Is definitely “Normalcy Bias” Blinding Us to the Looming Economic Surprise?

Most people don’t seem to think a serious economic downturn is imminent — despite many warning signs.

Average people  are   concerned about the economy.   Consumer confidence has been dropping .

People undoubtedly have the squeeze of inflation. Yet despite their general displeasure, most people don’t seem to think the severe economic downturn is impending — despite many indicators.

Why not?

Peter Schiff has been warning that a recession is within all likelihood already here. In  a recent job interview on NTD News , he emphasized that the downturn in the economy will be much deeper than anyone expects.

“ I don’t think it will be a mild recession. I think this recession is going to be even worse than the Great Recession that will started following the 2008 economic crisis. ”

But most people remain sanguine about the economy. They may be anxious a bit about  on-going inflation   – as reflected in the customer sentiment numbers – however they assume the Fed will be able to tame the inflation dragon with some modest monetary tightening. They even concede this may cause a minor recession, however the mainstream believes Jerome Powell when he claims the economic climate is strong enough to handle increased interest rates and some balance sheet reduction. Virtually nobody besides Schiff and a few other contrarians sees anything major economic problems coming down the pike.

But because Schiff pointed out in that exact same interview, nobody saw the particular 2008 recession coming either.

“ In fact , when we were 6 or seven months in to that recession, the Government Reserve and other economists nevertheless claimed that there was no recession anywhere in sight. Therefore , this recession is going to be much worse than that one. ”

Within retrospect, the signs of a housing crash were pretty obvious in 2006 and earlier 2007. It was apparent that there were serious problems at the begining of ’08. But almost no one in the mainstream saw the financial crisis and Great Economic downturn coming. Like today, there have been only a few voices in the wilderness sounding a warning.

Why is it that so few people are prepared with regard to economic crashes when the indicators are so obvious?

There are certainly many factors, but one likely cause people don’t can’t view the train hurtling down the songs is a psychological phenomenon known as “ normalcy bias. ”

In a nutshell, normalcy bias is a form of denial based on the assumption that almost everything will continue as normal.

Here’s a a lot more formal definition.

“ Normalcy bias is a psychological state of denial people enter in the event of a disaster, as a result of that they underestimate the possibility of the devastation actually happening, and its effects on their life and property. Their denial is based on the particular assumption that if the devastation has not occurred until now, it is going to never occur. ”

In simple terms, it’s the “ it can’t occur to me (or us)” syndrome.

Normalcy prejudice leads to inaction. It’s one of the reasons people often ignore storm warnings. The assumption can be “ we haven’t ever had a hurricane yet, and if we do, it probably won’t be that bad. ”

Based on PsycholoGenie , there may be some evolutionary basis for normalcy bias.

“ There is a theory that associates normalcy bias using the evolutionary aspect, that suggests that paralysis gives an animal a much better chance of survival because potential predators are less likely to strike and feed on something that just isn’t moving. ”

That’s great if predators are hunting you in the jungle. It’s not so excellent if an economic disaster will be looming.

I think normalcy bias is one of the factors the Federal Reserve’s transitory inflation narrative gained so much traction. Despite the money printing after the 2008 financial crisis, customer prices never rose as much predicted. Instead, inflation described in asset prices, especially stocks and real estate. This particular led Fed policymakers in order to assume they could do  quantitative easing   again – and even dual down on it – with no severely impacting consumer costs. Of course , the dynamics had been different during the pandemic. Not just was the Federal Reserve publishing trillions of dollars, however the US government was also handing out cash in the form of stimulus checks, even as most People in america were sitting at home producing nothing. This was a recipe for rapidly rising consumer prices.

But normalcy bias kicked within. We were told, “ Inflation didn’t happen before, therefore don’t worry, it won’t occur now. ” An assumption set in – things will continue as they always have. So when prices started to spike, these same people assured us that it was transitory. All along,   Schiff was warning that will inflation wasn’t transitory . But pretty much nobody took in.

Similarly, I think normalcy bias has performed a role in gold plus silver’s lackluster performance in recent months. As Schiff put it in  a video on the latest performance of gold , “ Even though we have lots of inflation today, investors still think we won’t possess inflation tomorrow. ”

Because the Fed continues to be able to raise interest rates to keep inflation at bay in the past, the particular mainstream just assumes it will probably be able to modestly raise prices and keep inflation at bay this time around. Never mind that there are different dynamics in play and plenty of signs that pumpiing will likely remain entrenched within the coming months. Normalcy prejudice has blinded people to the fact that it would require a Paul Volker style hike to push  real interest rates   into positive territory — the only cure for inflation.

At some time, reality will cut through the normalcy bias. It at all times does. But when the mainstream wakes up, it’s too late.

As you survey the economic landscape, be aware of normalcy bias. There is no reason in order to assume things will carry on as they always have. Keep your eyes on the economic data, analyze it objectively and keep fundamental economic principles in mind. After which, prepare accordingly.

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