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  • Walter Muller

The Great Recession is already here. But is the Greatest Depression emerging?

Updated: Dec 13, 2020



The Great Recession is already here. But is the Greatest Depression emerging?


It just might.


Why?


Because consumer demand is dead; so long live consumer spending.


Because one-third of the country is out of work right now, in a way you didn't realize. Representing 70% of the GDP, consumer demand is a powerful economic driver for our consumer-based economy. And as novel infections went from null to viral, a once powerful industry based on consumer demand - the Hotel and Restaurant industry - suffered mass quarantine-closures, leading to a hearty collapse in “demand of services”, the nickname for all the food and non-food supply orders that fed the H&R beast. Which translates into a lot of "gig-worker" layoffs, where waitresses, cooks and other hospitality types either don't qualify for unemployment, or don't qualify for the proper amount of unemployment they should actually be entitled to. Predictably, unemployment claims recently skyrocketed in the last 4 weeks, with our nations unemployed reaching more then 20 million - worse than anything the U.S. economy has ever experienced. But it’s probably just getting started. Because more layoffs in the H&R business are very likely, with a forecast summer-of-quarantine predicted to cause massive declines in personal spending - unless we fully reopen our country. But even then it's no guarantee, since this nasty pandemic is forecast to last up to 2 years and no reasonable person wants to die for the sake of cheeseburgers and motel rooms at the beach. And that probably means we've got a long hill to climb with potential unemployment numbers.


Additionally, a majority of food-service businesses went from operating at full capacity to take-out or closure, and the economic impact on direct and related businesses was devastating. Especially at the farm-end of the demand of services business. Big-box Ag/firms producing everything from meat to potatoes were hammered everywhere by a sudden collapse of demand, leaving high levels of inventory stagnant, with no industry buyers left. And with the glut of food inventory rising, Ag/firms do what they do best when demand tanks: they dump product, like you've been reading about in the papers nowadays.

The transportation system across our country also saw some disruption. This is bad news, even if it's just to a small degree, when industrial transportation is our nation’s food-supply backbone. With our backbone damaged, long haul truckers can’t get food consistently moving from the fields to the factories and the factories to the consumers. Things are so discombobulated in the commercial food business right now, its been reported that soup kitchens in certain areas of our country can’t give away all of the food donations they've been receiving from local farmers. While other areas just starve for them. In the meantime, hundreds of thousands of gallons of milk are being poured into drain ditches. Vegetables and fruits are left rotting in fields and orchards. Tons of perfectly good eggs are discarded. Edible chickens, turkeys and other game and poultry and meat are being slaughtered en masse because of plummeting wholesale demand and rising labor shortages making it impossible to harvest, or store and move post-harvest. Pork is gone from another retailer I went to as of last week. And herds of cows are being prepared for wholesale slaughter, while our nation’s slaughterhouses are being shut down due to the virus.

Food dumping is leading to price-escalation at wholesale and retail markets. And as prices increase, consumers will be forced to adjust their spending habits to find alternate sources of food, in line with their personal budgets. Which in turn causes another issue: Inflation. Inflation – the dictionary definition should read, “that’s when you get a HELL-of-a-lot-less for your hard-earned-dollar, then you did last week for the same product” but I don’t think that’s the exact wording (you should check the dictionary on that one, though). And inflation is about to get so bad so quick, that if we don’t get our economy reopened in the next few weeks, we’re potentially facing an economic depression the likes of which no one alive has ever seen before. This while created shortages of food products are becoming more common (we don’t have a real food supply issue - we have a real labor issue). But this also is the way of our Ag/firms, where thousands of small family farms have been run out of business over generations and industrial-Ag/firms take over.

Our nation's food supply is left rotting in the fields because remaining farm labor is priced high enough that it costs more for our too-big-to-fail Ag/businesses to harvest food for the good of humanity, than it does for the industry to take the corporate-tax-write-off and let our nation’s food supply wither on the vine. While people in our country suffer vast price-increases.

With potential harvests left to rot-in-the-fields, the death of wholesale demand has caused wholesale prices to rise in a way no one has seen since the 1930’s. Precisely because wholesale demand is dead. For example – wholesale case priced eggs went from $30 per case in one week to $54 for the same case at the end of the next week. Put into perspective, a wholesale price movement on a case of eggs week to week is usually .25-.50 cents. Price movements in dollars, especially like this, are simply not on the order of normal. Nobody I know could have ever predicted a $24 price movement in one week, even during these extreme times. But it just happened. And given present circumstances, if we don't get our industrial production and distribution back on line in the next few months we’re facing a Depression-era-economy caused by a rapidly escalating price war over food.

We’ve been very fortunate since WW2, not having to make hard food choices for our own families. We’ve always had an abundance of foods, especially fresh and reasonably priced chicken, pork, game, fish and beef, fruits and vegetables. Food eventually became so affordable for our country, that photographing food even became an Instagram hobby for many in the last few years. For others, eating out represented a cultural dependence, growing up in a country where not learning how to cook at home is commonplace. Our personal situations reflected our status as a nation: we had so much prosperity to go around that everyone could afford to eat out in one way or another. But this also represents our cultural vulnerability. It's Darwinism 101 now; a personal-savings-survival-of-the-fittest based on who has the best skill sets in home economics.

What’s even worse, is the lock-down is expected to last at least 6 weeks to 3 months or longer in certain metropolitan areas. And with declining employment numbers & rising food prices, financial pressure for families over supermarket trips will cause a massive adaptation of retail habits not seen since the shift of the domestic paradigm in the late 1950’s. Psychologists state that "6 weeks time" is the period in which we form new habits and break old ones, which means right now we are likely psychologically reconditioning many of our nations consumers not to go outside the home and spend. Which means those newly formed habits may stay with us. And if you add to that the new draconian new service measures that'll likely take the personal out of personal service - with waiters and waitresses, bellhops and busboys, restaurant and hotel managers & front desk clerks all bound to wear face masks in public and keep socially distanced - who wants to go out and be served by mummified staff while dining in front of a face shield and spending hard your earned money? Nobody I know.


Post-lock-down, it is therefore likely that many families will return to the new world on a different spending-path, where eating at home and conserving resources is the new normal. And splurging on extra expenditures, like eating out, is verboten, both because of lingering post-lock-down fears that going outside the home might just cause you to catch the virus and because of economic scarring that took place during the lock-down period when families across the country watched their personal savings evaporate.


So, what does all this mean? It means consumerism is likely eviscerated, or dead. Which will likely lead us to a new economy. But at a time when we need people to go outside and spend the way they used to, this isn't the time to redevelop consumerism. Because we’re heading for serious economic trouble if we do. For as we’re reconditioned to transition to a nation of savers, whole industries linked to personal spending may just as well evaporate in the new economy, potentially causing a deeper slide into economic depression.

Once before, I read about a time like this in our history books - where the economy drastically changed, in the years just prior to WW2. The Great Depression of 1929 brought massive unemployment and economic misery to every household. Economic misery; that’s when gradations of suffering set in for everyone, and suffering thru deprivation becomes the great equalizer among the classes.


In 1929, a massive shift in consumption brought rapid financial evolution and revolution throughout the world. Modern day, those same changes are on the verge of happening once again - although this time the collapse of our stock market isn't to blame. It's the wrath of a virus that caused the collapse of consumerism in 2019 that'll be remembered for finally forcing the world to change.


-Walter Muller


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