Sunday, May 3, 2009

No Depression...think again.

Greetings good citizen,

There is a strong tendency to write about the last idea the mind processes, as evidenced in the comment section of most posts online (mine included.)

So a wise writer should save their most meaningful ideas until the end.

Now, I’ve been thinking all day about what topic to expound upon in tonight’s missive so it’s rather a coincidence that the last article I read the intro for was yet another piece by a well known economist pooh-poohing the idea of another ‘Depression’.

“Things will be ‘bad’ but they won’t get ‘that bad”…relative to what we may inquire?

The article I perused prior to the above post provides a considerably more ‘down to earth’ assessment of our current circumstances.

The ‘last’ Great Depression’ lasted 9 years (I say ‘last’ because there were other crippling financial crises prior to 1929…but none ‘as severe’ since.)

You all understand that an ‘economic downturn’ occurs when demand falls in a hole. People ‘cut back’ on purchases while they try to get their financial house back in order.

You also understand that this is not what happened this time…this time the credit rug was pulled out from under us…we could no longer use our homes as ATM’s, dashing off payments on our credit cards with checks drawn on our home equity lines of credit.

The fact that some people had made all of their mortgage payments through their HELOC’s was certainly a worrisome development for the buyers of collateralized debt.

So worrisome that the market for such debt froze virtually ‘overnight’. The ‘party’ stopped in its tracks the second we lost the ability to ‘roll over’ our past debt into new debt.

When the ‘music’ abruptly stopped, a vast number of this nation’s population was caught ‘swimming naked’. They didn’t have sufficient income to pay their debts.

Not to point the finger at the consumer alone, corporations were also up to their eyeballs in hock due to stock manipulation, borrowing heavily to buy their own shares to boost the size of the bonuses they would pay themselves.

The ‘end result’ of this sudden return of reality was a bankrupt banking system that had loaned far more money than was ‘prudent’.

It is this development that most of us find disturbing. They never gave money away before, why now? Worse, it’s not like they didn’t know what they were doing. I wasn’t the only one muttering under my breath about how anyone (even an extended family) could afford an $800,000 dollar mortgage.

It’s a rare bird indeed that can cough up a $160,000 down payment (not that this was required when bankers went berserk.)

Which leads us to today, where such down payments ARE being required again, shrinking the pool of qualified buyers to the size of a small pet’s water bowl.

No irony should be lost on the fact that the dope dismissing the idea of another Depression is considered an expert on the Real Estate markets.

The people that could never afford the homes they bought have lost them already.
The banks have recouped the capital but now there aren’t enough buyers…this has led to an even more bizarre development, you can today show up at a real estate auction and they’ll still write you a nothing down, ARM liar’s loan!

Worse, the loan will be bought by Fannie or Freddie! (It may well also be underwritten by a TARP bank, so they are lending public funds to what boils down to be ‘flippers’, which is how this mess got started in the first place!)

This still doesn’t get us to ‘why’ and why is a real important question in the overall scheme of things.

Why did banks throw caution to the wind? No good citizen, it had nothing to do with collateralization or the phoney baloney CDS markets that have so far failed to insure anyone (but Goldman Sachs) from their ‘bad bets’.

Strangely, the answer lies in the sky high stock valuations of companies that didn’t have a product and ultimately never earned a dime.

Was this ‘blind faith’ on the part of investors or was it more indicative of too much money with no place to go?

Understand it was precisely this brand of idiocy that drove the stock markets over 13,000 when our ‘real economy’ was bleeding jobs by the millions.

The ‘explosion’ in IT jobs in the 90’s masked the simultaneous massive drain of manufacturing jobs. Now you can’t land an IT job without first qualifying for an H1B visa.

Once IT crashed, the economy shifted to ‘finance’ and GDP barely skipped a beat even though our domestic economy was entering its second decade without any significant industrial investment.

Once the finance bubble began to grow, there was a simultaneous rise in commodity prices, forcing consumers to borrow more to maintain their lifestyle.

And the banks were good and ready to lend.

So it came to pass that people were putting groceries on their credit cards, then paying them off with checks dashed off of their home equity lines of credit.

This worked out real well until the price of a Porta-Potty on a postage stamp (of land) exceeded the means of the average worker.

During the past thirty years the wealth generating capacity of this nation was being shipped off-shore to generate higher profits for the shareowners, literally hollowing out the economy while simultaneously creating a huge economic desert in the process.

Our ‘major exports’ now consist of food and raw materials. The ‘multi-nationals’ that are ‘domiciled’ here in the US no longer contribute to the ‘real’ economy and in fact earn most of their profits from the overseas sales of their overseas divisions.

Sure, some of this shit is sold here but almost none of it is ‘made here’. There is only one company I know of that produces its product here in the US from (mostly) US materials.

Which boils down to a life of privation for most of us while the bastards responsible for this enjoy lives of luxury. Thanks to their bought and paid for government.

Worse, it will soon become apparent to these selfish pigs that they have succeeded in creating a new Banana Republic that will be forced to deal most harshly with the ‘insurgent’ population.

And these patriots will soon depart to go and join their ‘wealth’ in the ‘up and coming’ economies of the Far East, leaving the rest of us to wallow in the cesspool they’ve created for us.

As I have stated many times good citizen, globalization was not done ‘for’ you, it was done ‘to’ you.

The primary thing that drove the global ‘race to the bottom’ was currency manipulation.
This is the danger of allowing the self-interested to control the value of your money.

We have been betrayed…and you know what the price of treason is.

Thanks for letting me inside your head,


No comments:

Post a Comment