Monday, October 19, 2009

Eye of the Storm

The surest sign that intelligent life exists elsewhere in the universe is that none of it has tried to contact us.

-- Bill Watterson (1958 - )

While the economy is improving according to our dear leaders, ominous signs have appeared to contradict the theory that the worst is over. The only indicators that support improvement are the stock market
and the broad effects of stimulus packages and propped-up consumer spending like the “cash for clunkers” program and tax credit for home buyers. Those programs and the real state of the economy are merely smoke and mirrors. It’s like taking money out of one pocket (taxpayers) and putting it in another (consumers) to show improved economic activity.
Who are we kidding?

As one person commented on a financial site:

When they talk about recovery, they do not mean you me or the average taxpayer. We are only required to pay taxes and suffer in silence.
Recovery is meant for Wall Street, the banksters and their bonuses.
That is what is meant by recovery.

There are a few major components that point to where we are and where we are going. Credit is contracting rapidly and banks lend to each other, or well-connected parties, after borrowing from the Fed. Wall Street has improved its balance sheets (on paper) and has survived with government money and the “carry trade.” Thus, with borrowed money to conduct business – $16 Billion is available at Goldman Sachs – for bonuses.
Banks and Wall Street have also survived the mortgage crisis by selling the toxic paper they needed to pump out for huge fees, to the government, and consequently applying for more Federal money when their balance sheet gets dicey.

One commenter writes about the situation like this:

“Bloomberg reporting that Crooked Timmie's shop, and Give-away Ben's shop, are populated by "advisors" that made millions and millions and millions of dollars from Goldman Sucks, Bank of Criminals, JP Morgan, etc. etc... Obama, just like Bush, and Crooked Timmie, just like Paulson, and Give-away Ben, are working as hard as they can to benefit their buddies on wall street... If they had taken those trillions and given it to main street, the recession would have been over long ago, along with the cancerous vipers on wall street... But the rich take care of the rich... the rest of us can ‘go pound sand’.”

Underlying all of this is massive unemployment. As credit evaporates, companies file for bankruptcy, commercial real estate collapses and people are fired, deflation sets in. Downsized companies need fewer supplies, fewer workers and smaller rental spaces. It is entropy in action.

All of this sets the stage for futile attempts to stop this process but only manages to put a finger in the dike. Even if there is a temporary halt to the process, hyperinflation will set in and create an even bigger bubble than the supposed subprime mortgage fiasco.

What we are facing now is the possibility of a double-dip recession
that might turn into a Depression starting in 2010. No one knows whether that will happen, but a 50% increase in the stock market within 6 months should clue everyone in to the erratic nature of our economic situation. Simultaneously, millions are unemployed (with more on the way), foreclosures are increasing (the so-called “prime” loans), home prices continue to drop, companies file for bankruptcy at an accelerated rate and credit evaporates precipitously.

When 20% of all homeowners who DO pay their mortgage and face possible job loss – and who currently owe more than they are worth (and values are still declining) – the prognosis for stabilization is 5 to 10 years away.
A lot can happen in a decade and much of it is pretty.

If the stock market has another major decline as many are predicting and housing continues to drop in value – coinciding with another modest increase in the price of oil to $100 or $125 per barrel – ALL bets are off.