Catalyst for cataclysm
The stage is set
Unintended consequences
When there is a singular focus in the pursuit of one outcome (like the mass dispersal of a defoliant herbicide to make warfare easier), tragic acts can be committed (like chemical warfare against friend and foe).
There is a new agent orange in action - an economic one - that will have far reaching consequences.
Every economic cycle ends with the raising of interest rates. This puts pressure on households and businesses through higher debt servicing costs and limits purchasing power, which slows consumer demand and that, in turn, hits the bottom line of businesses who then need to scale back their workforce. The pressure builds slowly over a period of approximately 2-years, typically. At this point, conditions are fragile in the realm of economics, and sometimes all it takes is a catalyst to create a chain reaction that tips everything over.
We can see the slowdown in economic activity by looking at a key area of discretionary spending by the American people (an area where people want to spend money but can’t anymore). Americans love to dine out. You know times must be tough when more people are spending less on dining out than the year before.
When cash gets tight, people look to tap into lines of credit. However, banks are declining a greater amount of mortgage refinancing (refi) applications [who’d want to borrow at current interest rates any way? … only the desperate] and are actively discouraging people from increasing their borrowing on all forms of credit (e.g. mortgage, credit card, autos etc.).
But back to our catalyst.
Today’s agent orange and likely catalyst for the end-of-cycle finale, looks to be the “draining of the swamp” that is currently underway under the oversight of DOGE. The grand plan to reduce government is being done at the wrong time in the economic cycle and is tantamount to draining swamp water not realizing that the stinky stuff will flow down and flood the town below (i.e. U.S. businesses and households).
I think it could be what will tip the house of cards over in this cycle.
Like tariffs, DOGE’s government layoffs are on again-off again at present, this is due to court action. Nevertheless, they are likely to proceed in some fashion, but it will be a mess. I read an article recently referencing a former government employee who was claiming unemployment compensation for federal employees (UCFE). He was still waiting 2 months after his application, which commenced prior to President Trump’s inauguration. He described the department responsible for administering his claim as a shambles, so it is likely to have gotten worse since. He, like all such people in his situation, is required to wait for his employment documents to be provided to him from various government agencies. All those agencies are in turmoil at present (do they have any staff? do the agencies even exist any more?). Now add hundreds of thousands of additional UCFE claims on top of his.
To make matters worse, DOGE has carte blanche and is terminating employment and giving the excuse that it is being done on the basis of “performance” for all employees in a single pronouncement irrespective of their actual performance. The nature of the UCFE process is that terminations based on performance further complicates things, making it harder to qualify for unemployment benefits. It may save the government some money in the short-term using performance as an excuse, but it smacks of sociopathic application. The economic consequences for hundreds of thousands of people and their families could be catastrophic, and the knock-on social implications will be a long time unfolding.
Collectively, these people may become the creature from the black lagoon bereft of their recently drained swamp and end up dragging the economy (which has only just managed to keep its head above water for 2-years) down.
