Because only fools believe they can predict the short-term fluctuations of the economy, let’s follow in the style of Descartes and just retreat to the most basic possible prediction that we are certain will come true. Which is: The current boom in asset prices — high prices not just in one asset, but in stocks, financial assets, real estate, luxury goods, crypto, NFTs and any other hastily invented place where money can flow — will come to an end. Whether that end comes tomorrow or in six months or in a year or in five years is impossible to know for sure, but we do know that the economy moves in cycles, and the current cycle is (very far) on the upside. And what goes up will, inevitably, come down. Sooner rather than later, probably, given the fact that America has been in a steady bull market since 2009, interrupted only briefly by a devastating global pandemic that has killed 875,000 people in this country with little visible effect on our roaring markets.
To avoid falling into epistemologically unwinnable arguments with bored day traders, let’s focus not on the exact time and mechanism of the next economic collapse, but on the more pertinent question of what it will mean for our national politics. Though few Americans feel qualified to analyze the economy, nearly everyone feels entitled to an opinion on politics — despite the fact that many of the issues that we experience as “politics” are just waves rippling outwards from various undersea economic tremors. First, the money moves; then, a little while later, these material changes are transmogrified into, say, Republicans cynically demonizing immigrants in order to pass tax cuts for the rich. Such is the way of the world.
It pays to pay attention to the economy. And to fear it. Jeremy Grantham is a famous investment guru who manages tens of billions of dollars. He has a bit of a reputation as a “permabear,” always in fear of the next disaster, but his economic analysis is closely watched. This week, he released a report stating that the U.S. is currently experiencing the fourth “superbubble” — a financial bubble that is three standard deviations from the mean — that we have seen in the past century. Notably, he says, today’s bubble in America is not just confined to one sector. We have “the broadest and most extreme global real estate bubble in history” at the same time as “the most exuberant, ecstatic, even crazy investor behavior in the history of the U.S. stock market,” and high prices in other areas as well. Everything is already expensive, and everyone is still acting like it will all just keep going up.
Grantham believes it will not last much longer. You can agree with this prediction or not, but numbers don’t lie: every previous comparable bubble in history that he has identified has eventually popped, with the prices reverting to the mean, brining enormous financial devastation. Assuming this is where we are headed, what does it mean?
Well, the most obvious effects of the kind of sudden loss of paper wealth alongside the pop of this bubble will be: A sharp decline of real estate prices, with an accompanying wave of foreclosures and bankruptcies; a big drop in consumer spending, leading to widespread layoffs and high unemployment; the drying up of credit and investment, exacerbating financial difficulties for small business and, more importantly, for working people; and even more dramatic losses for the smaller group of investors who gambled on crypto to be their magical salvation. It will be a fairly jarring transition from a widespread feeling of prosperity and paper wealth to a retrenchment into instability, job loss, and the evaporation of the belief that even you, the little person, could strike it rich quick in this wondrous modern age of technological financial engineering.
America’s current superbubble has been fueled by trillions of dollars from the Federal Reserve, added to the economy in recent years in an attempt to keep the party going. The Fed more or less had to do this because Congress, which should have been the body appropriating large sums of money targeted specifically to counteract inequality, is a failed institution that cannot be relied upon to do any such thing. So the Fed did it, as best it could — which, ironically, has made inequality much worse, because the Fed’s money causes asset prices to rise, and really poor people don’t have real estate and financial assets in the first place, so they see little benefit. There will be calls for the Fed to rescue us again. But do not count on it to happen. As we see with the current dialogue surrounding inflation, the actions of the Fed are tending in the other direction, towards raising interest rates and drawing back from stimulus.
The next bubble popping, then, should be a moment of clarity for Americans to behold our utterly broken federal government. At the very time when we all need the federal government the most, I guarantee that we will run smack into an ineffectual, divided, dysfunctional Congress that will be unable to roll out the fiscal policy necessary to save us from the abyss. (To be clear, this is because those who control the Republican Party want the federal government to be a broken and ineffectual institution, and they are succeeding quite well.)
Consider the fact that all the zany fascist insanity of the Trump era has taken place during a strong economy. That incipient fascism has not yet met its favorite contributing ingredient: a major recession. Extended hard times are something that, in a macroeconomic sense, have not been seen in this country since Obama was president. Often, the cold, hard death of material opportunity is what is necessary to spur all of those right wingers who have been theoretically radicalized in the past five years to truly assert themselves.
We’re in a jam, 40 years in the making. We allowed the Republicans to break the government, and now, when the government will be vitally needed to remedy the fallout of what is coming, there is little reason to believe it will rise to the task. What will be offered instead is more scapegoating, and culture war, and racism, and anger. And the material environment will be such that many more people will become susceptible to those frames of belief. What we really need are structural reforms — campaign finance reform, the end of gerrymandering, the reform of the Supreme Court, the construction of a functional social safety net — but those are precisely the things that will be impossible to put in place in the midst of a crisis. Instead, we will face that crisis with the system we have now, which we know is unable to handle it.
I’m not making predictions. I am just laying out the situation at hand. Unionize. Find your friends. And hold on tight.
Hamilton Nolan is a labor writer for In These Times. He has spent the past decade writing about labor and politics for Gawker, Splinter, The Guardian, and elsewhere. You can reach him at Hamilton@InTheseTimes.com.