If The Future’s So Bright How Come I Don’t Need Shades?
in the fall of 2008 the stock market bubble bursts. A massive stimulus bill designed to get banks lending and consumers spending is passed.
2009: The stimulus bill fails to stimulate and the nation finds itself in the deepest recession most people now alive can remember.
20?? The highly leveraged commercial real estate bubble bursts. At some point the public debt bubble bursts when the bond bubble bursts. This causes the trust bubble to burst (people stop trusting in the financial system), all of which triggers a panic bubble. To avoid a prolonged economic downturn, the Powers That Be trigger a _______ bubble. Whoops. Out of bubbles. Next stop…a recession so lengthy and so deep that at some point it simply fits better to refer to it as a depression.
Sorry. We‘re getting ahead of ourselves on that last paragraph. But you see the point. Without even digging into the morass of financial statistics, a quick recall of Newton’s Third Law of motion, “For every action there is an equal and opposite reaction”, tells us we have stretched the economic rubber band too far, and it’s either going to break, and can’t be used again… or its going to snap, and sting really really hard. The mechanism that allows for the gentle unwinding of an overheated economy –periodic and mild recessions– was long ago disabled.
Circle The Wagons… We Are In a Depression.
Reasons abound supporting the depression thesis. Unemployment is still on the rise. In fact the real unemployment rate is far higher than what is generally reported. Housing has not come anywhere near bottoming. Not with a record oversupply of empty homes to the tune at last count. And not with 1 in 5 homeowners now ‘underwater’ on their mortgages. And certainly not with a new report indicating that foreclosures are higher this year than in 2008. Foreclosures are now running four times the pace they were in the 1982 recession.
Also, GM does not normally go bankrupt in a standard-issue recession. Bankruptcy rates continue to rise across the board. For those who like charts, the ones here> and here provide compelling evidence. The first link connects to an article that counters assertions by some that our current recession is not as bad as The Great Depression by injecting an “It’s the global economy, stupid” argument (playful insulting remark mine), demonstrating that on balance things are unfolding as they did back in the 1930’s. The second link showcases a number of charts painting a not-so-pretty picture of falling consumer spending and increasing unemployment. Government programs cannot reverse these trends overnight. In fact, the action taken so far is actually aggravating the situation. Funds have mostly been spent on the wrong things; more bailouts than infrastructure. The Powers That Be aren’t wearing shades, but rather, blinders.
The reason these trends will not reverse in the near future is because the biggest bubbles have yet to burst. The really big bubble… the mother-of-all bubbles… is the T-R-U-S-T bubble. The trust bubble has evolved over the past couple of hundred years. We have developed a consumer driven economy based on the belief that all that was built up yesterday… will be here tomorrow. Trust is the substrate upon which this whole inverted financial pyramid –which sits on little pieces of paper called dollars– is resting. We already know this bubble has sprung a few leaks. That’s reflected in the credit collapse, a.k.a. the we’re-scared-you-won’t-repay-the-money-we-lend-you syndrome. Trust will decay even further however as the remaining bubbles pop. First, the credit bubble will deflate further when the next wave of loan defaults hit. Example; more and more people unable to pay their mortgages and credit card bills due to layoffs, no home equity, and/or unemployment insurance running out. Bigger example; commercial real estate properties defaulting on loans thanks to skyrocketing vacancy rates in office buildings and shopping malls. Even bigger example; states and municipalities that can’t pay their bills due to greatly reduced tax revenues. State and local governments in particular have a huge day of reckoning coming because unlike the Feds, they don’t have printing presses. We are dreadfully close to the point where lenders will not only shy away from lending more money to certain states, they won’t even want to refinance existing debt coming due. Some states may be headed for their own special form of bankruptcy, however that manifests itself.
The only potential savior for some states is the Federal government.
Mmmm. That’s comforting. The Feds of course have a printing press. It’s all gased up and ready to go. And there’s going to be pressure to use it; if not on the states,