I cannot imagine any other time in the history of this country where people felt so confident, so placid, and so assured about their investments. And why wouldn’t they be? Every year, every month, every week, and every moment, it has been made crystal clear to “investors” that their risks will be rewarded, and their losses will be reversed. Sure, at first, people doubted it, because that’s not how markets work. But after the past 33 years – – this all began in earnest in 1987 – – people have been “saved” countless times, and it is considered a truism that there’s really no such thing as risk anymore.
Join me on a brief fantasy, however, and a thought experiment. I’d like you to embrace your most imaginative self and briefly accept a circumstance in which the following has taken place.
Imagine vividly the following:
- The market has been in a downturn for a solid six months. At first it fell sharply, and then the Fed swooped in and rescued it with a massive new QE package, so it recovered. However, it did not make a new high, and it resumed its fall, decreasing even more than it did in the first place.
- With all the trillions from prior QEs, and the new trillions just put into place, an already heated inflationary environment heats up even moreso. People are suddenly concerned not with the Fed’s ceaselessly-proclaimed 2% target, but instead are worried about prices going up 10-15% each year.
- With inflation rocketing higher, the Fed finds itself in a position wholly unfamiliar to itself: it is impotent. There’s nothing meaningful it can do to reverse the stock market anymore. Indeed, what they actually have to do, they realize, will make the market fall even harder. They need to increase rates dramatically, and in a hurry. They reluctantly acknowledge that in order to prevent complete financial collapse, they need to do precisely the opposite of what the public is screeching for them to do.
OK, I imagine having read these three far-out fantasies, some of you are visibly turgid. But the point is to establish the above as a baseline scenario and to think about the consequences. I’d like to propose some of my own, off the top of my head, and I’m sure other Slopers would be interested to hear your own thoughts as to what other effects might follow the triad of events I’ve dreamed up.
Here, then, is my own stab at the important effects that would follow:
- Political Blame: people, most of them being pretty dim, will lay blame for whatever is happening at the feet of whomever is in charge. In other words: Biden and the Democrats. People blamed Hoover to the Depression. They blamed Johnson for Vietnam. They’ll blame Biden for the market crash. Trust me. People are more stupid than you think, so they’ll attach any bad stuff happening with the current administration, regardless of party.
- Fed Hating: You wouldn’t be seeing any more cover stories with a title like “The Hero” or “The Man Who Saved The World“. Instead, even though 99% of the public has no clue what the Fed is or does, the public will turn against it. Jerome will go from hero to zero. Think Neville Chamberlain in 1940.
- No Place to Hide: All assets will fall together. Equities. Commodities. Fine works of art. Real estate. Crypto. Perhaps the only rising asset class will be agricultural futures.
- Eat the Rich: Just as the public will turn on the Fed, it will likewise turn on the rich. The hero-worship of Musk, Bezos, and Zuckerberg will absolutely poison. You’ve already seen the inkling of a beginning of this with Zuck.
- More Government Aid: As the bottom 50% of the public is instantly plunged into dire straits, there will be demands for yet more public help. They have become so accustomed to receiving generous aid, and getting it instantly, that they have become utterly expectant of it, and they’ll get it from the terrified political body.
- SuperTaxman: A plunging economy and more social programs will finally embolden the government to supercharge the IRS have have them go after tax cheats, the rich, and otherwise be more aggressive than they have been in decades. Tax rates will also zoom higher, based on Congressional support for more ‘investments” in the American people.
- Union Power: Organized labor has presently been beaten down to be merely the tool of the public “servant”, guaranteeing enormous salaries and pensions for anyone working for a city, state, or other government. Although recently unions haven’t even mustered enough power to garner the support of the pitiful workers at Amazon, that would change in this new environment, and union organizing – – and strikes – – would be reborn.
- BLM Deluxe: We all remember the riots of summer 2020. I think that would be just a prequel to the kind of mayhem that would accompany what I’m describing. Of course, they still won’t have the good sense to attack the Eccles Building, but will instead, stupidly, loot retail shops in their own neighborhoods or terrorize innocent suburban dwellers.
- A Radical Swing: In the November 2024 election, there would be a shocking candidate. Maybe he (or she………..or ze……….) would be ultra-right-wing or ultra-left-wing. I am guessing ultra-right, since the public will want to execute as radical a move away from the status quo as possible. Think 1932 Berlin.
- Hang ‘Em High: The environment of understanding and forgiveness will be swept away by a bloodthirsty public. There will be demands for “getting those responsible”, so any malfeasance that is uncovered during the downturn will be met with cries for vengeance. Think Bernie Madoff in December 2008, except hundreds of ’em.
Again, share with the group your own thoughts about these ideas and what other consequences might be.