Economic disruptions are something that I have been watching ever since the great crash in oil back in 1982. I thought Houston was the center of the universe in those days. Everyone had jobs, money, friends, connections, and big BBQ parties. Then came the downturn, and people were stuck with no job, overly priced homes, and completely fractured work networks.
Let us take a look at some of these disruptions. The chart above is the DJIA for the years 1980 to 2000.
- I remember the stock market crash of 1987. I graduated that year with my Master of Science degree in chemical engineering from Texas A&M University. It might look like a blip on the chart, but that crash was bad. Many people were holding stock on margin; so when the prices fell, the margin calls pretty much wiped folks out. The Fed also cranked up interest rates during that period.
- Desert Storm is an event no one can forget. At work, the day after the invasion started, everyone was complaining that their stocks had crashed. People were afraid. The stocks ultimately recovered but there was fear in the air.
- The Asian financial crises was bad but not really for western countries, including Mexico. However, not only was Asia hurt but so was Latin America. Some say that was because Latin America was so dependent on Japanese investment.
- Yugoslavia was a place of ethnic cleansing during the late 1990s. I heard some bad stories from soldiers who fought there. The air strikes caused some shaking in the markets.
Note that these market shakeups caused the Dow Industrial Average to rattle but the economy as a whole really was not disturbed.
- OK, so now comes the next century and we all think it is going to be a bright Brave New World. Right? Wrong. Straight out of the gate we have a market crash due to the Dot-Com bubble in 2001. There was supposed to be free internet, free email, free website hosting, free telephone calls, and free faxng. What really soured the market was all the fraud. I remember one company had no product yet attracted millions in investment dollars. Executives had large salaries and they even had a huge party where Van Halen provided the evening entertainment – it was all based on fraud. What compounded that problem was 9/11 and Operation Iraqi Freedom. Enron collapsed and Houston was not such a great place.
- So, we climb out of that mess; then comes the subprime mortgage crises. The problem there again was fraud. Home owners were tricked into mortgages that they could not afford. Investors were tricked into buying portfolios that were based on the income from those mortgages. And in some cases, the money in the banks was just stolen. Some bank executives and their friends were just using the bank as their personal piggy bank. At the root of the problem, the Federal government did not do its job and properly regulate the banking industry. Again, Houston was not such a great place economically.
To give you some perspective, below is a historical chart of the Federal Funds Rate. The gray bars show times of economic recession. As you can see, the Fed has not always been on our side, with rates being cranked up right before the crash. Looks like the Fed is on our side during this pandemic – thank you President Trump.
That brings us to the current time: COVID-19. In the past, the economic crashes could be blamed on something normal, like war or corruption. However, this is the only time that it appears that the economic collapse was just simply manufactured. Why?
Remember this is my opinion, but economic crashes are great for people who are sitting on mountains of cash. During a crash, assets become distressed; and the billionaires swoop down like hawks to gobble up all the cheap goods. It transfers money from poor to rich – you work hard to start a business and now you have to turn it over to the bank.
Looking at the charts, we have an economic crash, oh maybe, every 10 years. In the past, there was a plausible explanation. But this time, all this destruction over a strain of the flu? It could be argued that the big money of this world was just looking for any excuse to pull the rug out from under us. No football. No baseball. No track and field. No graduation ceremonies. No parties. No dinning. No clubs and bars. No conventions. Nothing. This is insane.