ndrosen | Entries tagged with recession of 2026

I have posted before under the tag, Recession of 2026, and you may want to refer to my previous posts. I expect another bursting of a real estate bubble, with the prices of many stocks falling, and associated effects. This weekend, I put in a request, to be executed on December 2, to sell ten percent of the main stock fund (invested in the S&P 500), and put the money into the corporate bond fund. The bond fund may fall as well when the recession hits, but probably not as much as the stock fund. By the way, the stock fund has risen by more than 20% over the past year, which in a way is lovely, but is not sustainable. The real economy isn’t growing that fast.

I am putting my money where my mouth is. I believe that the late Dr. Fred Foldvary was right about the eighteen year real estate cycle, at least approximately, and right when he went on record in 1997 predicting the major recessions of 2008 and 2026. I believe that Georgism is not just a set of opinions about how the world should be, but a tool that can be used in choosing what investments to make. Assuming that we don’t get World War Three or a complete collapse, I hope to use the money I am putting into bonds to buy back stocks more cheaply, and I plan to take more money out of stocks before 2026 arrives. I plan to report on the results.

I have written before with the tag “Recession of 2026,” and you may want to read the earlier posts. Back in 1997, the late Dr. Fred Foldvary predicted the major recessions of 2008 and 2026, based on his Georgist-Austrian synthesis and the eighteen year real estate cycle; we know that he was right about the first of the two, and land prices are high enough that another major crash seems very possible. We could be hit with a perfect storm of real estate crash, inflation, loss of confidence in the dollar and the credit of the United States due to high government deficits and mounting national debt, and events abroad (a Chinese invasion of Taiwan, perhaps).

Now the politics: I plan to vote to re-elect President Biden, or possibly vote for a third party candidate, depending on circumstances. I could make plenty of criticisms of Biden’s policies, but at least he isn’t a complete grifter, ignoramus, Russian asset, and enemy of the Constitution, which Dishonest Donald is. I wonder, though, how an economic crisis could interact with politics. If Biden is re-elected, and the Great Recession of 2026, the Democrats will likely be blamed, and will deserve some blame, even though Trump certainly wouldn’t have handled things better. The Trumpublicans could then come to power.

One argument to be made for voting for Trump is that then he and his party may be blamed for what goes wrong during the next four years, and removed from power. On the other hand, given the way Trump has been talking, and given the plans discussed by his myrmidons, if he wins in 2024, there may not be a 2028 election, or one may formally be held, but with the opposition not in practice able to win; fill in the details for yourself. As an American loyal to the country and the Constitution, I will assuredly not be voting for Trump.

My broker (who handles the wealth which I inherited after my parents’ deaths) called me Friday afternoon to say that stocks and other assets seemed overvalued, so he proposed to roll the Treasury bills which had just matured into more T bills. I agreed to that, and I gave my perspective on assets, especially land, being overvalued; I reminded him of Dr. Fred Foldvary having predicted the great recessions of 2008 and 2026 back in 1997. Based on the real estate cycle, it appears that we will face the bursting of another land price bubble in a couple of years.

He also spoke of the huge federal deficit, and I agreed that it was a problem, and that the government was likely at some point to either default explicitly, or pay off the debt in inflated currency. We chewed the fat about these and related matters for a few minutes.

I am planning to move another slice of my federal Thrift Savings Plan money from stocks to bonds in advance of the crash. You may want to do similarly, or to try to make other provisions to weather the storm.

I support Baltimore Thrive, which is trying to get Baltimore to tax land at a higher rate than buildings, and I get their emails. One topic of discussion lately is that another group is trying to simply cut the property tax on all types of real estate, which Georgists oppose. Our people in Baltimore are planning to warn the public of how a similar tax cut in California, Proposition Thirteen, led to sky-high land prices, with revenue raised from working people by taxes other than the property tax.

Also, one of my Georgist friends has emailed about how Fred Harrison, a British journalist who foresaw the Great Recession of 2008, and tried to warn then-PM Tony Blair, is warning of the next real estate crash and major recession in 2026. You have been reminded; I have posted about this before.

I have posted before about why a major real estate crash (primarily due to the bursting of a bubble in land prices) can be expected around 2026; I cannot be certain about dates and details. On Monday, I took some action to prepare to limit my own losses, and even profit from the crash.

Since shortly after starting my civil service job in 1998, I have been putting money into the Thrift Savings Plan, and now have over a million dollars there (this is the federal equivalent of a 401(k) plan, and I will have to pay income tax on the money when I start making withdrawals). I have put 65% of the money into stocks, and the rest into bonds; stocks have done better over time, but not around the 2007-2008 recession. Therefore, anticipating another real estate crash, I sold one tenth of my holdings in the C Fund (common stocks, reflecting the S&P 500), about 1255 shares to buy shares in the F Fund (corporate bonds), which should buy about 4182 shares. If things go as I think likely, it should be possible, in four or five years, to sell that many shares in the F Fund to buy more than 1255 shares in the C Fund.

This is not guaranteed, and I am not an investment advisor. I am reporting on this action, and I plan to report on the results, partly to illustrate that Georgist economics is not just a set of opinions about how things ought to be, but can be applied to be of practical benefit to those who understand it. Henry George used his theory of wages to provide useful advice to his friend Honest Tom Johnson, which was also useful to Johnson’s employees, and when I got a pro-land value taxation letter published in the Austin American Statesman almost forty years ago, someone who read my letter called me to discuss it. He was a Georgist, and had used Georgist ideas to make money investing in real estate.

It would be better, though, to apply Georgist remedies, so as to fix the boom-bust cycle and greatly reduce the problem of unemployment.

I have said it before, but I will repeat it for any readers who may be forgetful, and for any new people coming across my weblog: back in 1997, the late Dr. Fred Foldvary published an article in the American Journal of Economics and Sociology predicting the Great Recession of 2008, and explaining why it would occur, namely, as a result of the bursting of a speculative bubble in land prices. He also predicted another major recession for 2026 or so, I think in that article, and definitely in presentations at Georgist conferences years later.

There were concerns about a recession expected for 2023, given the inverted yield curve for bonds, and the the extraordinarily high price to earnings ratio of stocks. That may be, or perhaps we will be spared for now; I do recall reading that the latest unemployment news was good, with a lower unemployment rate than we have had in decades. Be that as it may, land prices cannot keep increasing forever, so if the eighteen year real estate cycle holds good, we may expect another major crash around 2026. I recommend keeping this in mind when making decisions about buying a home or other real estate, keeping a financial cushion for emergencies, and other matters of personal finance.

I also point out that if Dr. Foldvary could make economic predictions many years in advance using his Georgist-Austrian synthesis, and foresee what conventional economists could not, there may be good reason to study Georgist economic thought, and lobby your elected representatives to apply it.

I have given warnings about the expected Recession of 2026, when the current land price bubble may crash; you can click on the tag to learn more. I don’t guarantee the date, but if the eighteen year real estate cycle holds, 2026 is when we should expect major trouble.

Meanwhile, my broker called today (he handles the portfolio I inherited from my parents), and wanted to sell off half of my remaining stocks, some having been sold off earlier, and put the money in a bank account, because he expects trouble in the next few months. He may be right about this, and the late Dr. Fred Foldvary may have been right about 2026 as well. I authorized selling half of my stocks; before the predicted Great Recession of 2026, I plan to shift some of my Thrift Savings Plan account from stocks to bonds.

Unless the current international situation leads to World War Three, in which case, as I told my broker (he laughed), it probably won’t matter how much of my portfolio I had in stocks, and how much in cash.

Slate had an article on the rise in home values; the increase in the value of the average home exceeded the median family income last year, which is described as the “triumph of capital over labor.” Georgists know that it is no such thing, since what has increased is principally the price of land, not of houses, and (a fine point) by Henry George’s definitions, houses used by their owners as dwelling places are not capital, a subcategory of wealth. Houses are considered wealth, although land is not.

Capital is not triumphing; if it were, the returns on capital would not be so low, nor stocks priced at such a high ratio to earnings. It is true that labor is being triumphed over, and that, as the article says, the landed gentry are doing well.

One important point is that this cannot go on forever, and will not. Sooner or later, the bubble in land prices will burst, and if the eighteen year cycle holds good, we may expect the next Great Recession in about 2026. You have been warned, and if you’re a long-time reader of my blog, the warning is being reiterated.

Another point is that both the conventional Left and conventional Right do not understand what is going on, and are not taking or proposing effective action to deflate the land bubble. Effective action would involve taxing the value of land, while cutting taxes on buildings, and other taxes as well.

Current Music: Bach, the Art of the Fugue

Reason Roundup contains a link just above the bottom to an article at Bloomberg about a possible repeat of 2008. You don’t even have to be a Georgist to be concerned about the trend in real estate prices.

I have explained why we have the boom/bust cycle, which to reiterate, is more accurately described as “the real estate cycle” than as “the business cycle,” and I have set forth how the next major bust can be expected in 2026, give or take a little. Now, what can you, personally, do to prepare? I will provide advice to people in different circumstances.

For people without much money: Try to put aside a few dollars each month, and have a cushion of savings against emergencies. You may lose your job, or your own small business may fail, or at least not have much revenue, so try to have something in the bank, enabling you to keep on eating and paying the rent or mortgage. It might also be wise to keep a stock of canned foods and other goods you can use. The government may try to help, but I don’t know who will be in power in five years, or what policies will be followed; also, given current deficit spending and signs of inflation, the United States may be unable to keep borrowing, and face a hyperinflationary spiral. In a country that elected Donald Trump, events that currently seem melodramatic and implausible may yet occur.

For people thinking of buying a house or other real estate: If you want to buy a house to live in, you may do so. If you’re thinking of building wealth by owning a home, it isn’t likely to work that way if you buy near the top of the real estate boom, so if housing prices are going up and up, and at least some pundits are proclaiming that This Time It’s Different, keep in mind that it won’t be different (different in detail, yes, but somehow, sooner or later, the bubble will be punctured). If you want to use your understanding of Georgist economics to make money, and you have a cool head, you may want to buy now, and sell in early 2025 or so; if you time it right, you may succeed in making a substantial capital gain. If you do, I’d be pleased if you donate some of it to a Georgist organization.

For people with other investments: If you own stocks directly, or have a 401(k) plan or IRA, I advise shifting from stocks to bonds and/or cash before the next big bust. You might want to have a discussion with your broker, if you have one, “Assuming a major recession, and in particular, the bursting of the real estate bubble, what companies and sectors are likely to be badly hurt, and what companies and sectors will probably still be pretty much OK?” Before the crash, it would be a good idea to move money out of the stock market, which is already at a historically very high price to earnings ratio. I can’t give exact dates, so you might want to do this in installments: Sell some shares of stock in late 2024, some more in the first half of 2025, more in the the second half of 2025, and if stock and housing prices are still rising in 2026, sell some more shares. I don’t say that you need to get out of the stock market altogether, but I do advise shifting a large part of your holdings from stocks, especially vulnerable stocks, to bonds and cash. Assuming we avoid complete collapse, you should be able to buy back your shares more cheaply after the bubble bursts.

The other day, I said to expect a major recession around 2026; now I’ll briefly review the reasons to anticipate such a turn. Prosperity may mean higher wages, and good returns to capital invested in productive businesses, but it also leads to higher ground rents on land; landowners get rich in their sleep, leaving less of GNP for the people who work. This results in the selling prices of land rising not only in proportion to the increased land rents, but more, to reflect expected future increases in land rents. This is called a housing boom, and people speak of families building wealth through homeownership.

Keep in mind, though, that while it’s well and good to have a place to live, owning a house doesn’t build wealth for you; you’ll need to spend money, or put in your own labor, to keep it in repair. It’s the land underneath that rises in price, and gives you an opportunity to sell at a profit. Land prices tend to rise and rise.

When there’s a speculative bubble in rare tulips or dot com stocks, a prudent man can stay out of it, but even people who do not wish to become speculators need to participate in a land price bubble. If you want a home in a nice neighborhood of a city where there are well-paid jobs, you will probably have to buy land at an inflated price. Perhaps you can rent, but with land prices rising by double digits year after year, it certainly seems that you had better buy a lot now, instead of waiting, so you become a land speculator whether you much want to or not, and help drive up prices for the next family in need of a home.

People cannot usually pay cash down for major land purchases so they get mortgages, or, if they’re developers, get bank loans to buy land and build more houses, apartment buildings, shopping malls, and so forth. Housing prices, land prices in particular, cannot keep exceeding the growth of people’s incomes by double digits every year, so sooner or later, they don’t. Once land prices stop rising, they don’t stabilize, since they rested on the expectation of yet further price increases; therefore, they fall.

Once land prices fall, people cannot or will not make payments on their mortgages and other debts depending on ever higher prices, triggering a chain of financial defaults, and setting off a panic. (What was originally called a panic became known as a depression, and then a recession; someone may soon need to devise a new euphemism.) This is what happened, as Georgists had predicted, in the Great Recession of 2008, and more or less what happened in 1990, with the Savings and Loan crisis, as as what had happened numerous times before.

The explanation of the real estate cycle, as the so-called business cycle can more accurately be described, is due to Professor Mason Gaffney, who refined the explanation offered by Henry George.

There seems to be an eighteen year cycle from one major crash to another, as in 1973, 1990, 2008, and, I expect, 2026. This pattern also occurred during the nineteenth century, but the Great Depression of 1893 (as it was called before the 1929 Great Depression) was not followed by a major depression in 1911, perhaps because in that period, land was taxed heavily enough to dampen speculation. After 1929, World War Two seems to have been drastic enough to reset the cycle for a while (these are explanations which I heard at at least one Georgist conference). As to length of the eighteen year pattern, it may have something to do with people who did not experience the previous major recession as adults growing old enough to be major participants in business, finance, and government policy.