Economic Meltdown 2009 is Worse than the Great Depression

The Market Oracle ^ | Apr 10, 2009 | Mike Whitney

[An Old Man]

It's been 21 months since two Bear Stearns hedge funds defaulted setting off a series of events which have led to the gravest economic crisis since the Great Depression. No one expected the financial meltdown to hit this hard or spread this fast. The failure at Bear triggered a freeze in the secondary market where mortgage loans are repackaged into securities and sold to investors. That market is now completely paralyzed cutting off 40 percent of funding for consumer and business loans and thrusting the broader economy into a deep recession.

. . . . C L I P . . . .

The economy is now in a downward spiral. Tightening in the credit markets has made it harder for consumers to borrow or businesses to expand. Overextended financial institutions are forced to shed assets at firesale prices to meet margin calls from the banks. Asset deflation is ongoing with no end in sight. Price declines in housing have reached 30 percent already and are now accelerating on the downside. This is the nightmare scenario that Bernanke hoped to avoid; a capitulation in real estate that drags the rest of economy into a black hole. Economist Nouriel Roubini and market analyst Meredith Whitney predict that housing prices will drop another 20 percent before they hit bottom. Nearly half of all homeowners will be underwater and owe more on their mortgages than the current value of their homes. That will increase the foreclosures and push scores of banks into default. According to Merrill Lynch's economist David Rosenberg:

"It would take over three years to achieve price stability (in housing) The problem is that prices do not begin to stabilize until we break below eight months' supply – and they tend to deflate 3% per quarter until that happens. So as impressive as it is that the builders have taken single-family starts below underlying sales, their efforts are just not sufficient to prevent real estate prices from falling further. In fact, even if the builders were to declare a moratorium immediately, that is, taking starts to zero, demand is so weak and the unsold inventory so intractable that it would now take over three years to achieve the holy grail of price stability in the residential real estate market."

The main economic indicators all point to a long period of retrenchment ahead. The slowdown in global trade has hit Germany, Japan, and most of Asia particularly hard. The export-driven model of growth has suffered a major setback and won't rebound for some time to come. With the US consumer unable to continue his debt-fueled spending spree, surplus countries will have to develop domestic markets for growth, but it won't be easy. Chinese workers save 50 percent of what they earn and German workers already have a comfortable life without increasing personal consumption. Higher wages and lower interest rates can help stimulate demand, but cultural influences make it difficult to change spending habits. Meanwhile, the economy will continue to languish operating well below its optimum capacity.

Read more at the Market Oracle.

[diamond6]

One of the problems of a garden, as I see it, is that people who are starving will come steal your food. You can’t guard it ALL the time.

[Jukeman]

Same here. Never knew hunger in my life and had no idea we were economically poor until adolescence. Then came some pretty good years. Now, look at what we have to deal with. But we have plenty of space, good soil, and abundant water to grow food.

[neb52]

“One of the problems of a garden, as I see it, is that people who are starving will come steal your food. You can’t guard it ALL the time.”

That is why you breed your own army. If for a few reasons that wasn’t possible than you move in with family or neighbors. Either that band together with neighbors to stand watch and share land resources.

[reformedliberal]

For those wondering, a flat-felled seam is what you see on your jeans. It will never fray and is not uncomfortable next to the skin.

Here is a tutorial:

http://www.sewneau.com/how.to/flat.felled.seam.html

Click on tutorial link and a complete set of instructions with pictures will open within the loaded page.

I taught myself to sew with a book and a borrowed machine back in the late 60s. My grandmother was a tailor and I was totally spoiled. Since she could do everything imaginable to make the necessities and some luxuries of life, I had no reason to learn. I began to sew in order to have the trendy Carnaby Street clothes that were not available in the US. Within a year, I was sewing for other people for payment.

Actually, I _hate_ sewing after making my living at it for about 5 years or so at the beginning and again in the 1980s when I designed, manufactured and sold designer clothing from my own handwoven fabric. My husband recently purchased an industrial machine (they scare me) to make sails for the boat he is building. He likes to sew! So, between my old, non-computerized Bernina and his industrial machine and an antique treadle machine from the 30s with extra belts and attachments, we have several projects planned for next winter and feel we are set for whatever the future holds.

It can be done by anyone. I don’t think feed sacks are reusable any longer, though. Anyone know of an affordable fabric source?

[An Old Man]

The snow melted in the yard on Wednesday of last week.

This week the TV weather girl is predicting nighttime temperatures in the high 20's tonight, and two nights following.

I guess it must be true. We only have two seasons here! Winter and the 4th of July.

It's True! Last night we got another 8" of fresh snow, and it is still coming down as I type this message. With only a little more than 60 days or so till the 4th of July surely the snow will quit falling.

The snowplow driver just passed again so it probably is safe to make a trip down to the mailbox. Does anyone know where I can get a hold of that Al Gore fella?

[sanchmo]

Dave, something that I’ve realized some time after absorbing those papers... None of those financial crises (except the GD) were truly global in nature, meaning that while in every one of those crises a country had exports to help drive recovery, the entire world can’t net-export itself into recovery in 2009.

Another thing that has recently penetrated my skull is the Triffin Paradox, namely that in times of severe crisis like this, the policy required for domestic US recovery are diametrically opposite to the policy required to maintain a global financial system based on dollar reserves and dollar-based oil trade.

That first realization makes one pessimistic. The second makes one run to the store for the proverbial canned goods and ammunition.

[NVDave]

YES.

You’ve put into words much more capably than I have to date why “this time it is different.” Every time I’ve been getting into one of these circular arguments with people using post-WWII data, I keep saying “Yea, *but* — those post-WWII were not widespread (much less globally interconnected) debt deflations.” And at this, many people pushing back on that say “so what?”

The export/import paradox you speak of is exactly THE nut of why this is different. Consider this on manifestation of the different you speak in the Triffin Paradox:

One of the indicators that some analysts are saying is positive is our shrinking trade deficit. OK, that’s true.

But this very fact is pummeling Japan into a no-foolin’ depression as we speak. China isn’t there yet, what with their vast cash reserves and outlets for domestic development, they can prevent their GDP from being completely sunk by a shrinking US consumption level, but Japan is in dire, dire straights.

OK, so what does Japan’s lack of exports mean? Well, at some point, if their exports don’t pick up, they’re going to run out of ability to buy US debt with a trade/current account surplus, because they’ll not have any. I suspect that this point will approach rapidly if oil prices go back up. If that happens, there’s only two scenarios I can see: a) China picks up the slack in US debt buys, or b) interest rates have to go up to attract other capital into buying US debt.

And then we’re in a world of hurt - high interest rates, anemic growth means more anemic growth.

[sanchmo]

Thanks... I’m continuing my train of thought here, if you want to chime in...
http://www.freerepublic.com/focus/news/2229510/posts?page=16#16