’s a new year, in a new tax cycle. Take some cash off the table. Because sooner or later, it will dawn on many others that things out in the broad economy are not rosy. The Biden administration has left a mess behind, and we could see markets slide as rapidly as they rose. Definitely, some cash is good. Cash is dry gunpowder. And as 2025 unfolds, you’re going to need it. Oh, and also… if you don’t own physical gold and silver, it’s not too late to get some. |
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