Skip to comments.U.S. Must Be Cut Loose
Posted on 12/28/2008 10:00:07 PM PST by gpk9
Christmas retail sales are confirming what "gloom-and-doomers" have been saying all year: Consumer demand is falling off a cliff. It's in free-fall. The bottom will eventually be hit, but it won't be a trampoline-bounce back up. It will be death on the rocks.
70% of our economy is consumer demand. When consumer demand dries up, the economy crashes.
Why is consumer demand drying up?
1) Massive consumer short-term unsecured debt.
In the 2002 - 2007 credit bubble, consumers collectively pushed credit card balances over the 14 TRILLION dollar mark.
That massive amount of debt simply cannot be paid off. Credit card companies are realizing this, and have kicked interest rates to dizzying heights, and / or simply turned off many people's credit cards.
2) Massive consumer long-term secured debt.
Consumers have bought more home than they can pay for. That was made possible by insanely-loose lending policies of our government, together with insanely-low interest rates set by the Fed. The result has been a 5-year orgy of home buying, bidding up home prices to insanely-high levels.
The 5-year credit bubble has popped ...as smart people knew it would.
Those insanely-loose lending practices have suddenly vanished, leaving consumers in the frightening position of approaching variable rate jumps with no way to re-finance at lower rates. Unprecedented numbers of people are going to find themselves in mortgage default in the months ahead, leading to an unprecedented number of homes being given back to banks, and a near-collapse of home prices.
Those insanely-low interest rates are dropping even lower, but hardly anyone has credit-worthiness to borrow money due to the massive debt-load they're already carrying, along with home prices dropping like a rock.
On top of that, banks are absolutely TERRIFIED! They have stopped lending money for all practical purposes. Even with TRILLIONS of new dollars created out of thin air by the Fed being handed to them on a silver platter, building their cash reserves to all-time highs, banks are STILL terrified, and STILL not lending money.
The T.E.D. spread is down significantly in recent weeks, but that reflects the rate banks charge to each other. With cash reserves built back up to all-time highs in recent weeks, banks feel more comfortable about lending to each other, but they are STILL NOT lending to consumers and businesses.
3) Unprecedented job losses.
One component of credit-worthiness is job stability. The likelihood of having a job long-term. That likelihood is vanishing as hundreds of thousands of jobs are being liquidated by companies seeing terrifying drops in sales and revenue. The automobile market, a classic indicator of consumer demand, is literally collapsing. New car sales across the board are down 35% in November alone, three months into a new model-year. That is near-collapse of new car sales, and will be the last-straw for the big 3. The end. All 3 of the big three are going into bankruptcy, regardless of $15 billion or $34 billion or however many billions are thrown at them by the Fed.
That same story or something close to it is happening to companies in all sectors of the economy, resulting in hundreds of thousands of more jobs being liquidated in the months ahead.
Even utilities, electric, gas, water, etc are liquidating jobs as revenue drops and dis-connects rocket to record highs in the past three months.
Banks know this. They are keenly aware of it. That is one reason they are terrified and not lending money to consumers.
They're also not lending money to businesses, those same businesses seeing terrifying drops in sales. Aside from the collapse of short-term business financing, bank letters of credit, a critical component in movement of goods and commodities within America and between other countries (like China), are simply not being issued now, resulting in a near freeze-up of large-load shipping within America and worldwide.
If collapsing consumer demand was the only problem, all we would have is a depression, a deep depression.
But collapsing consumer demand isn't the only problem. The value of the dollar is collapsing as well.
The trillions of dollars being created out of thin air by the Fed and being thrown at any and everybody in their terrified attempts to prevent an economic collapse are creating hyperinflation of the money supply at a rate unprecedented in history and leading to a soon-coming monetary collapse.
Other nations see it, are becoming terrified themselves, and are moving swiftly to unload their dollar holdings before the dollar becomes worthless.
On top of that the IMF is now proposing plans to cut the dollar loose as the world reserve currency. Once that happens the dollar is finished. It's over. People will literally start using dollars to wipe their butt. Any dollar-denominated holdings and investments will instantly become near-worthless. 401ks. IRAs. Money market accounts. Bonds. You name it. It will happen almost overnight.
We are going into a hyperinflationary depression the scale of which has never occurred in history. It will be the final undoing of America. The mighty America, bastion of liberty and freedom for 250 years, is coming down to it's knees thanks to insane levels of financial greed, something our forefathers never thought would or could happen.
Other nations are seeing it unfold right before their eyes, the huge beautiful Titanic christened "America" with the gaping financial hole in our side, are absolutely terrified, and are making all haste to cut the lines before we drag them under also.
We have been warned, by credible people in the know, one of them being our new vice-president, of a major calamity hitting America in the first few days of Obama's presidency, but no one, not even those making said warning, are saying what it is.
They undoubtedly know what it is because they are giving exact dates.
In a larger sense, '09 is going to be year the Titanic-christened-America sank. Our government-captain and officers are watching their nation-ship sink beneath their feet as they encourage the band to keep playing.
As with the real Titanic, there aren't enough lifeboats to go around.
As with the real Titanic, only the elite will be in them.
Unlike the real Titanic, the captain and officers will be in the lifeboats too, watching along with their elite friends in morbid silence as the rest of us freeze to death in the frigid waters of financial ruin, or go down locked deep in the bowels of the ship as they take one last look at the keys, then toss them overboard.
It's not a perfect analogy. America won't cease to exist. Something will rise out of the depths eventually.
But it very likely won't be America any longer. Maybe in form, but certainly not in substance.
Can be traced back to Congress.
Yet nobody listens to me.
“I told you so” won’t cut it when it hits the fan.
$14 Tn in credit card debt?
What currency? CC debt has been going down recently. I don’t think it has ever been above $2 Tn, which is 15% of GDP.
We are having problems, to say the least, but I think you overstate their severity in near hysterical terms.
Makes sense to me.
You forgot to mention that FR has turned into an unmoderated hate-fest among members.
For a nation of people to have things, they must produce things. Free nations must practice free trade in order to continue their freedoms. Manufacturing is real work. If you don’t don’t real work, eventually, you don’t eat.
I meant to write, free nations must practice fair trade in order to continue their freedoms. The practice of borrowing money from communist nations to purchase goods from those nations is a ticket to economic collapse.
“You forgot to mention that FR has turned into an unmoderated hate-fest among members.”
You sound like you read too much KD over at Ticker Forum.
Either it’s hitting the fan, or it isn’t. I’ve worried until I can’t worry anymore. My business went down the tubes this year, and I was fortunate to take a big income hit for a job with a former customer. Oh well, it’s enough to pay the monthly expenses, which aren’t much by most people’s standards, apparently. A mortgage under $1K a month, house over half paid off, no other debt.
There are more important things, though. My dad passed away in April, and the holidays will never be the same.
I have no idea what the future holds, and have never been so pessimistic because it doesn’t sound good at all, but if you have your loved ones to gather close to you, it’ll be alright in the end.
The author identifies all of the key problems with the US economy, then through a leap of logic, claims the dollar will no longer be the world’s reserve currency. The fallacy in his logic is, he fails to identify what will replace the US dollar as the world’s reserve currency. The Ruble? The Peso? Surely not the Euro.
I don’t doubt the dollar will be debased. Chopper and Bazooka are doing everything they can to devaluate the dollar and stimulate inflation. But to jump from that to dropping the dollar as the world’s reserve currency is a massive leap of faith. I’m not buying it.
The word “hyperinflation” is tossed about casually by some people.
Trading green pieces of paper for real stuff seems like a good idea to me -- especially if they lend us the green pieces of paper.
Not to say we don't have a lot of problems, because we do, but $14 trillion in credit card debt? That's total garbage.
There's currently about $2.5 trillion in outstanding consumer credit, of which just under $1 trillion is revolving debt (credit cards). The remaining $1.5 trillion is car loans, education loans, and other non-revolving loans. This amount is partly secured, in the case of car loans and loans given for the purchase of other products.
Now, there is about $14.5 trillion in mortgage debt out there, which is secured to an extent against the value of the real assets backing the paper. Without more accurate figures about the current values of the property backing that debt, it is impossible to say how much of that is actually secured.
IOW, credit card debt is about, what? 7 or 8% of GDP?
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