American Collapse: What’s Going to Happen to the Economy?

Hi. How’s everyone? Hanging in there, I hope. Welcome back old friends, welcome new ones, and here’s a little Snowy hug to get you through the day.

Apologies for the radio silence. I've been doing sessions with many of you overtime. It's been awesome. I'll post impressions and reflections tomorrow (and those of you who've done them with me are welcome to comment too.) So I'm a little worn out! Like I promised, I've opened up my diary, and the system's live now, so if you want to book a session with me, just click here.

Today we’re going to discuss something scary. I’ll try to be gentle with you. I’ve debated whether or not to write this for a while now, but I think that you should know, so you can prepare.

What happens to the economy now? Now that American collapse is...happening before our very eyes?

I’m going to explain it concisely and simply. If you get scared, take a breath. Go re-read the older posts about confidence, panic, and the reactive spiral. If you're feeling shaky in general, don't read this.

I mean that. Do not read this if you're already sort of paralyzed with fear and panic. This is going to be brutal, but like I said, I think I have to prepare you, so you can take care of yourself and your loved ones. You can always come back and read it later, weeks or months from now—it's not going to change, but the world is about to, in significant and troubling ways.

What happens to the economy now is that it goes into shock. A very large number of people will be well on the way to being ruined. They will lose a great deal, right down to everything. Americans are now going to learn the hard way what poverty, in a systemic way, as a society, truly means. 

I’ll call all this a depression, but I don’t want you to play semantic games with me. If you’re not an economist, step back and listen. I am going to teach you today. The technical definitions of these terms are outdated, but it’s the human consequences we want to understand. So just because an economy that’s growing, but all the gains go to three billionaires isn’t technically “in a depression,” doesn’t mean it’s not actually in one.

Please, please don’t fall into the trap of making this some kind of game. This is about your life. Like I said, many, many people are going to be ruined, and I don’t want you to be among them.

What Happens Next to the Economy

Now. There’s a word for the disastrous course America’s embarked on. It’s called “austerity,” or at least one part is, and that in itself would be bad enough, so let’s discuss this first.

Americans have been badly failed, and one way is that most don’t know what “austerity” means. It just means massive cuts to government. It’s an old playbook. In Anglo societies, especially, people have been misled to believe that “cutting” the government will somehow yield more for them.

It’s emphatically not the case. Austerity is an empirical failure, meaning that we don’t have a single example anywhere in history really, of it “working.” Instead, the opposite tends to happen.

The bottom falls out of an economy.

Where have we seen this in recent years? In Britain, which embarked on a savage course of austerity that lasted more than ten years. If austerity was going to work, Britain would be the world’s most successful economy today. It’s not, LOL, it’s in failure and catastrophe. It experienced, as a result, the longest, hardest, deepest slide in living standards in recorded history.

Today, its incomes are a pittance, there are very, very few decent jobs to be found, and of course its once vaunted social systems are utterly wrecked.

Those are just some of the outcomes of austerity, but of course, in America’s case, it will be much, much worse. Why? When we “lay off” vast number of civil servants all at once, just imagine what the next jobs report will look like. It will paint a portrait of an economy in shock. The unemployment rate will suddenly spike.

But in America’s case, there is little hope of gainful employment in the private sector, because there, hiring is frozen. By the way, I've been writing about that since before articles about it have gone mainstream. It’s taking Americans years to get job in the private sector at this point, because there aren’t enough being created, aside from “low-wage service jobs.” So now imagine the effects of austerity in an economy like that.

They will be absolutely devastating. That alone is enough to plunge the economy into something resembling a depression, and again, let’s not play semantic games, because when you suddenly throw vast numbers of people out of work, what’s the next consequences?

Demand in the economy begins to crater. That means that businesses shut down. A wave of bankruptcy ensues. A vicious cycle of unemployment—round two, three, four, five—happens in this way. And as that happens, the public purse shrinks, which accelerates the collapse.

Modern Economies vs BS, Nonsense, and Demagoguery

Now. This is not news.

In fact, interestingly, in recent years, the former proponents of austerity have backed away from it, hard and fast. Those would be institutions like the IMF, for example. Or like PIMCO—it’s the world’s largest investor in bonds, and once both these kinds of institutions used to ask for savagely cut governments, but what happened? They learned from their mistakes. Today, they ask for expansive social contracts, not sweeping, nonsensical cuts, because that is the best way for them to get paid back.

That is what truly yields growth, sustainable, lasting, and enduring, and investors like this, who are the smart ones in the room, the smart money, learned that it was mistake to demand austerity, because they didn’t get paid back that way. 

So this is all very real. We are not playing theoretical games here. We are talking, again, about your life. How are you going to fare in an economy that’s in shock? In which hiring doesn’t happen? In which there are huge, huge numbers looking for decent work, anything, just to pay the bills? In which entire careers and industries are imploding?

But that’s only half the story.

The other half, of course, is tariffs and protectionism, which make prices rise, fast and hard.

How Economies Plunge into Depressions

It doesn’t matter much that tariffs are just a “threat,” and if you’ve read that, it’s wrong, by the way. Acer’s CEO just announced laptop prices would go up by 10%. Do you like paying 10% more for a laptop? I’ll discuss that more in future posts, but for now, the point is: the shock is already happening.

What austerity does is create a mega-shock in demand. It lowers demand in an economy, to the point that, like we just discussed, societies actually grow so poor they can’t pay their bills anymore. Not theory—reality.

What tariffs do is cause another shock, and even the threat does. They, too, lower demand, by raising prices, and in economics, these two effects are always inversely related.

There are already plenty of estimates of how much tariffs will “cost” Americans, multiple thousands per person, and that’s one place to begin thinking about it. Can you really afford to spend another few thousand for…the same things?

But even that’s a static picture, not a dynamic one. That means that it’s not concerned with the larger consequences. What do tariffs do? Just like austerity, they lower demand. And that means demand for everything. Not just for, I don’t know, plastic household goods. But for jobs. Employment. Careers. Corporations. Business. Industry. Money itself.

And that is how depressions begin. When demand enters this vicious cycle, and there’s just enough industry to create jobs that can keep people afloat. Their living standards slide, they spend less, because they don’t have much, and bang, the cycle perpetuates itself.

The Triple Shock, or How Bad It’s Really Going to Get

Either one of these shocks, austerity or tariffs, would be enough to destroy many Americans’ lives. But together? There is little chance that many Americans will make it.

Many will lose everything. This is the scary part, and I want to caution you, I’m not trying to scare you. I am just trying to talk to you like an adult, because your job now is being an Adult in the Room. So take a breath with me instead of panicking. I'm not saying this is going to happen to you. We're discussing it so it doesn't.

So let’s come to the final shock—so far, we have two, which are austerity and tariffs. But together, they will create a third shock, an “endogenous” one, meaning, in technical terms, a self-created one. That one is that many people will be ruined.

As Americans plunge into financial despair and ruin, what is the consequence? There’s even less left over for the public purse, as we’ve discussed.

That produces calls for another round of austerity, usually. This is what happened in Britain, like in many poorer countries, in the 80s and 90s. Having not worked the first time—nobody gets richer except the oligarchs—the calls repeat themselves. We just didn’t do it hard enough!

And that’s when things really get bad.

At this point, what’s left of a functioning society is usually turned over to private hands. And then people are baffled and bewildered to learn that what used to cost them much, much less suddenly costs a fortune. One they can’t afford.

Let me make that plainer to you.

What are Americans going to do when they wake up one day, and Social Security, Medicare, and Medicaid are gone? Or even if they “exist,” don’t really provide much anymore in the way of funding?

They are going to be devastated, and I don’t just mean emotionally, I mean financially. How many American families can afford to keep their elderly parents in private care homes? Not many. It costs multiples of the median income. How many Americans will ever be able to do anything resembling retirement? Educate their kids? Afford homes? 

These are incredibly dire stakes. Without these basic social support systems, which are all America has, Americans will be ruined in ways they can scarcely contemplate right now. Ways they have never really understood, because they don’t have experience with collapsed societies.

But this is what is on the cards now. We’ll discuss that more in future posts, but for now the point I want to make is what kind of economy awaits. Really awaits. You and your loved ones.

The Implosive Phase of Collapse

It is going to be the most implosive economy in decades, certainly since the Great Depression. Some will scoff at that, but again, I’m the guy that knows this stuff inside out, not them. Not in the 70s, 80s, 90s, never—never—has America put in place structural changes this radical and this expansive. They are going to have consequences, immense ones. And they won’t be good consequences, because as I’ve just taught you, these ideas are all failures.

Not according to me, but according to history, and according to the world’s smartest minds. Who’s demanding austerity from America? Nobody. Except it’s own most foolish minds, really. The IMF isn’t. PIMCO isn’t. Wall St isn’t. Nobody is, because everybody that’s part of the smart money knows it doesn’t work, and they won’t get paid back, which of course is another discussion: what happens when America defaults on its debt?

So these are all failed ideas, and not just minor-league, but catastrophically failed ones. 

Let me say that again. These are all failed ideas. This Grand Experiment is already a doomed one, and that is what makes all this not just tragic, but foolish.

The implosive phase of collapse is a phrase I use often, and now I want you to begin understanding what it means. This is the part where people’s lives get ruined, for good, forever, permanently, and they never recover. Do you want to be part of that chaos and wave of destruction?

It isn’t theoretical or abstract. It’s real, and the “implosive” in it means “the economy,” alongside other institutions, which will now crater in dramatic, surreal, and shocking ways, that Americans will not understand, having failed to ever experience such things before.

But it’s already beginning. Just ask civil servants. Or even tech workers, who never imagined they’d be out of jobs for years. Or young people with multiple degrees. Or elderly people. 

The implosive phase is beginning for all these social groups, and few still understand the stakes, scope, or meaning of it. 

So you must get ahead of this curve.

Here’s another way to think about it. America’s doing to itself now what Latin American did in the 90s, and did that help it get rich? No, it created decades of instability and poverty. And America’s effectively putting sanctions on its own people, which is what “tariffs” are, to use another, more precise name for them. What does sanctioning countries do? It devastates them—just ask Britain, where incomes are now where they were 20 years ago, and society’s been devastated.

Think long and hard about the above. Don’t make the mistake of trying to “debate” me. This isn’t a debate. I know exactly what I’m talking about, in ways that America’s pundits and whatnot don’t, I know it so well I’ve written peer-reviewed books about it, at this point I’m one of the best economists in the world, and I’m trying to teach you something urgently.

You are going to go through all this. This implosive economy which plunges into a depression, fast and hard, by any other name, in which millions of lives are ruined and destroyed, and people lose everything they have ever worked for. 

The only question is how you will get through it. Many won’t. Their lives are already over, they just don’t know it yet. So the onus is now on you to understand all this, and prepare for it, and make wise choices. About your life, career, money, profession, residence, and much more. We're discussing this so you don't end up like them.

In that sense, don't panic. Just take all this in with me for now. So you can begin taking action not to Sink With the Ship.

How much of this do you want to be part of? You see, until now, for many, American collapse has been abstract—something about ideals. Now, it’s going to get real. It’s going to leave people destroyed in its wake, and they will never recover. In that respect, this is about your life now, not some grand ideals of democracy or what have you, those are all already over.

Now is the time for you to be an Adult in the Room, and take care of yourself and your loved ones. Very shortly, we are going to see what happens to the rest. It will be so much uglier than they can believe even at this moment. They will hold their heads and cry in despair. But it will be far, far too late for them.

Don’t Sink With the Ship.

I'll teach you many things over the coming days, weeks, and months about how not to. But for now, I want you to understand all this. If you like, go re-read the last few months of essays, and connect the many ideas in them to all this. Prepare now, because the next period will be destabilizing and challenging, and the point for most of us will be minimizing our risk and exposure to collapse and chaos.

We're going to do that together. Me and you. The community here. I'm proud of you guys. You must be too, and give yourselves credit for being so tough, resilient, brave, and determined. These are tough times. Begin there instead of panicking. Understand how strong you have already been, and really value it. That is the way to being the Adult in the Room. We'll discuss that more tomorrow.

Lots of love,

Umair (and Snowy!!)

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