Hold Onto Your Seats - The Economic Collapse is About to Begin

[w¡n9Nµ7 §£@¥€r 123]

No, that wasn't it.

The economic rumblings we've been having, people are asking, "Was that the worst?" "When will the recovery begin?" If you recall, they were asking the same questions back in January when the first wave of mortgage write-offs happened. Merrill Lynch (since bought out,) Citi, and others had massive write-downs. The news said, well, that was it. Maybe a few months 'til the recovery. Six max.

Of course, M/I called that nonsense nonsense. And, as you've seen, it's only gotten far, far worse since then.

So now, after the disastrous string of bankruptcies or near-bankruptcies in late summer, all of America's large automakers on the verge of bankruptcy, and retail sales in the toilet, people are asking, "How long will this last?"

Unfortunately, that is not the right question. "How long will this last?" assumes we are at the low point. We are nowhere close. In fact, the real collapse hasn't even really begun yet.

But it is about to.

When people talk about the worst crisis since the Great Depression - and in reality, a worse one - they notice a disconnect between the average person's reality and what they know about the Great Depression. Things aren't that bad. They haven't actually changed that much at all.

That is about to change.

Virtually every employer is in a combination of hiring freeze/layoff planning. There are things no one is talking about, like investment income and endowments, that most major businesses depend on, as well as hospitals, universities, etc. Virtually every company has lost between 20-40 percent of their base/endowment, never mind the positive growth revenue they depend on. This requires a massive cutting of expenses, i.e. layoffs, hiring freezes, etc. And it is very important to note that this comes before diminished sales are even considered. Had sales stayed steady, the loss of this investment revenue would still require massive cuts.

But sales haven't stayed steady. In fact, they are collapsing across the board. People are not understanding what is happening. It goes back to the article I wrote some months back, It's Not Just the ARM's - Deflation Across the Board is Due. The entire economy is a bubble.

Let's make sure we are finally getting that. The entire economy is a bubble. It is not just mortgages.

But speaking of mortgages, remember the ARM thing mentioned in the above article. Well, you are finally hearing about those in the non-M/I media. Nice, only three years behind M/I this time. What the news is is that the mortgage problems we have seen so far, they were not the worst of it. Those were just subprimes, dumb loans that might be reworkable. With ARM loans, their "balloon payments" triple overnight. Yes, triple, or more. Overnight. And they are about to, en masse, reset to these higher payments. There will be no reworking these loans. And there are years more worth of them left in the system.

So, back to everything being a bubble. We have these mortgage issues - which are just about to get a whole lot worse. And then, there is, well, everything else. For a generation Americans have not been able to afford what they've been buying. The price of everything is higher than can be afforded. The quantity of everything people have been buying is not sustainable.

To understand the scope of what I am talking about, let's go back to 1970. Back in 1970, most US households were single-earner households. Yes, one person worked, and was able to buy a house, a car, etc. They didn't do it on credit cards, since credit cards as we currently use them didn't exist. Even when people bought cars, they did things like pay for them. Or at least pay for a major portion of them. They didn't, as we have been doing for some years now, just take a car for zero down at a payment they can barely make that will last five years.

The reality is, now we have both members of the household working, and we are able to afford less than we were back then with only one person working. This is the problem underlying our current economic demise. And to fix the situation, it is not simply a matter of bailing out car companies, flooding financial companies with cash, or giving American households a little stimulus money. To get out of this mess, we need to fundamentally rework an American society that hasn't been working for a generation. Credit has kept this unsustainable situation afloat for some years. We are now all credited out, and so the situation cannot be avoided any longer.

What needs to happen specifically is that we need average person wages to jump massively while top-level wages plummet to offset this. If you think that is going to happen quickly or easily your are in fantasy land. We also need to get out of free trade agreements. We will need to see things like college tuitions, which have only been supported by an absurd bubble on loan-taking, plummet. Yes, plummet. And with endowments plummeting while tuitions plummet while donations, which are required en masse by most colleges and universities just to operate, plummet as well, it will, needless to say, get ugly for our higher learning institutions.

And just take that example and roll it out across the board. Be it hospitals - also dependent on revenue, endowments, and donations, or just average businesses, which will have to slash their prices across the board, it will get ugly.

Now don't forget your part - yes, your part. You were warned. Shop at Wal-Mart, and you put every mom-and-pop on Main Street out of business. Rather than people having businesses, they fight for part-time, low-wage clerk jobs, while all the profits that used to be their income now go to a single company, such as Wal-Mart, which then hands it all to a few people and spends a ton on advertising.

And let's play out the advertising part. You see Citi going broke, Chevy, and Wal-Mart spending billions on ads instead of salaries. Well, all those baseball player and movie star salaries we've been excited about; yes, that was your paycheck. It could not have been more stark a few days back when the New York Yankees, in the middle of this crisis, just signed someone to play first base for, yes, more than $22 million a year for eight guaranteed years.

Now think about that. Where does that money come from? Not from ticket sales, they couldn't sustain it. It was Citi. It was Chevy. Naming things and advertising. It is Wal-Mart advertising on TV that lets those stars make their millions.

All of the big celebrity and sports star salaries you have seen fly through the roof over the past few decades have come directly from you. That loan you took from Citigroup that you can't pay back now, that interest was going to pay some man $22 million to hit a ball. For historical perspective, it was Dave Winfield, back around 1980, who was the first ever baseball player to make $1 million a year. Since 1980, baseball player salaries have jumped more than 22 times what they were. Have your wages increased 2,200% since 1980? If they had, the $50,000 you were making back then would now be $1,100,000.

No. In fact, not only hasn't your salary increased that much, but, rather, yours has in effect declined. The two incomes of your household can't afford what one used to. All of the nation's money has been sucked up into the hands of a very few. This is what needs to be fixed for the nation to get back on track. Bailing out Citi so they can keep their $400 million contract to name the Mets' stadium, baling out Chevy so they can keep handing billions to the NFL and MLB to pay ridiculous salaries - these do not help the situation, but prolong the problem.

And so. I don't want to be the bringer of bad news. But I've been warning for half-a-decade. The downward spiral we are about to see over the next six month to a year will be unlike anything the nation has ever experienced. Where the bottom will be remains to be seen. And no, that doesn't mean there may be some soft landing. What we are waiting to see is whether it will just be a horrible, painful depression, or truly all-out economic collapse like has occurred in places like Argentina and the former Soviet Union.

The continued flooding of our failing companies - companies that need to be allowed to fail since they are not sustainable - with money we don't really have seriously brings forward the risk of our currency collapsing. $100 loaves of bread. This is what happens in countries that go the way we are about to go.

We've heard the lie from Chairman Bernanke that companies like Citigroup and AIG are too big to have fail. That is not the case. In fact, they are too big to succeed or survive. Since the 1980's, the unfettered allowance of merger after merger has given birth to these mega-multi-nationals which, quite simply, are abysmally corrupt and unsustainable. They are too big to function usefully. They are great at handing $400 million to baseball teams for naming ops, but not competent at their core business. They require too much revenue per average person. When Americans were on the upswing side of the borrowing curve, this worked. Now that Americans are returning to spending sanity - if only by necessity - these companies cannot possibly generate enough revenue, sell enough loans, make enough money from credit cards, to survive.

And unfortunately, so far the federal government has been doing the exact opposite of what needs to be done. Every business that is unsustainable needs to be allowed to crash. Every homeowner who is in a house they can't afford needs to be tossed. In short, the market needs to make a massive correction, and it is going to one way or another. Throwing in effect trillions of dollars, when interest on the hundreds of billions spent so far and about to be spent is figured in, to prolong a needed demise will not only prolong the inevitable, but leave the nation that much closer to death due to the exponentially greater debt and interest payment load.

The layoffs we are about to see, the cutbacks, the hospital closures, the homelessness... Ladies and gentlemen, God Bless America.

http://www.moderateindependent.com/v6iDEC282008economy.htm

[spookyturtle 9,466]

Obama will fix it.

[Amby 490]

Oh joyous!

[mawilson 2,133]

The continued flooding of our failing companies - companies that need to be allowed to fail since they are not sustainable - with money we don't really have seriously brings forward the risk of our currency collapsing. $100 loaves of bread. This is what happens in countries that go the way we are about to go.

Drama queen much?

LOL

[aidan80 9]

It could always be worse.. this guy thinks the US is doomed at least by next year! If he's right (I think he's had too much vodka) now is the time to stock up on tinned foods, guns and ammo, fuel and the other things we need to survive.. playstation, dvd collection.. etc

Edited January 5, 2009 by aidan80

[Hilarious Clinton 452]

Print more money.

[spookyturtle 9,466]

Print more money.

They probably will.

[rebeccajo 14]

............But speaking of mortgages, remember the ARM thing mentioned in the above article. Well, you are finally hearing about those in the non-M/I media. Nice, only three years behind M/I this time. What the news is is that the mortgage problems we have seen so far, they were not the worst of it. Those were just subprimes, dumb loans that might be reworkable. With ARM loans, their "balloon payments" triple overnight. Yes, triple, or more. Overnight. And they are about to, en masse, reset to these higher payments. There will be no reworking these loans. And there are years more worth of them left in the system...........

.................To understand the scope of what I am talking about, let's go back to 1970. Back in 1970, most US households were single-earner households. Yes, one person worked, and was able to buy a house, a car, etc. They didn't do it on credit cards, since credit cards as we currently use them didn't exist. Even when people bought cars, they did things like pay for them. Or at least pay for a major portion of them. They didn't, as we have been doing for some years now, just take a car for zero down at a payment they can barely make that will last five years.

Well, gee. What a glimmer of sunshine. Guy needs to take a happy pill or something.

I wonder what he thought the problem with the subprime loans were? Wasn't it that they were ARM's about to re-set?

And I don't know where he gets the idea most households in 1970 were single-earner. I graduated in 1975 and my girlfriends and I were all preparing ourselves to go to college so we could get jobs..........

[NickD 203]

Well for now, like paying ten bucks for a fifty buck shirt, of course, has to be a shirt I like, and must fit. What is the markup on clothes anyway? Looked at some GM stuff, have over 3,000 additional bucks on my GMCard, but saw nothing but #######, sat in a Pontiac G6, sat on more comfortable jagged rocks. And those stupid pull out door handles, GM used those before, pull and the handle will be in your hand, somebody there is smoking crack. That is as far as I looked, but sure I could find at least another thousand problems.

Seems like every commercial industry is having a sale right now, but haven't checked into airline rates, but where we really need a sale is from our government, property taxes have gone up 8% this year, and for what? Screw them, I am not washing my garbage anymore and why isn't the USCIS having a sale? Also home energy cost while keeping pace with OPEC prices, and not following the downward trend, nor are the cable or cell phone rates. With home energy, it's not like I can go across the street to get a better deal, isn't this kind of like a monopoly? Course I gather that monopolies are okay now.

Do have a choice with software, can either use Microsoft or Linux, but with Linux, would only have to spend 36 hours a day to get it to run MS compatiable software. Who says we are a free market country with competition?

Governor claims his two biggest bills are education and Medicade, can't say much about education without making lots of enemies, but do $120K professors really get six weeks off for Christmas just to work a couple of weeks for spring break, then a couple of more for the summer vacation? And with full medical benefits and early retirement? Medicade, certainly a lot of USC babies getting that for free, even though their parents or more likely parent is not here legally.

There is a positve side to all of this, I don't have to get into my car and drive down to the dark allies of Milwaukee or Chicago to get robbed. With our government, can safely get robbed at home.

Paying ten bucks for a fifty buck shirt only gives Doyle, our governor 55 cents in sales taxes, rather than $2.75, but it finds other ways to make it up.

[w¡n9Nµ7 §£@¥€r 123]

There is a positve side to all of this, I don't have to get into my car and drive down to the dark allies of Milwaukee or Chicago to get robbed. With our government, can safely get robbed at home.

The government can't sell you crack though.

[NickD 203]

There is a positve side to all of this, I don't have to get into my car and drive down to the dark allies of Milwaukee or Chicago to get robbed. With our government, can safely get robbed at home.

The government can't sell you crack though.

They should, that way they can get out of debt. I won't buy any, but plenty of people will.

[chri'stina 190]

A refreshing article to start the morning with!

[w¡n9Nµ7 §£@¥€r 123]

A refreshing article to start the morning with!

Indeed.

Now whatever does happen, it won't be as bad as we thought!

[AlHayatZween 2]

, guns and ammo, fuel and religion

yeah, man... let's do it!

[lostinblue 1,989]

There was a person on our local talk radio about 6 months ago that has mentioned the same thing about our economy. He mentioned the housing crisis which was starting then. He said next was the auto loans and in the end the credit card situation. He said a person could buy a $60,000 auto based on your credit score. This is why a person could get approved in a few hours. Nothing having to do with your ability to pay. An auto dealer in my town mentioned a few years ago that 60% of trucks going out of the lots were leased . Which meand people cannot buy a truck so a lease is needed. Trying to keep up with the neighbor next door. The average credit card account balance is like $10,000 ？Our towns and cities are bankrupt. The States are even worse. In NY state little is being cut like say payroll and the mortage that goes with each government worker. (pension's e)ect. The only thing is we will raise more taxes. Hell our governor just went overseas to visit the troops. We are dead broke and it is party time.

http://seethroughny.net/Payrolls/tabid/55/Default.aspx

Here is a link to the government workers pay for ny state. If you want to see why it cost you $35,000 or more to send you kids to college check out what the professors get . There is a truckload of people making 2-3 times their wages in overtime pay. This is just one state and not our federal government. Is there a site like this one dealing with the federal government? This country has lived well beyond it's means in all aspects of life. Personal and governmental .

For years the mantra was we as americans were not saveing enough....Now the cry is we need to spend like hell. What changed? Is this man off base maybe somewhat . No one can tell the future. If he is even half correct it will be a lot of pain for the middle class in this country. Back over 5 years ago a story in the wall street journal mentioned that over 50% of the homes in this country were second "vacation" homes. How about "speculator" homes. This housing crises is going to be with us for a long time. People who are unemployed won't buy houses.