The Darwin Depression: Time To Say Goodbye To How It Should Have Never Been.
At a time of glad tidings and cheer, it has hard to be very optimistic about what we face as a country. Americans, credit-card alcoholics at an all-you-can-charge buffet, have over-indulged to the point of self-destruction; businesses life-supported by cheap credit and currently the US Government, the taxpayer, well you, continue to shed jobs at record pace; and then there's the impact of a federal deficit in the trillions -- did I mention that George Bush accumulated more debt than all previous presidents combined? All states are facing a budget crisis that will cripple services and aid and every two months, the new reports are getting worse.
Or am I being too optimistic?
The harsh reality is that America has been running on credit-driven fumes for at least a generation. What we've seen and thought was growth was nothing more than a house of cards built on monopoly money.
CEO pay that has gone through the roof?
People flipping Miami condos before they are even built?
Outrageous sums of money for sports memorabilia?
Any and all, blown up by the free credit, no-money-down mentality that has become the core part of American culture.
Consumer debt has tripled since 1990 and we've experienced, already things we never thought we'd see and that can not be sustained. A negative savings rate for the country, Treasury bonds sold at 0% interest, and more. All signs of economic collapse that were ignored and shoved under the carpet, for a while at least.
What made the flood of cheap credit so devastating is that it came at a time of America's relative decline in power.
It is very dangerous for an empire such as America's, faced with ebbing influence around the world, to amp up on cheap credit and buy out the store. At the end of the day, you have a frustrated country, swamped in debt and merchandise it doesn't really need, wondering how to pay the bills. Japan has never really recovered from its bubble, and its bubble is looking pretty small compared to the one we're popping.
Look at this. Consider this image.
Americans weren't earning more. They weren't saving more. They were just borrowing and spending more, propping up bad businesses, weak charities and organizations of questionable strength.
Businesses aren't doing much better. It is now estimated that total corporate debt is over $11 trillion dollars.
It is now, or soon will be, a depression.
The news will most certainly get worse, then much worse, then truly horrible, and then we'll see where we are. And like a consumer whose credit cards slowly get turned off one by one, we will, together, realize, there is no way to charge our way out of this mess, there simply is the need to go back to the basics, a more cash-driven society and attempt to work our way out of it.
As we do so, we will say goodbye to two things, consumer behavior that is untenable in the long run, and institutions around us who should have died a decade ago but hung on through the false life of cheap credit.
It will start with the housing market which will, once again, be determined by issues like the number of people living in a market, incomes and rental prices.
How far will housing prices fall? To the historical mean, which is another 20-40% down, depending on where you live. This graph is shocking for two reasons. One, how it disproves the basic belief that a house is a good investment, it's not. And second, how we should have seen a correction in 2002, but post 9/11, all we saw was a bubble. Currently prices are down 20% from the top that was shown in this graph, but clearly, they still have a long way to go.
Will housing prices return to historical averages? Yes. But what's going to happen first? Here's the view of Whitney Tilson who was on 60 Minutes on Sunday and one of the few who predicted the mortgage disaster.
"We had the greatest asset bubble in history and now that bubble is bursting. The single biggest piece of the bubble is the U.S. mortgage market and we're probably about halfway through the unwinding and bursting of the bubble," Tilson explains. "It may seem like all the carnage out there, we must be almost finished. But there's still a lot of pain to come in terms of write-downs and losses that have yet to be recognized."
The housing bubble will deflate slowly, unfortunately for our recovery because now people are just pulling their houses instead of selling at a loss. "I'll wait till the market comes back" you here but it's not coming back, any more than lightbulbs.com stock is going to be worth $100 a share anytime again ever.
In real dollar terms, in our lifetime, housing prices will never be what they were in 2005 and 2006. They may never even get within 25% of that false peak. In the next 100 years.
Of course, it's not just a housing bubble, it's an asset bubble. Everything was inflated not for its value but as part of a bubble. Everything. Now, housing prices will come down, government revenues will come down and businesses will function again, on principals, not mass-mingled derivatives of derivatives.
In the process, there will be economic pain such as we have never seen.
It will, in the long run, be worse than the 1920s and 1930s because that economic hardship was not entered into with tens of millions of consumers sinking in credit card debt. That credit card debt was not packaged and resold as interest bearing investments to businesses and governments.
As we move through the next three to five years, we will see companies fold and disappear, as it should be. While Nissan, Toyota and Honda make cars here and do it well, the big three will disappear now or later. A further shrink of the economy means that like our parents, we will drive fewer cars longer. Each consumer will make his own informed decision when, and if, they buy a new car and that decision clearly will not include a car from the big three.
But this is symbolic of what will define this depression, the low-rate credit has allowed many weak businesses and institutions to hold on long beyond their normal economic life cycle.
Newspapers, who should have folded a decade ago, but held on and in some cases were bought and sold and are for sale again, will shutter. The Tribune Company is just the first, the question is: in 24 months, will any major metropolitan area still have a daily newspaper printed and delivered? Odds are, no.
The 6:00 pm Evening News, a legacy of two decades ago, will fold under the pressures are fallout.
Department stores, who are a generation past their expiration dates, will fold.
And it will go on. And on. Colleges, vacation destinations, golf courses, sports leagues, small and large businesses, 20% go away now. 20% more before it's over. 60% survive.
What will the future look like? What will we see next holiday season? And the one after that?
Who knows to be honest? Clearly, next December, things will be much worse than they are now.
But after that, in 2010 and 2011, as we approach the bottom, how will Americans, bloated and weak, after a generation of low standards and lower credit card rates, be able to rally?
Or will we fold, and go the way of past empires? And wallow in neo-nationalism as shown perhaps most recently and most clearly by Sarah Palin's campaign. Hate often rises from the ashes of collapse. It could happen here.
There is one unspoken truth lingering. In 1991/1992, normal business cycles would have pushed the economy down. But in the lingering madness of 9/11, George Bush feasted on the insecurities of Americans, cutting taxes, cutting rates, creating the boom.
I have to wonder if somewhere in a cave, the man who said that 9/11's goal was economic collapse of America is wondering if he didn't succeed. The reaction to the attack was a bubble. A bubble that let us buy more and more. A bubble that let us feel better when underneath, there wasn't anything that good to see.
I saw Henry Blodget write here that the market is now fairly valued by historical standards. I agree. I think it will decline further on the basis of declining economic conditions but not collapse.
I once asked a very smart investor when the Dow hit 12,000, someone with over $1 billion under management. Why is it so high? If the Dow is a predictor of what the economy will be like in 6 months, what does it see that we don't?
He stopped and thought about it.
"I have no idea, it's just going up."
And now, it's not.
Follow James Boyce on Twitter: www.twitter.com/jamesboyce
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Markets are going through major shifts related to advances in digital solutions and global access to low-cost resources. Those companies that will thrive are those that will create new solutions which adjust to these shifted markets. Just because a company survived last year and has a few bucks does not mean it will succeed in 2009 and onward. It requires innovation to deal with these major changes, and only those companies that innovate will create returns allowing them to emerge as strong, viable competitors. Read more at http://www
This article makes no mention of how hope and leadership fit into the equation.
We have had terrible leadership recently. I think we can get out of this if we all pull together SO
Start buying American made products
and
share more what you have with others that have less
and
will some investigative jouranlist please provide us with the names and addresses of those on Wall Street who are getting bonuses with our money.....
bush told us after 9/11: go shopping. not get involved in your community, or educate yourself, etc., but to go shopping. which would have been okay if there was an emphasis or infrastructure to buy local but there is not. yet.
and so americans kept consuming products, made in china that were laden with lead and melamine and lord knows what else, and we charged it all. that money went to multinational corporations for the most part, who have no allegiance to the US, and pay a 1% tax rate if they are even technically based here. so how did that suggestion from the man at the pulpit help?
what an opportunity squandered
One of the problems with these sorts of opinions that come out in \a crisis is that they tend to conflate long-term structual problems with the the current crisis. Government debt, credit card debt, and many of the other things are big problems that will probably contribute to the pain both now and down the road. But they are not necessarily what caused this downturn, and there's no reason to think that all big structural problems will "come to a head" and explode at once. Perhaps some will to an extent (e.g. people not able to make minimum payments on the credit cards because of the recession), but we need to be clear about the difference between long-term and short-term problems.
....Althou
....Also, worrying about government deficits is exactly the wrong sort of thing to emphasize now. This is like the person who sees some evidence of rain and other evidence that hot dry weather is ahead, and concludes simply that the weather will be "bad." If the government debt explodes into a huge problem, it will probably be by causing inflation, whereas right now we're at risk of deflation.
I think this is the course of the future...I
Perhaps there are more possibilities than we think...
I'm always hopeful when I read relentlessly dour and dark predictions like these in the midst of a recession, as I see them as light at the end of the tunnel. There's a herd mentality right now with those predicting the imminent collapse of American society, similar to the herd mentality that drives asset bubbles and "irrational exuberance" during boom periods. The fact is, in some of the worst-hit markets, the bottom is being reached in home sales:
http://www
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Every major daily paper folding in the next 24 months? PUH-LEEZE.
I couldn't disagree with this comment more.
In California, foreclosed homes are being put on the market for 50% less than other homes on the market in the same subdivision, etc.
The state government is being forced into major cuts, the corporations are hurting, what possible reason is there, other than real estate industry pr 'hope' that it's anywhere near a bottom?
Dear Mr. Boyce: WoW! Where have you been all of my life? I am a lowly government worker in the public housing field. At least 12 - 16 months ago, our phone started to ring off the hook with people looking for help with mortgages. (They had heard about President Bush's "program" to make poor people "homeowners") These are the same people who call public housing residents losers. But, of course the taxpayer is supposed to help them with their mortgages on WAY-WAY ovrerpriced houses. The mortgage foreclosures are just the beginning. In 12 months, when all the masters and mistresses of the universe finally realize that any job is better than no job, and find that Wal-Mart is not hiring, they will be in the 'ultimate loser's' line ----welfare.
A few weeks ago, TV commentators were talking about giving bailout funds directly to US citizens, instead of to financial institutions (funds that haven't yet trickled down to us and most likely never will). The idea started off as a comment by a US congressperson that if the government gave each man, woman and child legally in the US a million dollars each, it would be less that what the government and the federal reserve will spend on corporate bailouts. If the government gave consumers the funds, the recession would be over instantaneously. Debts would be repaid, mortgages, credit cards, etc. – perhaps as part of the “terms” of consumer bailouts. Plus all sorts of new spending would occur for a protracted period. Giving citizens bailout money would do more good for the country, our economy and individual citizens than what the government is currently doing. A “personal” bailout would help the unemployed, the elderly, struggling parents - everybody! No child would lack medical attention or food and housing. Why would the government rather waste OUR fortune on companies who already have every advantage and whose CEO’s are already filthy rich? Why isn't anyone demanding the government give funds to citizens, actual flesh and blood people!!! No one has mentioned this idea in a couple of weeks, but this solution merits serious consideration. Stop giving our money to those who already stole, lost or squandered it. Give our money to us for once!
Check your math. Assuming there are 280 million citizens the proposal you cite would cost 280 million million dollars (i.e., 280 trillion). While the bailouts are expensive, the numbers I read are more in the 2 to 3 trillion range (still a staggering $10,000 for each of those 280 million citizens). And, no doubt a huge amount of that money will go to executive salaries at financial products companies, part of an industry that does not produce a tangible product or benefit, rather just moves money around and skims off the top.
Lower mortgage rates, caps on usurious credit card rates and fees, these were all part of the consumer landscape twenty years ago. Now thew financial services industry has lobbied them away in exchange for exotic instruments that are supposed to defray risk. That worked pretty well now, didn't it?
Who is actually producing a tangible object on the table in front of you? We traded in posterity for short term gain. People who started middling Chinese goods are at the root of the problem-they didn't give a damn about the long term. Hey, I'm a farmer and I produce product. Living beyond your means for a lot of nonsense is a sickness. Deferred gratification became instant gratification. Americans had freedom but they used it irresponsibly and greedily- we deserve this! A nation of middle men tapping the keypad in search of the cheapest labor is low on the moral scale. And bailout the auto industry known for making crap? We lost our compass for gross materialism- why the surge in storage companies? For all the non essential stuff- pigging at the trough of third world sweat shop labor products. And here's real insanity- the gas prices are going down and whee! we can buy gas guzzlers again. We are so concerned with foreclosures that we forget about renters who get no equity for all the thousands of dollars they spend for a roof over their heads. Nobody cares about almost half the population that rents- the underclass that help the landlords pay for their property. Class division rearing its ugly head and we just accept it. Too much...
Do you wonder if it was not only expected, but planned? Pull all the money out of 'middle class' pockets, before the people realize all the jobs 'outsourced' are ending productivity, put it in the pockets of the 'global citizens,' who have no attachment to a nation, just money, then when it all falls apart, protest the nation can't survive without a taxpayer bailout? I have. And I've been wondering since the eighties.
Yes, it's going to get much worse, but I do know we can dig our way out of the hole with a 'reconstruction' of the US as a productive modern country. However, time will tell if we do, or we just do more patching and construction of, at least, half-century-old technology (fossil-fuel energy production, burning and burying waste, etc.).
The Republican party is at risk. If the current legislators put stopping anything the Democrats propose ahead of working with them, to create a productivity base for this century, in the next two years, it will die in less than ten.
The Republican Party is dead, it just hasn't been buried yet so the yappers don't realize it.
Quoted by Abraham Lincoln - "America will never be destroyed from the outside. If we falter and lose our freedoms, it will because we destroyed ourselves.
Jim Morrison and The Doors have a great poem/song for this situation.
This is the end
Beautiful friend ...
... the end
Of our elaborate plans, the end
Of everything that stands, the end
No safety or surprise, the end ...
Desperately in need...of some...str
In a...desper
Lost in a roman...wi
And all the children are insane
All the children are insane ... (end quote)
For pseudo-conservative republicans, George W. Bush, Wall Street, and others of their ilk I dedicate this quote from T.S. Eliot's "The Hollow Men" as follows:
We are the hollow men
we are the stuffed men
Leaning together
headpiece filled with straw. Alas!
Our dried voices, when
we whisper together
are quiet and meaningless ...
Shape without form, shade without colour,
paralyzed force, gesture without motion ...
This is the dead land ...
here the stone images
are raised, here they receive
the supplication of a dead man's hand
under the twinkle of a fading star...
the eyes are not here
there are no eyes here
in this valley of dying stars
in this hollow valley
this broken jaw of our lost kingdoms ...
Between the idea
and the reality
between the motion
and the act
falls the shadow ...
This is the way the world ends
not with a bang but a whisper. (end quote)
Finally a quote from Arthur Rimbaud's "A Season In Hell."
"Ah! I'm fed up:- But, dear Satan, a less fiery eye I beg you ..."
I think this is one of the most accurate articles ever written about the truth of what is actually going on with our current economy and what may lay ahead. That being said, the one thing I don't understand is why no one mentions that the preceeding years to this credit crisis Americans were already proving their inability to spend wisely-way before Bush came along, people were beginning to exceed their credit and live outside their means. The proof is in the change of the bankruptcy laws that took place several years ago. I am a Real Estate Broker in a small town and can remember in 2003 saying to my Principal Broker in a few years we are going to start seeing alot of foreclosures and bankruptcys. I couldn't believe the mortgages that the banks were approving and how little down people were coming in with. I lost some business then, told some that they shouldn't buy but at least none of those people are in default now! My point, if I could see it why couldn't the financial institutions? And how could they not realize that the gas situation would start to push the economy over the edge? Spending a couple of hundred a month more in gas started to make the difference between people being able to make their mortgage payment or not. I wish us all well. Stick together, work hard and save!
There's no reason an 18 year old should ever have a credit card with a massive credit limit. I'm proof. I learned the game young, charge just enough on the card to pay off and raise your credit score, in turn get higher spending limits. Now I'm straddled in debt and have just completely quit paying my cards. While the credit companies were so helpful in encouraging me to spend they have been less than helpful in lowering the interest rates. Then as you stated our wonderful elected officials did nothing about this mess. Instead they continue to help failing businesses that should be allowed to fail while telling the consumer/c
America's greatest problem at this point is not economic, but moral and spiritual. The American dream--a house, a car, and unlimited credit to buy and buy and buy--is God's nightmare. We have taken the seven deadly sins and made them into virtues--we are all narcissistic (the bs about being a special nation), envious and desire what other people have, we are all gluttons (and 66 percent of us are obese), we lust constantly over the pleasures of buying, eating, feeling, we are filled with anger over the slightest failure of life to meet our immediate needs, we are greedy, constantly wanting more, more, more, and we are a lazy bunch, preferring to let other people do our dirty work (Mexicans to mow our lawns, Chinese to make our trinkets) and far, far too lazy to be able to recover our integrity and pride and work our way out of this mess. Now, we should be saving, living within our means, working to make useful things, yet our insane government continues to want us to acquire more debt, do more shopping for things we don't need and cannot afford, and we're willing to accept war and violence to rob other countries of resources we think we need (Iraq oil, for example). We don't need an economic revival; we can do OK on 90 percent less than we have now. What we need is a moral revival, but all the preachers and moralist are corrupt too.
you can't really think we are ALL like this....
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