As there have been no bank closures by the FDIC, we cannot provide an update of the Bank Closure Report this week. Instead, we will therefore take a moment to point out that it's a very bad thing indeed to see no bank closures this week.
During the Savings & Loan Crisis, the collapse of the S&L banks was greatly exacerbated by inaction on the parts of the regulators. The Federal Savings and Loan Insurance Corporation, which was the Federal regulator of the S&L banks, was eventually rendered insolvent by its lack of proactive closings of insolvent institutions.
To put it bluntly, it looks that the FDIC is continuing to head toward a similar fate. According to our data, any bank closed by the FDIC at this point will be insolvent to the tune of 25% of total assets... and that number is rising, not falling. The insolvency in the U.S. banking system is pervasive and destructive, and the longer the FDIC does not aggressively cleanse the system, the worse the eventual implosion of the system will be.
As a public service, and in closing, we've developed an honest and realistic method of rating the nation's banks, called The Frugal Scotsman's Bank Rating System. It is a 1 to 5 scale, where 5 is the 'best,' and 1 as the worst. It goes as follows:
5: Salvageable.
4: Cross your fingers.
3: Pray hard.
2: The tellers are holding the doors for the regulators.
1: Your money is already gone.
Sunday, May 31, 2009
Saturday, May 30, 2009
Follow-Up on Loan Delinquency
The FDIC is reporting delinquent bank loans are 7.75% of all loans. While this is not yet as bad as mortgage delinquency which we discussed in yesterday's post, it is still capital-annihilating (since most of these deadbeat loans will have to be written off).
With their capital evaporating, banks must shrink lending. It is no wonder that so many businesses and individuals are seeing their credit lines cut or cancelled. As those who have the means to pay off said lines of credit race to do so, they will not be investing or spending money. This will have a dampening effect on economic activity, to say the least.
If the nationalised, yet insolvent Freddie Mac and Fannie Mae being ordered to expand their books to keep mortgage loans flowing were a precedent, we would anticipate an imminent, very large bank nationalisation instigated in order to have banks under political control and follow the directive to grow loans, no matter the ultimate cost. (The hurried, and ill-conceived TARP investments do little to give the Federal Government adequate policy leverage over the banks).
We think it wiser to let banks gradually expire. In the post peak-oil, resource-constricted world, there will likely be no further economic growth. In the aggregate, borrowing and lending will become much riskier propositions since loans will tend to impoverish, rather than enrich borrowers. There will always be room for lending to promising enterprises, but this will be a small niche.
It will be very shocking to witness much of the 20% or so of the US economy that is the banking and financial sector just go away. But there is no way around it. Like house building and automobile manufacturing, it is a sector whose preeminence has come and gone.
With their capital evaporating, banks must shrink lending. It is no wonder that so many businesses and individuals are seeing their credit lines cut or cancelled. As those who have the means to pay off said lines of credit race to do so, they will not be investing or spending money. This will have a dampening effect on economic activity, to say the least.
If the nationalised, yet insolvent Freddie Mac and Fannie Mae being ordered to expand their books to keep mortgage loans flowing were a precedent, we would anticipate an imminent, very large bank nationalisation instigated in order to have banks under political control and follow the directive to grow loans, no matter the ultimate cost. (The hurried, and ill-conceived TARP investments do little to give the Federal Government adequate policy leverage over the banks).
We think it wiser to let banks gradually expire. In the post peak-oil, resource-constricted world, there will likely be no further economic growth. In the aggregate, borrowing and lending will become much riskier propositions since loans will tend to impoverish, rather than enrich borrowers. There will always be room for lending to promising enterprises, but this will be a small niche.
It will be very shocking to witness much of the 20% or so of the US economy that is the banking and financial sector just go away. But there is no way around it. Like house building and automobile manufacturing, it is a sector whose preeminence has come and gone.
Friday, May 29, 2009
12 Percent Behind = Banking System is Toast
The US Mortgage Bankers Association reported a record 12 percent of the Nation's homeowners with mortgages are delinquent or in foreclosure. The article referenced does not give dollar amounts, but we will.
According to the Federal Reserve Bank, at year-end 2008, mortgages on 1-4 family units were 11 trillion dollars. Thus 12% times 11 trillion = 1 trillion, 320 billion.
Problem number one: delinquent mortgages aren't really worth any where near their nominal balances. A lot of them will go into foreclosure.
Problem number two: foreclosed houses aren't worth very much. Sometimes they become a liability to the bank.
Problem number three: there is a terrific glut of housing on the market right now. Throwing millions of foreclosed houses onto the market is like, well, putting gasoline on a fire. House prices will crash, and crash hard. Falling prices will create the bad sort of positive feedback in which more homeowners will 'walk away' before their financial position gets even worse.
Problem number four: commercial mortgages, credit cards, consumer loans, and business loans will be no help to banks. They are likely to perform as badly as home mortgages, or worse.
The real world is giving the US banking system a 'stress test' far worse than the coddlers in Washington could ever dream of. Most banks will fail, and resolving the failures through the FDIC will be a lot for that agency to digest. Even now, it is moving through the worst of the worst somewhat slowly as its resources permit. The sluggishness with which it is moving allows the financial rot to worsen and actually increases the ultimate cost to the taxpayer. (By the way, the slow pace of liquidations is a repeat of the lack of proper bank supervision which led up to the S&L fiasco some years back).
We expect the rot to get worse and worse until some sort of 'banking holiday' is declared to perform mass triage on the system. The sooner the reorganisation happens the better for everyone, but we expect that to be put off for a couple of years yet.
According to the Federal Reserve Bank, at year-end 2008, mortgages on 1-4 family units were 11 trillion dollars. Thus 12% times 11 trillion = 1 trillion, 320 billion.
Problem number one: delinquent mortgages aren't really worth any where near their nominal balances. A lot of them will go into foreclosure.
Problem number two: foreclosed houses aren't worth very much. Sometimes they become a liability to the bank.
Problem number three: there is a terrific glut of housing on the market right now. Throwing millions of foreclosed houses onto the market is like, well, putting gasoline on a fire. House prices will crash, and crash hard. Falling prices will create the bad sort of positive feedback in which more homeowners will 'walk away' before their financial position gets even worse.
Problem number four: commercial mortgages, credit cards, consumer loans, and business loans will be no help to banks. They are likely to perform as badly as home mortgages, or worse.
The real world is giving the US banking system a 'stress test' far worse than the coddlers in Washington could ever dream of. Most banks will fail, and resolving the failures through the FDIC will be a lot for that agency to digest. Even now, it is moving through the worst of the worst somewhat slowly as its resources permit. The sluggishness with which it is moving allows the financial rot to worsen and actually increases the ultimate cost to the taxpayer. (By the way, the slow pace of liquidations is a repeat of the lack of proper bank supervision which led up to the S&L fiasco some years back).
We expect the rot to get worse and worse until some sort of 'banking holiday' is declared to perform mass triage on the system. The sooner the reorganisation happens the better for everyone, but we expect that to be put off for a couple of years yet.
Wednesday, May 27, 2009
The Impossible Task
Pity the poor American Consumer. She has to buy a new car to restore automobile production. She has to buy cheap plastic crap to jump start world trade. She has to buy a new house to revive the housing market. And all this on a shrinking income, and with significantly less credit available.
Any way you look at it, near-term recovery seems improbable. Lurking in the background are any number of serious problems which make any kind of lasting economic growth seem remote: resource constraints; massive financial and contractual liabilities; stocks of capital which are being run-down instead of maintained; government diktat which allocates scarce resources to non-productive use - to name a few.
Against this backdrop, we ask: Is collapse - economic and social - inevitable? Sadly, we have to answer, yes. Inevitable, not because of technical incapacity to adjust to new economic realities, but because of lack of will to do so.
The fact of the matter is that people want things to go 'back to the way they were'. Political leadership reflects this. If people wanted to move on to the future as it needs to be, the leadership would reflect that.
Over 35 years ago a book called Limits to Growth was widely read and discussed. It modelled the overshoot and collapse of Industrial Civilisation which would occur in the 21st Century unless remedial action were taken. The World was warned, but few listened. Instead, population continued to explode; economic growth and expanding materialism were taken for the end-all of human existence.
Now the very crisis that Limits to Growth foretold is upon the world, and yet actions which could be taken even now to ameliorate the effects of the impending decline find voice only on the margins of society. The mass of people and its leaders are, in the words of Mr. James Kunstler, attempting to sustain the unsustainable.
Exactly what is unsustainable? Simply put: A growing population with an economy that requires growing flows of money and physical goods. An affluent, comfortable lifestyle for all is sustainable only when it can be maintained on ever-decreasing flows of resources - i.e., continuously more efficient.
Speaking of new cars, Mr. Obama wants 14 to 15 million new cars sold per year to replace those "old clunkers." Time to go shopping!
Any way you look at it, near-term recovery seems improbable. Lurking in the background are any number of serious problems which make any kind of lasting economic growth seem remote: resource constraints; massive financial and contractual liabilities; stocks of capital which are being run-down instead of maintained; government diktat which allocates scarce resources to non-productive use - to name a few.
Against this backdrop, we ask: Is collapse - economic and social - inevitable? Sadly, we have to answer, yes. Inevitable, not because of technical incapacity to adjust to new economic realities, but because of lack of will to do so.
The fact of the matter is that people want things to go 'back to the way they were'. Political leadership reflects this. If people wanted to move on to the future as it needs to be, the leadership would reflect that.
Over 35 years ago a book called Limits to Growth was widely read and discussed. It modelled the overshoot and collapse of Industrial Civilisation which would occur in the 21st Century unless remedial action were taken. The World was warned, but few listened. Instead, population continued to explode; economic growth and expanding materialism were taken for the end-all of human existence.
Now the very crisis that Limits to Growth foretold is upon the world, and yet actions which could be taken even now to ameliorate the effects of the impending decline find voice only on the margins of society. The mass of people and its leaders are, in the words of Mr. James Kunstler, attempting to sustain the unsustainable.
Exactly what is unsustainable? Simply put: A growing population with an economy that requires growing flows of money and physical goods. An affluent, comfortable lifestyle for all is sustainable only when it can be maintained on ever-decreasing flows of resources - i.e., continuously more efficient.
Speaking of new cars, Mr. Obama wants 14 to 15 million new cars sold per year to replace those "old clunkers." Time to go shopping!
Tuesday, May 26, 2009
Synthetic CDO's are Beginning to Bloom
One of our many interests in the unfolding calamity in the financial world are the hell-spawn known as Synthetic Collateralised Debt Obligation, or SCDO. For an indepth refresher on exactly what these monsters are, please read our first post on the nature of SCDOs. We'll include a brief definition here, but we recommend brushing up on your SCDOs... we needed to do so, as well, since they're impressively complicated.
Put simply, SCDOs are issued by American super-huge banks, and are composed of credit default swaps taken out against a list of about 100 or so major companies, called the reference entities. The investors who buy these SCDOs (under the impression that the instruments are 'bonds') become, in effect, a pool of 'names' - the people who pony up the money when insurance needs to be paid out. In this case, the credit default swap is the insurance for the issuing bank against the reference entities going bankrupt. When a small number of the reference entities - about seven or so - go bankrupt, the SCDO is triggered and the investors' money is immediately and irreversibly transferred to the issuing bank.
As an aside, reference entities typically include such fine companies as: AIG, Fannie Mae, Freddie Mac, Bear Stearns, Merrill Lynch, Chrysler, General Motors, et cetera. All are, as we are sure you noticed, not in the best of shape.
When that slew of reference entities bit the dust, we wondered when the SCDOs' 'trigger' would be tripped; which company or companies were going to start the flood of wealth? Ever heard of Syncora Guarantee Inc? According to Asia One, the Pinnacle Series 1 notes out of Morgan Stanley have wiped out every last cent of those who invested in the notes. Pinnacle Series 1 is a SCDOs, and it has been triggered by a Syncora default. The article also reports that Pinnacle Series 2, 3, 4, 5, 6, and 7 are careening toward being triggered.
As the 2007 Depression puts the screws to the world's economy, Morgan Stanley has tasted some of the first blood in the SCDO arena. When General Motors enters bankruptcy, we strongly suspect that many more SCDOs will be triggered, and thus what will likely be the single greatest transfer of wealth in world history will continue. As the action on the SCDO front is heating up, we will be reporting much more regularly on the topic. You can likely expect another update soon after GM enters bankruptcy.
Put simply, SCDOs are issued by American super-huge banks, and are composed of credit default swaps taken out against a list of about 100 or so major companies, called the reference entities. The investors who buy these SCDOs (under the impression that the instruments are 'bonds') become, in effect, a pool of 'names' - the people who pony up the money when insurance needs to be paid out. In this case, the credit default swap is the insurance for the issuing bank against the reference entities going bankrupt. When a small number of the reference entities - about seven or so - go bankrupt, the SCDO is triggered and the investors' money is immediately and irreversibly transferred to the issuing bank.
As an aside, reference entities typically include such fine companies as: AIG, Fannie Mae, Freddie Mac, Bear Stearns, Merrill Lynch, Chrysler, General Motors, et cetera. All are, as we are sure you noticed, not in the best of shape.
When that slew of reference entities bit the dust, we wondered when the SCDOs' 'trigger' would be tripped; which company or companies were going to start the flood of wealth? Ever heard of Syncora Guarantee Inc? According to Asia One, the Pinnacle Series 1 notes out of Morgan Stanley have wiped out every last cent of those who invested in the notes. Pinnacle Series 1 is a SCDOs, and it has been triggered by a Syncora default. The article also reports that Pinnacle Series 2, 3, 4, 5, 6, and 7 are careening toward being triggered.
As the 2007 Depression puts the screws to the world's economy, Morgan Stanley has tasted some of the first blood in the SCDO arena. When General Motors enters bankruptcy, we strongly suspect that many more SCDOs will be triggered, and thus what will likely be the single greatest transfer of wealth in world history will continue. As the action on the SCDO front is heating up, we will be reporting much more regularly on the topic. You can likely expect another update soon after GM enters bankruptcy.
Monday, May 25, 2009
The Future of Air Transport
In an energy-constricted world, the efficiency of every enterprise will dictate its longevity. We have already stated that automobiles, buses and trucks will be fading as a primary source of transportation in places where they are thus. Trains, where they are in place, have a promising future as they are remarkably efficient for both freight and passenger transport. Waterborne transport is a human constant, but what of air transport?
Air transport is slightly more fuel efficient than passenger cars, but much less efficient than trucks for freight. Thus, the near-term future of air transport hinges largely on freight. Is speedy air freight merely a luxury that will be cut in a more austere future? And how important is freight to the air transport industry in general?
According to the International Air Transportation Association, World air freight is down 21.4% from March 2008 to March 2009. Freight tonnage peaked in 2007, and it will be revealing if air freight loses market share over the years ahead.
However, it turns out that freight is not that important to the air industry, only accounting for 11% or so of its revenues. And so for the time being, it could be said that the air transport could expect a relatively graceful descent - if they can manage their gradual contraction proactively.
Airplane manufacture, on the other hand, will probably suffer a catastrophic collapse. Growth in air transport is over. A glut of fully functional planes is developing and will annihilate the order books of manufacturers. Layoffs have already begun. Expect lengthy wastes of capital on expensive government bailouts to 'save jobs'.
Air transport is slightly more fuel efficient than passenger cars, but much less efficient than trucks for freight. Thus, the near-term future of air transport hinges largely on freight. Is speedy air freight merely a luxury that will be cut in a more austere future? And how important is freight to the air transport industry in general?
According to the International Air Transportation Association, World air freight is down 21.4% from March 2008 to March 2009. Freight tonnage peaked in 2007, and it will be revealing if air freight loses market share over the years ahead.
However, it turns out that freight is not that important to the air industry, only accounting for 11% or so of its revenues. And so for the time being, it could be said that the air transport could expect a relatively graceful descent - if they can manage their gradual contraction proactively.
Airplane manufacture, on the other hand, will probably suffer a catastrophic collapse. Growth in air transport is over. A glut of fully functional planes is developing and will annihilate the order books of manufacturers. Layoffs have already begun. Expect lengthy wastes of capital on expensive government bailouts to 'save jobs'.
Sunday, May 24, 2009
The Guantanamo Problem
Recently U.S. District Judge John Bates ruled that the Obama Administration can continue to hold 'some' prisoners indefinitely without charges at the U.S. prison facility in Guantanamo Bay. This comes even as the U.S. Senate blocked the funds necessary to both fund the closure of Guantanamo (as President Obama has promised), and prevent the relocation of those unfortunates in the prison onto mainland United States.
As the Senate felt it necessary to specifically block the importation of 'detainees' to the United States, it would appear that the move of closing Guantanamo Bay is intended largely as a symbolic move to placate the American citizenry. The closure of the prison obviously doesn't mean that the indefinite, charge-less imprisonment of the inmates of Guantanamo will find reprieve.
However, if the Senate capitulates on funding and importing the 'detainees,' or if the Administration finds a loophole to exploit, then Guantanamo can be officially closed without effecting the release of those individuals presently held within its walls. The release of the 'detainees' is unlikely, we feel, as it would present a very uncomfortable situation for the U.S. Government:
Whether or not the inmates were actually part of any terrorist plot is immaterial, as they have gone through too much horrific treatment in the prison. Any testimony they might give, if they were released from prison, would be immensely damaging to the Government, as it would likely reveal the unlawful lengths to which anti-terrorism is taken by both the Bush and Obama Administrations.
These are all bad signs for the quality of leadership the United States has at present. Mr. Obama was elected to the presidency on a promise of change and transparency, two things which are desperately needed in this Depression. Closure of Guantanamo - and the release of its inmates - would be an excellent step in both saving the increasingly-unemployed American citizenry money, and repairing greatly-needed friendships across the globe.
In a broader analysis, the "war on terror" which spawned the Guantanamo prison is an even greater problem in the 2007 Depression. This "war" has become a monster; whatever benefit it may have once had has long since been eradicated. Instead, the "war" merely serves to sap the little remaining economic vitality in the United States, as well as undermining the morale of the citizenry, who increasingly appear to feel isolated and disempowered. These trends seem destined only to worsen the effect of the Depression on the U.S.
As the Senate felt it necessary to specifically block the importation of 'detainees' to the United States, it would appear that the move of closing Guantanamo Bay is intended largely as a symbolic move to placate the American citizenry. The closure of the prison obviously doesn't mean that the indefinite, charge-less imprisonment of the inmates of Guantanamo will find reprieve.
However, if the Senate capitulates on funding and importing the 'detainees,' or if the Administration finds a loophole to exploit, then Guantanamo can be officially closed without effecting the release of those individuals presently held within its walls. The release of the 'detainees' is unlikely, we feel, as it would present a very uncomfortable situation for the U.S. Government:
Whether or not the inmates were actually part of any terrorist plot is immaterial, as they have gone through too much horrific treatment in the prison. Any testimony they might give, if they were released from prison, would be immensely damaging to the Government, as it would likely reveal the unlawful lengths to which anti-terrorism is taken by both the Bush and Obama Administrations.
These are all bad signs for the quality of leadership the United States has at present. Mr. Obama was elected to the presidency on a promise of change and transparency, two things which are desperately needed in this Depression. Closure of Guantanamo - and the release of its inmates - would be an excellent step in both saving the increasingly-unemployed American citizenry money, and repairing greatly-needed friendships across the globe.
In a broader analysis, the "war on terror" which spawned the Guantanamo prison is an even greater problem in the 2007 Depression. This "war" has become a monster; whatever benefit it may have once had has long since been eradicated. Instead, the "war" merely serves to sap the little remaining economic vitality in the United States, as well as undermining the morale of the citizenry, who increasingly appear to feel isolated and disempowered. These trends seem destined only to worsen the effect of the Depression on the U.S.
Saturday, May 23, 2009
FDIC Bank Failure Report
This week the Federal Deposit Insurance Corporation closed three banks: one in Florida, and two in Illinois. Total assets of the closed banks were $13,774,000,000. The cost to the FDIC is estimated at 5,179,000,000. The percentage of FDIC loss out of total assets is 37.6%.
These closures bring the total assets of FDIC-failed banks (since December of 2007) to $406,504,118,000, with cost-to-FDIC brought to $25,401,700,000 - this includes the assets of Washington Mutual, whose closing offered no cost to the FDIC. The percentage of FDIC losses to total assets presently stands at 6.25%, up from 5.17% as of last report.
Upon elimination of WaMu's assets from the analysis, total assets are $99,504,180,000, and total cost is $25,401,700,000. The percentage of FDIC losses to total assets now stands at 25.53%, up from 23.56% as of last week.
The trend of ever-more-costly bank failures has been reinforced by this week's closures. There is no sign of 'bottoming' or recovery in the banking crisis.
These closures bring the total assets of FDIC-failed banks (since December of 2007) to $406,504,118,000, with cost-to-FDIC brought to $25,401,700,000 - this includes the assets of Washington Mutual, whose closing offered no cost to the FDIC. The percentage of FDIC losses to total assets presently stands at 6.25%, up from 5.17% as of last report.
Upon elimination of WaMu's assets from the analysis, total assets are $99,504,180,000, and total cost is $25,401,700,000. The percentage of FDIC losses to total assets now stands at 25.53%, up from 23.56% as of last week.
The trend of ever-more-costly bank failures has been reinforced by this week's closures. There is no sign of 'bottoming' or recovery in the banking crisis.
Friday, May 22, 2009
Saving Jobs at $385,000 Each
So far, the cost to the US taxpayer of bailing out GM has been 15.4 billion dollars. With that kind of investment, one would think a lot of jobs would be saved. But this is not the case. According to the deal between GM, the UAW, and the government, GM is planning on keeping only 40,000 permanent hourly workers. The cost to the taxpayer is then $385,000 per job.
How long will these jobs last? Given the tremendous over-capacity in the world's automobile industry, GM will be faced with further drastic cutbacks, if not outright closure, in a few more years. Given that most of these jobs are essentially temporary, $385,000 per job is a waste of resources.
It is our opinion if vast sums of money are going to be used to create jobs at public expense, the jobs created should provide long-lasting public goods and services. This is also known as good government. Bailing out GM, a failed company creating private-sector goods unprofitably, is lemon socialism.
How long will these jobs last? Given the tremendous over-capacity in the world's automobile industry, GM will be faced with further drastic cutbacks, if not outright closure, in a few more years. Given that most of these jobs are essentially temporary, $385,000 per job is a waste of resources.
It is our opinion if vast sums of money are going to be used to create jobs at public expense, the jobs created should provide long-lasting public goods and services. This is also known as good government. Bailing out GM, a failed company creating private-sector goods unprofitably, is lemon socialism.
Thursday, May 21, 2009
Japan: The Evidence Mounts
The latest information out of Japan shows that the nation's economy has collapsed 15.4 year-over-year. Exports were also in the gutter, having fallen 26%, while imports were down 15%. This is the largest drop in the "world's leading economies," according to CNN.
These numbers are, simply put, depression-level drops. Japan has a very powerful economy, and if it is showing such horrible performance, then other nations - such as the United States - are hurting about as badly.
At this point, with so much evidence coming to bear, it is ridiculous for OECD and other industrialised nations to continue the mantra of 'recession.' To perpetuate such patent disinformation is to assist in further destruction of capital, skills, and productive capacity. A depression requires entirely different planning than a recession.
Unfortunately, it is probably too easy to dismiss these numbers coming from Japan. Having suffered under an on-again, off-again relationship with recession, Japan's collapsing economy can be explained away as the battered nation's inherent 'sensitivity' to economic circumstances.
Instead of dismissal, Japan's collapse should be seen with great alarm. The nation's sensitivity means that it suffers from the 2007 Depression faster than most, but it points the way that other major economies will likely take. We suspect it won't be long before even official Government statistics from, say, the United States, show a similar catastrophic fall.
These numbers are, simply put, depression-level drops. Japan has a very powerful economy, and if it is showing such horrible performance, then other nations - such as the United States - are hurting about as badly.
At this point, with so much evidence coming to bear, it is ridiculous for OECD and other industrialised nations to continue the mantra of 'recession.' To perpetuate such patent disinformation is to assist in further destruction of capital, skills, and productive capacity. A depression requires entirely different planning than a recession.
Unfortunately, it is probably too easy to dismiss these numbers coming from Japan. Having suffered under an on-again, off-again relationship with recession, Japan's collapsing economy can be explained away as the battered nation's inherent 'sensitivity' to economic circumstances.
Instead of dismissal, Japan's collapse should be seen with great alarm. The nation's sensitivity means that it suffers from the 2007 Depression faster than most, but it points the way that other major economies will likely take. We suspect it won't be long before even official Government statistics from, say, the United States, show a similar catastrophic fall.
Wednesday, May 20, 2009
A New Rule for Profit in a Declining Economy
Whatever you might be hearing, reading, or wishing to believe to the contrary, the world economy is still declining. Looking ahead to 'the recovery' is premature. A practical question arises to those who wish to better themselves financially: How can one make sure one is better off tomorrow than today?
In a growing economy, it pays to take risks. For example, if you can borrow money at a low cost, you can invest the funds in an instrument that makes more and profit off the 'spread'. In a shrinking economy, this strategy typically no longer works. Lenders are not inclined to lend, and few investments yield positive returns.
In a shrinking economy it pays to destroy risk. For example, if you have debts - pay them off. You have a guaranteed return in avoided costs. Likewise, seek to reduce operating leverage in business, even if it means giving up work so that you don't have to take on additional costs (such as buying new equipment, or hiring employees).
This will be a tough lesson to learn. It runs counter to the experience of the last 60 years. Recessions may present buying opportunities, but a Depression - at least at the beginning - is a time to hunker down.
It is very important to measure your income and outgo and ensure the former is larger than the latter. If you economise and create safe, secure savings, your net worth will rise. At some point in the future it will be time to consider more aggressive investment strategies, but that time has not yet come.
In a growing economy, it pays to take risks. For example, if you can borrow money at a low cost, you can invest the funds in an instrument that makes more and profit off the 'spread'. In a shrinking economy, this strategy typically no longer works. Lenders are not inclined to lend, and few investments yield positive returns.
In a shrinking economy it pays to destroy risk. For example, if you have debts - pay them off. You have a guaranteed return in avoided costs. Likewise, seek to reduce operating leverage in business, even if it means giving up work so that you don't have to take on additional costs (such as buying new equipment, or hiring employees).
This will be a tough lesson to learn. It runs counter to the experience of the last 60 years. Recessions may present buying opportunities, but a Depression - at least at the beginning - is a time to hunker down.
It is very important to measure your income and outgo and ensure the former is larger than the latter. If you economise and create safe, secure savings, your net worth will rise. At some point in the future it will be time to consider more aggressive investment strategies, but that time has not yet come.
Tuesday, May 19, 2009
The Herbert Hoover Award
Unlike the popular phrase would have it, History never repeats itself; rather, History will be eerily parallelled. For example, the 2007 Depression does not repeat the 1929 Depression, but it is closely related. Instead of President Herbert Hoover talking about permanent prosperity, the present has President Barack Obama talking about the work needed to bring back permanent prosperity. Close, indeed, but not an exact repeat.
In honour of that parallelism, we present the Herbert Hoover Award. This Award will be given weekly to the individual (or group) which demonstrates ignorance of History by repeating the painfully obvious mistakes of the past. Without further ado, let us now turn to this week's winner of the Herbert Hoover Award! Presenting (drum-roll):
In honour of that parallelism, we present the Herbert Hoover Award. This Award will be given weekly to the individual (or group) which demonstrates ignorance of History by repeating the painfully obvious mistakes of the past. Without further ado, let us now turn to this week's winner of the Herbert Hoover Award! Presenting (drum-roll):
Illinois Governor Patrick Quinn
In a recent speech before the City Club of Chicago, Governor Quinn said that massive budget cuts were in store for the State, unless the legislature agrees to a 50% hike in the income tax.
Congratulations, Governor Quinn. Your trophy is in the mail.
In a recent speech before the City Club of Chicago, Governor Quinn said that massive budget cuts were in store for the State, unless the legislature agrees to a 50% hike in the income tax.
"It’s no fun whatsoever to propose higher taxes on anyone, whether it’s families or business, but if we don’t do this, if we don’t repair our state and get it back in order we will regret it till kingdom come.” [source]Apparently Governor Quinn is not aware that raising taxes during a depression, a credit crisis, rising unemployment, and social discord is a very bad idea. According to these excellent graphics from iTulip, the United States is suffering from a sharply rising unemployment rate. Illinois is not immune to the effects of the Depression. We have no doubt that, if this 50% income tax hike is passed, the citizenry of the State will suffer all the worse.
Congratulations, Governor Quinn. Your trophy is in the mail.
Monday, May 18, 2009
Where's the Hard Data?
According to the Obama Administration's budget chief, Peter Orszag, the United States' economy seems to have ceased its free-fall. To quote Mr. Orszag: "There are some glimmers of sun shining through the trees, but we're not out of the woods yet."
Hmmm...
We did a little digging and came up with the full transcript of Mr. Orszag's interview on CNN's State of the Union. Then, we tried to read through Mr. Orszag's comments; really, we did. It was difficult, and we might have missed some important details... but we found no specifics on why Mr. Orszag is seeing his "glimmers of sun."
This is a serious problem: if Mr. Orszag wishes to be taken seriously - and, by extension, the Obama Administration - then there should be some real data given to back up claims of recovery. The American citizenry is feeling, understandably, both disempowered and angry. Simply spouting hot air, as it were, in a transparent attempt to make the citizenry 'feel better' about the economy does not assuage the citizenry's just anger.
If the Federal Government is indeed serious about trying to help lessen the severity of the 2007 Depression, it needs to stop the wind-bagging. This trick will continue to work for a while, but we're confident it will lose its effectiveness sometime in the future. Four years is a long time, and if the Obama Administration thinks it can keep saying the economy is getting better (when it is obviously getting worse) indefinitely, they have another thing coming, we suspect. A continuation of this empty bluster will only serve to lay a foundation for a possible disgrace of the Obama Administration.
Incidentally, and in closing, we did a search in the transcript for Mr. Orszag's insipid line about trees and sunlight... but we couldn't find it. Nor could we find the other quote in the Reuters article. Perhaps CNN hasn't completely transcribed the interview, as there is a disclaimed to that effect on the transcript, but we think not. We feel suspicious, but perhaps we should give Reuters the benefit of the doubt; perhaps the writer mixed up sources. Or something like that.
Hmmm...
We did a little digging and came up with the full transcript of Mr. Orszag's interview on CNN's State of the Union. Then, we tried to read through Mr. Orszag's comments; really, we did. It was difficult, and we might have missed some important details... but we found no specifics on why Mr. Orszag is seeing his "glimmers of sun."
This is a serious problem: if Mr. Orszag wishes to be taken seriously - and, by extension, the Obama Administration - then there should be some real data given to back up claims of recovery. The American citizenry is feeling, understandably, both disempowered and angry. Simply spouting hot air, as it were, in a transparent attempt to make the citizenry 'feel better' about the economy does not assuage the citizenry's just anger.
If the Federal Government is indeed serious about trying to help lessen the severity of the 2007 Depression, it needs to stop the wind-bagging. This trick will continue to work for a while, but we're confident it will lose its effectiveness sometime in the future. Four years is a long time, and if the Obama Administration thinks it can keep saying the economy is getting better (when it is obviously getting worse) indefinitely, they have another thing coming, we suspect. A continuation of this empty bluster will only serve to lay a foundation for a possible disgrace of the Obama Administration.
Incidentally, and in closing, we did a search in the transcript for Mr. Orszag's insipid line about trees and sunlight... but we couldn't find it. Nor could we find the other quote in the Reuters article. Perhaps CNN hasn't completely transcribed the interview, as there is a disclaimed to that effect on the transcript, but we think not. We feel suspicious, but perhaps we should give Reuters the benefit of the doubt; perhaps the writer mixed up sources. Or something like that.
Sunday, May 17, 2009
Correcting a Misconception about Home Equity
Note: We had hoped to deliver a FDIC Bank Closure Report today, but no banks were closed since last Friday.
We have been hammering on the shocking lack of home equity that most owners with mortgages in the USA actually have. This short article explains the situation mostly very well (and has a nifty chart to boot), but overlooks one critical point: about one-third of homeowners own their homes free-and-clear, that is, having no mortgage. We will explain why this is so important.
First, a brief quote from the article (bold added):
"When value falls and debt stays the same, equity gets crushed (See The Problem With Debt). If house prices end up falling more than 40% peak to trough, which seems likely, U.S. homeowner equity will drop more than 70% and as many as half of American mortgage holders will be underwater."
This is not correct. If homeowner equity drops more than 70%, virtually every mortgage holder will be underwater. Using figures from the article, at present the value of all houses is about $18 trillion and the amount of mortgages is $11 trillion, which leaves $7 trillion of equity. If you take into account that about one-third of homeowners do not have a mortgage, this means that about $6 trillion of houses is owned free and clear, and $11 trillion of mortgages is on $12 trillion of houses.
All that it would take to put the group of homeowners with a mortgage under water is just another drop of $1 trillion, or a little over 5% of the current value. Of course some would be very underwater, and some not at all, but the overall situation is quite precarious. This is very bad for the homeowners who can't sell if they want to, and can't refinance because there isn't enough equity.
It is even worse for the banks, and the Federal Government. Once that 5% additional drop happens, even prime mortgage portfolios are truly junk investments since the collateral no longer covers the principal amounts. A peak to trough 40% devaluation as suggested by the quoted article will bring many trillions in losses to the Federal Government, and ultimately the taxpayer. Underwater homeowners - either unable to make mortgage payments, or having little incentive to do so even if they can afford them - will 'walk away' en masse.
We have been hammering on the shocking lack of home equity that most owners with mortgages in the USA actually have. This short article explains the situation mostly very well (and has a nifty chart to boot), but overlooks one critical point: about one-third of homeowners own their homes free-and-clear, that is, having no mortgage. We will explain why this is so important.
First, a brief quote from the article (bold added):
"When value falls and debt stays the same, equity gets crushed (See The Problem With Debt). If house prices end up falling more than 40% peak to trough, which seems likely, U.S. homeowner equity will drop more than 70% and as many as half of American mortgage holders will be underwater."
This is not correct. If homeowner equity drops more than 70%, virtually every mortgage holder will be underwater. Using figures from the article, at present the value of all houses is about $18 trillion and the amount of mortgages is $11 trillion, which leaves $7 trillion of equity. If you take into account that about one-third of homeowners do not have a mortgage, this means that about $6 trillion of houses is owned free and clear, and $11 trillion of mortgages is on $12 trillion of houses.
All that it would take to put the group of homeowners with a mortgage under water is just another drop of $1 trillion, or a little over 5% of the current value. Of course some would be very underwater, and some not at all, but the overall situation is quite precarious. This is very bad for the homeowners who can't sell if they want to, and can't refinance because there isn't enough equity.
It is even worse for the banks, and the Federal Government. Once that 5% additional drop happens, even prime mortgage portfolios are truly junk investments since the collateral no longer covers the principal amounts. A peak to trough 40% devaluation as suggested by the quoted article will bring many trillions in losses to the Federal Government, and ultimately the taxpayer. Underwater homeowners - either unable to make mortgage payments, or having little incentive to do so even if they can afford them - will 'walk away' en masse.
Saturday, May 16, 2009
An Index is Born
Today we have created a housing price index for ourselves that covers diverse cities in Canada and the USA. We do not claim it will be completely representative, just that it will be completely honest and not subject to manipulation by government authorities or commercial interests.
In one month's time, and monthly thereafter, we will update our index and let you know if housing prices are rising or falling as we measure them. We are naming the index The Frugal Scotsman's North American Housing Price Index.
We suggest you set up some indexes of your own for the costs of things that are important to you. Don't rely on official measures of inflation or deflation to tell you where prices are going. There is too much 'riding' on official numbers to trust them.
In one month's time, and monthly thereafter, we will update our index and let you know if housing prices are rising or falling as we measure them. We are naming the index The Frugal Scotsman's North American Housing Price Index.
We suggest you set up some indexes of your own for the costs of things that are important to you. Don't rely on official measures of inflation or deflation to tell you where prices are going. There is too much 'riding' on official numbers to trust them.
Friday, May 15, 2009
Failure of Transparency
U.S. President Barack Obama made great noises during his campaign for the presidency about a new era of transparency in Government. It was part of the 'change' which he offered in his rhetoric; it, apparently, was attractive to the American citizenry, as Mr. Obama was elected to the presidency.
As we are cynics, we are not particularly surprised that President Obama's promises of transparency had strings attached. The latest example is his abrupt about-face regarding photographic evidence of torture at various American prisons in Iraq. According to American Civil Liberties Union executive director Anthony D. Romero, the 2,000+ images show “it is no longer tenable to blame abuse on a few bad apples. These were [torture] policies set at the highest level.”
The reasons given in the article for the about-face are perhaps understandable, but we have to question the logic: is the cure for previous excessive secrecy additional excessive secrecy? This action by the President flies in the face of his campaign promises.
There have been other problems with 'transparency' recently: what sort of 'investments' the Treasury Department and Federal Reserve System are making; why the discussion of a national health plan requires a secret session of the Senate - among others.
A healthy economy requires an open society. We support the ideal to which the 'transparenncy' rhetoric alludes. But, unfortunately we expect that further back-pedalling will come in the future, and we wonder when the supporters of the President will finally realise the big, ugly truth:
They have been conned.
As we are cynics, we are not particularly surprised that President Obama's promises of transparency had strings attached. The latest example is his abrupt about-face regarding photographic evidence of torture at various American prisons in Iraq. According to American Civil Liberties Union executive director Anthony D. Romero, the 2,000+ images show “it is no longer tenable to blame abuse on a few bad apples. These were [torture] policies set at the highest level.”
The reasons given in the article for the about-face are perhaps understandable, but we have to question the logic: is the cure for previous excessive secrecy additional excessive secrecy? This action by the President flies in the face of his campaign promises.
There have been other problems with 'transparency' recently: what sort of 'investments' the Treasury Department and Federal Reserve System are making; why the discussion of a national health plan requires a secret session of the Senate - among others.
A healthy economy requires an open society. We support the ideal to which the 'transparenncy' rhetoric alludes. But, unfortunately we expect that further back-pedalling will come in the future, and we wonder when the supporters of the President will finally realise the big, ugly truth:
They have been conned.
Thursday, May 14, 2009
More about Las Vegas
Foreclosures are up just about everywhere, we suppose, but nowhere more than ... you guessed it - Las Vegas, Nevada. Quite recently The Frugal Scotsman discussed Las Vegas as a bellweather of foreclosure catastrophe. In the post, he surmised basically everyone in Las Vegas with a mortgage is 'underwater' - owing more than their property is worth.
Well, we discovered in this CNNMoney.com article that fully one in fifty-six households in Las Vegas suffered foreclosure process last month alone. Unfortunately, the article does not define household precisely. If it did, we would know if that meant households in general - owners and renters alike - or if it meant households that are owners. If it is the former, since about half of households own with a mortgage, the rate would be approximately one in thirty households with a mortgage...in one month!
At that rate, should it continue, it would take but a few years to achieve complete Real Estate Gotterdammerung - wipe out for every mortgage holder: either walking away, or having a date with some deputies. We do not see this being particularly unlikely.
Even if the article were using a non-standard definition of household to mean homeowner, it would be still approximately one in forty homeowners with mortgages facing losing their houses.
Like the apocryphal lemmings going over the cliff, participants in the Great Las Vegas Housing Bubble seem to have experienced herd behaviour at its worst and are paying the price. Las Vegas is the worst in the USA for now, but only because it represents the non plus ultra of how bad things can get.
We have no doubt that many other cities, and indeed even whole regions, will suffer similar fates. As much as one-third of householders will be removing to rentals, friends, relatives, shelters, or the streets (depending on their resources) in the space of a few years. But this is only a portion of what is shaping up to be the greatest economic calamity in the nation's history. Mass unemployment, underemployment and widespread ruin are developing concurrently.
Well, we discovered in this CNNMoney.com article that fully one in fifty-six households in Las Vegas suffered foreclosure process last month alone. Unfortunately, the article does not define household precisely. If it did, we would know if that meant households in general - owners and renters alike - or if it meant households that are owners. If it is the former, since about half of households own with a mortgage, the rate would be approximately one in thirty households with a mortgage...in one month!
At that rate, should it continue, it would take but a few years to achieve complete Real Estate Gotterdammerung - wipe out for every mortgage holder: either walking away, or having a date with some deputies. We do not see this being particularly unlikely.
Even if the article were using a non-standard definition of household to mean homeowner, it would be still approximately one in forty homeowners with mortgages facing losing their houses.
Like the apocryphal lemmings going over the cliff, participants in the Great Las Vegas Housing Bubble seem to have experienced herd behaviour at its worst and are paying the price. Las Vegas is the worst in the USA for now, but only because it represents the non plus ultra of how bad things can get.
We have no doubt that many other cities, and indeed even whole regions, will suffer similar fates. As much as one-third of householders will be removing to rentals, friends, relatives, shelters, or the streets (depending on their resources) in the space of a few years. But this is only a portion of what is shaping up to be the greatest economic calamity in the nation's history. Mass unemployment, underemployment and widespread ruin are developing concurrently.
Wednesday, May 13, 2009
The Cost of Renationalising Fannie and Freddie
A post on Bruce Kasting's "My Take on Financial Events" presents some original analysis on the subject and is well worth the read. He looks at the condition of the two government-sponsored mortgage companies under the same 'stress test' criteria applied so noisily to 19 large banks. The results are rather disturbing: they will need $400 to $700 billion in loss-covering capital infusions.
Mind you, this is under the rather tepid 'stress' presented by the famous test. Obviously conditions could become much worse (and we expect them to). In any case this represents a low-end on the range of estimates. Our high-end estimate is close to $10 trillion, or substantially all of their assets. We are not being silly - actually. We expect housing prices to crash in a big, big way, and most owners with mortgages to simply 'walk away'. After neglect remediation and legal fees there will be little or nothing left for the mortgage companies.
So if the creditors of Fannie and Freddie are to be made whole (and this seems to be the plan), an awful lot of money is going to be anted up.
In our humble opinion, though, the greatest loss of all is the epic failure of these two Government programs. They distorted their original mandate to make mortgages widely available into creating mortgages for far too much money from people who couldn't afford them. The result was the housing bubble (as part of a larger, grotesque credit bubble and concomitant pseudo-economy) and subsequent real-estate led Depression. Beyond the loss of hundreds of billions (or trillions) of taxpayer dollars just for these two companies, are tens of trillions in losses throughout the economy, to say nothing of the shattered lives, suicides, homelessness, blighted communities, and who knows what horrors to come.
It is rather pathetic that Fannie and Freddie are being ordered to write more loans when they should just be liquidated. The attempt to 'keep the party going' will just make the damages and subsequent revulsion worse.
Mind you, this is under the rather tepid 'stress' presented by the famous test. Obviously conditions could become much worse (and we expect them to). In any case this represents a low-end on the range of estimates. Our high-end estimate is close to $10 trillion, or substantially all of their assets. We are not being silly - actually. We expect housing prices to crash in a big, big way, and most owners with mortgages to simply 'walk away'. After neglect remediation and legal fees there will be little or nothing left for the mortgage companies.
So if the creditors of Fannie and Freddie are to be made whole (and this seems to be the plan), an awful lot of money is going to be anted up.
In our humble opinion, though, the greatest loss of all is the epic failure of these two Government programs. They distorted their original mandate to make mortgages widely available into creating mortgages for far too much money from people who couldn't afford them. The result was the housing bubble (as part of a larger, grotesque credit bubble and concomitant pseudo-economy) and subsequent real-estate led Depression. Beyond the loss of hundreds of billions (or trillions) of taxpayer dollars just for these two companies, are tens of trillions in losses throughout the economy, to say nothing of the shattered lives, suicides, homelessness, blighted communities, and who knows what horrors to come.
It is rather pathetic that Fannie and Freddie are being ordered to write more loans when they should just be liquidated. The attempt to 'keep the party going' will just make the damages and subsequent revulsion worse.
Tuesday, May 12, 2009
Analysis of 1929 Depression Survivors' Advice
As the 2007 Depression continues, we expect that still-living survivors of the 1929 Depression will be getting more air-time. In our mind, it is sad that an economic calamity had to occur before these people's well-tested advice is given its due. The frugality and thrift which is so deeply ingrained in the individuals would have prevented much of what is occurring today - if only the greater public would have listened.
But that is neither here nor there; we want to discuss both the advice that these survivors offer (taken from two articles), and some inherent problems. First, the advice: in this article from The Ledger, one individual recommends a 20% personal savings rate; another says not to buy things one cannot afford. The most interesting insight, at least to us, is the thought that the young of the United States, having lived with nothing but a knee-jerk consumeristic lifestyle are in for a serious shock, at the very least. All in all, we recommend this article; it's interesting to hear the perspectives of these survivors, and their advice is never out of style.
On the other side of the coin is the bad advice, as seen in this otherwise excellent article from Utica Observer-Dispatch. One of the survivors says that the 1929 Depression was completely different from this 'recession,' but fails to suggest how or why (as an aside, she gave corollaries and outcomes of the 1929 Depression, not causes). The general thrust of the article seems to us to be that "the government is prepared;" “I don’t think [a Depression] could happen again” said one interviewee.
These two articles highlight some inherent difficulties in turning to 1929 Depression survivors: these people are old. There are sharp-as-a-tack survivors (we know one), but that term does not describe every survivor. A not-insignificant number of these survivors are not in as full of command of their faculties as they once were. This has a number of implications.
First, even when the advice survivors give is sound and useful, they cannot defend why it is as such; to them, it is only the way things must be done. Because of that, these survivors come across as a bit senile at best, or outright loonie-tunes at worst, from the perspective of later generations. It is easy enough for one to dismiss well-defended advice; it is infinitely easier to dismiss advice without supporting argument.
Second, because of the loss of facility which comes with increasing age, many of these survivors probably have to rely - at least in part - on what they hear and read, rather than anything they actually remember. The post-1929 Depression mantra carries with it a healthy dose of Franklin Roosevelt worship, and Herbert Hoover bashing. Both of those Presidents have similarly damaging policies; Roosevelt's was remarkable for being aggressively un-Constitutional. This loss of first-hand memory allows for retroactive continuity: the 'memories' of the survivor are clouded by the rhetoric of later generations defending the expansion of the Federal Government.
And finally third: these survivors can only reflect the point-of-view of persons who didn't die during the 1929 Depression. Almost all survivors came from fairly well-off families; they owned their own home, they could hold some jobs, they could buy and grow some food. There were many more families which had none of the above, and many simply died of stress and starvation. The survivors who speak today do so through a bias: they were comfortably-off before the 1929 Depression, and so had a cushion between death and survival. They did not see the absolute horror that the 1929 Depression brought to the United States.
We expect the 2007 Depression will bring similar horror. The only question, in our minds, is when.
But that is neither here nor there; we want to discuss both the advice that these survivors offer (taken from two articles), and some inherent problems. First, the advice: in this article from The Ledger, one individual recommends a 20% personal savings rate; another says not to buy things one cannot afford. The most interesting insight, at least to us, is the thought that the young of the United States, having lived with nothing but a knee-jerk consumeristic lifestyle are in for a serious shock, at the very least. All in all, we recommend this article; it's interesting to hear the perspectives of these survivors, and their advice is never out of style.
On the other side of the coin is the bad advice, as seen in this otherwise excellent article from Utica Observer-Dispatch. One of the survivors says that the 1929 Depression was completely different from this 'recession,' but fails to suggest how or why (as an aside, she gave corollaries and outcomes of the 1929 Depression, not causes). The general thrust of the article seems to us to be that "the government is prepared;" “I don’t think [a Depression] could happen again” said one interviewee.
These two articles highlight some inherent difficulties in turning to 1929 Depression survivors: these people are old. There are sharp-as-a-tack survivors (we know one), but that term does not describe every survivor. A not-insignificant number of these survivors are not in as full of command of their faculties as they once were. This has a number of implications.
First, even when the advice survivors give is sound and useful, they cannot defend why it is as such; to them, it is only the way things must be done. Because of that, these survivors come across as a bit senile at best, or outright loonie-tunes at worst, from the perspective of later generations. It is easy enough for one to dismiss well-defended advice; it is infinitely easier to dismiss advice without supporting argument.
Second, because of the loss of facility which comes with increasing age, many of these survivors probably have to rely - at least in part - on what they hear and read, rather than anything they actually remember. The post-1929 Depression mantra carries with it a healthy dose of Franklin Roosevelt worship, and Herbert Hoover bashing. Both of those Presidents have similarly damaging policies; Roosevelt's was remarkable for being aggressively un-Constitutional. This loss of first-hand memory allows for retroactive continuity: the 'memories' of the survivor are clouded by the rhetoric of later generations defending the expansion of the Federal Government.
And finally third: these survivors can only reflect the point-of-view of persons who didn't die during the 1929 Depression. Almost all survivors came from fairly well-off families; they owned their own home, they could hold some jobs, they could buy and grow some food. There were many more families which had none of the above, and many simply died of stress and starvation. The survivors who speak today do so through a bias: they were comfortably-off before the 1929 Depression, and so had a cushion between death and survival. They did not see the absolute horror that the 1929 Depression brought to the United States.
We expect the 2007 Depression will bring similar horror. The only question, in our minds, is when.
Monday, May 11, 2009
Why Aren't Savings Rates Moving Even Higher?
From the last quarter of 2008 to the first quarter of 2009, the USA personal savings rate went up from just over 3% annualised to just over 4%. This movement is expected during economic decline, but we are asking the question: given how severe the decline is, why aren't people saving even more?
The USA has barely budged from a culture of consumerism to a culture of thrift. Given the depth of the crisis, we would expect the response on the part of the citizenry to be more urgent. There are several possible explanations as to why the increase in savings is muted.
One is that the citizenry is 'buying' the official story that the 'recession' will be ending this year and recovery will follow. Thus, with the difficulties apparently only of a short-term nature, people can continue their spending habits mostly as usual with some minor adjustments (e.g. shopping more at Wal-Mart).
Another explanation is that somehow the citizenry 'knows' that the 'recession' is short-term and is acting appropriately. Things really are aren't all that bad. In this scenario, our estimations are way-off, and our use of the term depression, over-reactive.
Perhaps there is just a lot of cultural lag. We have read quite a few horror-stories about people who lost their livelihoods, but just kept on spending as if nothing was going on - and, in the process, depleted their savings and ran up credit-card debts. Perhaps a large portion of the population is engaging in massive denial and unconscious, inappropriate spending.
Finally, at the depth of the Great Depression in 1932 and 1933, much to their chagrin, Americans dis-saved and personal savings rates went negative. It's possible that history repeats and although people may want to be saving more, circumstances are too harsh and spending patterns are adjusted too late.
The USA has barely budged from a culture of consumerism to a culture of thrift. Given the depth of the crisis, we would expect the response on the part of the citizenry to be more urgent. There are several possible explanations as to why the increase in savings is muted.
One is that the citizenry is 'buying' the official story that the 'recession' will be ending this year and recovery will follow. Thus, with the difficulties apparently only of a short-term nature, people can continue their spending habits mostly as usual with some minor adjustments (e.g. shopping more at Wal-Mart).
Another explanation is that somehow the citizenry 'knows' that the 'recession' is short-term and is acting appropriately. Things really are aren't all that bad. In this scenario, our estimations are way-off, and our use of the term depression, over-reactive.
Perhaps there is just a lot of cultural lag. We have read quite a few horror-stories about people who lost their livelihoods, but just kept on spending as if nothing was going on - and, in the process, depleted their savings and ran up credit-card debts. Perhaps a large portion of the population is engaging in massive denial and unconscious, inappropriate spending.
Finally, at the depth of the Great Depression in 1932 and 1933, much to their chagrin, Americans dis-saved and personal savings rates went negative. It's possible that history repeats and although people may want to be saving more, circumstances are too harsh and spending patterns are adjusted too late.
Sunday, May 10, 2009
FDIC Bank Failure Report (10/05/2009)
As of the evening of May 9th, the Federal Deposit Insurance Corporation has closed only one bank this weekend. From the FDIC's press release:
This closure brings the total assets of FDIC-failed banks (since December of 2007) to $393,167,180,000, with cost-to-FDIC brought to $20,328,700,000 - this includes the assets of Washington Mutual, whose closing offered no cost to the FDIC. The percentage of bad assets to total assets presently stands at 5.17%, up from 5.15% as of last week.
Upon elimination of WaMu's assets from the analysis, total assets are $86,167,180,000, and total cost is $20,328,700,000. The percentage of bad assets to total assets now stands at 23.59%, up from 23.56% as of last week.
The trend of ever-more-costly bank closures seems to be continuing, though this week's closure is too small to effect the data one way or the other.
Westsound Bank, Bremerton, Washington, was closed today by the Washington Department of Financial Institutions, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. As of March 31, 2009, Westsound Bank had total assets of $334.6 million... the FDIC estimates the cost to its Deposit Insurance Fund will be $108 million.Westsound Bank required the FDIC to cover losses equal to 32.28% of the bank's total assets.
This closure brings the total assets of FDIC-failed banks (since December of 2007) to $393,167,180,000, with cost-to-FDIC brought to $20,328,700,000 - this includes the assets of Washington Mutual, whose closing offered no cost to the FDIC. The percentage of bad assets to total assets presently stands at 5.17%, up from 5.15% as of last week.
Upon elimination of WaMu's assets from the analysis, total assets are $86,167,180,000, and total cost is $20,328,700,000. The percentage of bad assets to total assets now stands at 23.59%, up from 23.56% as of last week.
The trend of ever-more-costly bank closures seems to be continuing, though this week's closure is too small to effect the data one way or the other.
Saturday, May 9, 2009
Credit Card Collapse Report
With today's post we are introducing what we expect to be a recurring report on consumer credit in the USA.
On May 7, the Federal Reserve issued its monthly report on consumer credit. Going beyond the massaged, 'seasonally adjusted' figures, there are some impressive numbers. Apparently in the first quarter of 2009, revolving credit balances - mostly credit cards - fell $60.4 billion, approximately 6%.
This means that not only are people not taking on additional credit card debt, they are paying it off at a rapid rate. If this should continue as a trend, and there are at least two reasons to expect that it will, it will have a serious dampening effect on consumer and business spending.
The first reason to expect the credit card paydown to continue is that credit card issuers are cutting credit lines right and left. Even good customers who have always paid on time are finding letters in the mail informing them their lines have been reduced or their accounts closed altogether.
The second reason is the debtors themselves are feeling less inclined to be debtors. When one's income is declining or even just less certain, all debts become onerous.
It should also be mentioned that part of the decline in debt outstanding is due to writeoffs by lending institutions. These writeoffs also erode the lenders' capacity to issue new loans.
On May 7, the Federal Reserve issued its monthly report on consumer credit. Going beyond the massaged, 'seasonally adjusted' figures, there are some impressive numbers. Apparently in the first quarter of 2009, revolving credit balances - mostly credit cards - fell $60.4 billion, approximately 6%.
This means that not only are people not taking on additional credit card debt, they are paying it off at a rapid rate. If this should continue as a trend, and there are at least two reasons to expect that it will, it will have a serious dampening effect on consumer and business spending.
The first reason to expect the credit card paydown to continue is that credit card issuers are cutting credit lines right and left. Even good customers who have always paid on time are finding letters in the mail informing them their lines have been reduced or their accounts closed altogether.
The second reason is the debtors themselves are feeling less inclined to be debtors. When one's income is declining or even just less certain, all debts become onerous.
It should also be mentioned that part of the decline in debt outstanding is due to writeoffs by lending institutions. These writeoffs also erode the lenders' capacity to issue new loans.
Friday, May 8, 2009
Las Vegas, NV: Bellweather of Doom
Our co-writer made a post a while back, laying out a brief case for the collapse of present valuations of American housing stock. He forecasted (and still forecasts) an estimated 87% drop in value for desirable, non-redundant living space, along with almost every mortgaged houseowner ending up 'under water.'
According to the basic number we've seen bandied about, approximately two-thirds of all houseowners have mortgages. We can surmise, without too much imagination required, that if house prices do indeed plummet 87% or so, almost all of these mortgaged houseowners will be 'under water,' and will likely default on their debt. This will of course create an enormous glut on the real estate market, and devastate the debt-addicted banking system of the United States, and indeed the world.
Our co-writer is now partly vindicated, by the original Icon of Sin: Las Vegas, Nevada. In a recent Wall Street Journal article, a study shows that 67.2% of all homes in Las Vegas have "negative equity;" or, in the common tongue, the owners owe more on their mortgage than the house is presently valued. We point out that 67.2% is right around two-thirds of all houses (and thus virtually every owner with a mortgage is 'under water'); Las Vegas is now the bellweather of the United States housing collapse.
It is difficult - if not impossible - to put a time-frame on this collapse, but we are confident that said collapse is both in progress, and cannot be halted in real terms. However, the Federal Reserve's attempts to rekindle inflation will likely succeed, and when that day comes some of these 'under water' houseowners will at least have the succor of having their nominal property values resume an upwards march. That will be a phyrric victory, but we suspect that realisation will take some time to dawn on the average American citizen.
According to the basic number we've seen bandied about, approximately two-thirds of all houseowners have mortgages. We can surmise, without too much imagination required, that if house prices do indeed plummet 87% or so, almost all of these mortgaged houseowners will be 'under water,' and will likely default on their debt. This will of course create an enormous glut on the real estate market, and devastate the debt-addicted banking system of the United States, and indeed the world.
Our co-writer is now partly vindicated, by the original Icon of Sin: Las Vegas, Nevada. In a recent Wall Street Journal article, a study shows that 67.2% of all homes in Las Vegas have "negative equity;" or, in the common tongue, the owners owe more on their mortgage than the house is presently valued. We point out that 67.2% is right around two-thirds of all houses (and thus virtually every owner with a mortgage is 'under water'); Las Vegas is now the bellweather of the United States housing collapse.
It is difficult - if not impossible - to put a time-frame on this collapse, but we are confident that said collapse is both in progress, and cannot be halted in real terms. However, the Federal Reserve's attempts to rekindle inflation will likely succeed, and when that day comes some of these 'under water' houseowners will at least have the succor of having their nominal property values resume an upwards march. That will be a phyrric victory, but we suspect that realisation will take some time to dawn on the average American citizen.
Thursday, May 7, 2009
USPS as Canary
The official story these days is that the U.S. economy is nearing 'the bottom' of the recession. This article from Bloomberg reports the latest unemployment estimates showing that fewer people were newly unemployed in April than in March is being heralded as somehow 'good news'. This particular expert quote from the article is especially giddy (complete with typo):
The United States Postal Service reported another dismal quarter. The demise of the nation's third largest (and most ubiquitous) employer seems to be flying under the radar. The real shocker in the story is a 15% drop in volume over the last year. Rationalisations aside, the USPS is the canary in the coal mine reflecting a significant drop in economic activity.
If Americans are receiving 15% less mail, they are probably doing a lot of other things 15% less too. Eating out 15% less maybe? Kentucky Fried Chicken and Pizza Hut sales are down 14%.
“We’re seeing a very clear bottoming pattern,” said John Herrmann, chief economist at Herrmann Forecasting in Summit, New Jersey. “This holds out the possibility that the fiscal stimulus, along with consumers resuming more normal spending patters [sic], will lift the economy into positive growth in the second half.”We wonder how tens of millions of 'consumers' with vastly reduced incomes are going to find the wherewithal to be 'resuming more normal spending patterns' in just a few months time!
The United States Postal Service reported another dismal quarter. The demise of the nation's third largest (and most ubiquitous) employer seems to be flying under the radar. The real shocker in the story is a 15% drop in volume over the last year. Rationalisations aside, the USPS is the canary in the coal mine reflecting a significant drop in economic activity.
If Americans are receiving 15% less mail, they are probably doing a lot of other things 15% less too. Eating out 15% less maybe? Kentucky Fried Chicken and Pizza Hut sales are down 14%.
Wednesday, May 6, 2009
Building the AmeriCar Market
As we wrote previously, we have a pet theory that the U.S. Federal Government is in the process - deliberate or accidental - of forming a national car manufacturer, owned and operated by the Government. With Chrysler in bankruptcy, never to repay the over $7 billion in loans from the Government, we suspect that the process of forming "AmeriCar" is accelerating (if you'll pardon the expression).
However, as anyone who has actually paid attention knows, most American automobiles suck. It's all well and good that the Federal Government might be running its own car company in the future, but who's going to buy the crap that will - almost certainly - be produced? If the Soviet Union is any indication, the national cars will be impressively crappy... except for the members of the Government, of course.
We suspect that the preliminary methods for corralling people looking to buy new cars will be similar to the "cash for clunkers" programme; older autos can be traded in for a rebate on a new vehicle. It wouldn't be difficult to extend that programme to apply only to vehicles purchased from "AmeriCar." Indeed, an even more draconian move - and in keeping with the "Buy American" mantra of the Obama Administration and Congress - would be to restrict the programme to only American-made cars, on both the trade-in and the new auto. Additionally, we wouldn't be surprised to see hefty tariffs on imported vehicles, to further coerce buyers to get "AmeriCar" vehicles.
However, as anyone who has actually paid attention knows, most American automobiles suck. It's all well and good that the Federal Government might be running its own car company in the future, but who's going to buy the crap that will - almost certainly - be produced? If the Soviet Union is any indication, the national cars will be impressively crappy... except for the members of the Government, of course.
We suspect that the preliminary methods for corralling people looking to buy new cars will be similar to the "cash for clunkers" programme; older autos can be traded in for a rebate on a new vehicle. It wouldn't be difficult to extend that programme to apply only to vehicles purchased from "AmeriCar." Indeed, an even more draconian move - and in keeping with the "Buy American" mantra of the Obama Administration and Congress - would be to restrict the programme to only American-made cars, on both the trade-in and the new auto. Additionally, we wouldn't be surprised to see hefty tariffs on imported vehicles, to further coerce buyers to get "AmeriCar" vehicles.
Monday, May 4, 2009
Punishment by Debt-Based Money
Debt-backed money evolved to facilitate economic growth in response to the braking effect of precious metal money and its inherently inelastic supply. Unfortunately during a depression, debt-backed money is destroyed as old loans are paid off or defaulted upon and new ones do not take their place, and thus can be even more restrictive to economic activity than precious metal money which is not destroyed. National Governments' and Central Banks' current furious pace of borrowing is an effort to replace private debts with public ones and keep the money supply from shrinking.
Will this public debt binge work? Only if the expanding public sector can engender sustainable growth. As we suggested in previous posts, there is a range of optimum government spending above which is too much, and below which is too little. Another factor is the quality of that spending. Government spending can be considered to be quality when it provides services that are actually useful (for example electric power) in contradistinction to wastes of resources (such as luggage inspection).
Yet another factor is whether any further consistent economic growth is possible at all. If it is not, and there are many reasons it may not be, then having debt-based money will be especially ruinous. Debt is a magnifier of both profits and losses. Now that humanity finds itself on the right-hand side of Peak Just-About-Everything, private debts are increasingly being realised to be more untenable than previously imagined, and servicing public debt will exact an increasingly heavy toll on an chronically shrinking economy. This toll will likely exceed the imagined benefit of maintaining the debt-based money supply.
Will this public debt binge work? Only if the expanding public sector can engender sustainable growth. As we suggested in previous posts, there is a range of optimum government spending above which is too much, and below which is too little. Another factor is the quality of that spending. Government spending can be considered to be quality when it provides services that are actually useful (for example electric power) in contradistinction to wastes of resources (such as luggage inspection).
Yet another factor is whether any further consistent economic growth is possible at all. If it is not, and there are many reasons it may not be, then having debt-based money will be especially ruinous. Debt is a magnifier of both profits and losses. Now that humanity finds itself on the right-hand side of Peak Just-About-Everything, private debts are increasingly being realised to be more untenable than previously imagined, and servicing public debt will exact an increasingly heavy toll on an chronically shrinking economy. This toll will likely exceed the imagined benefit of maintaining the debt-based money supply.
Sound Advice From Hollywood!
No, really...
Actor Michael Douglas has made a statement supporting the legalisation of marijuana in the United States. His argument is based on several levels: one, he points out, rightly, that the Federal and State Governments made an excellent profit on the sales of alcohol after the repeal of the Eighteenth Amendment (a.k.a. Prohibition) in 1933; and two, the present illegality of marijuana is fostering the presence of organised crime and violent gangs, as had occurred during the Prohibition Era in the U.S.
Mr. Douglas' points are both very valid, and are ones that we ourselves have used in arguing the validity of marijuana legalisation. Taking alcohol sales as an example, there are numerous states in the Union (Michigan and New Hampshire, among others) which own outright the alcohol sales business. The revenue off of this business is enormous, and represents a sizable portion of funds incoming to the state's coffers.
The additional benefits of marijuana legalisation would be a serious reduction of the number of non-violent prisoners who serves under marijuana-related convictions. Release of these individuals would significantly reduce the pressure on the United States' already-vast penal system. Legalisation would also break the back of those gangs and crime organisations which thrive upon the sale of marijuana, thereby increasing the safety of the average American city. These two changes would save untold amounts of money, which would be very helpful indeed in the Depression.
However, legalisation will likely not be happening under President Obama: he has already made his position clear, and it is an emphatic "no." This may seem surprising to those who expected the President to bring about deep changes to the American system, but in our minds it is further evidence that Mr. Obama is the Herbert Hoover of the 2007 Depression (President Hoover was a supporter of Prohibition; it took until the Franklin Roosevelt Administration until the Era was over).
Perhaps the President after Mr. Obama will help legalise marijuana. We feel that would be a happy thing; there are already too many people in prison for using an herb, which is arbitrarily found to be, somehow, less desirable than alcohol or ordinary tobacco products. On the other hand, if this next President is to be the Franklin Roosevelt of the 2007 Depression, there will be other consequences that are not something we look forward to.
Actor Michael Douglas has made a statement supporting the legalisation of marijuana in the United States. His argument is based on several levels: one, he points out, rightly, that the Federal and State Governments made an excellent profit on the sales of alcohol after the repeal of the Eighteenth Amendment (a.k.a. Prohibition) in 1933; and two, the present illegality of marijuana is fostering the presence of organised crime and violent gangs, as had occurred during the Prohibition Era in the U.S.
Mr. Douglas' points are both very valid, and are ones that we ourselves have used in arguing the validity of marijuana legalisation. Taking alcohol sales as an example, there are numerous states in the Union (Michigan and New Hampshire, among others) which own outright the alcohol sales business. The revenue off of this business is enormous, and represents a sizable portion of funds incoming to the state's coffers.
The additional benefits of marijuana legalisation would be a serious reduction of the number of non-violent prisoners who serves under marijuana-related convictions. Release of these individuals would significantly reduce the pressure on the United States' already-vast penal system. Legalisation would also break the back of those gangs and crime organisations which thrive upon the sale of marijuana, thereby increasing the safety of the average American city. These two changes would save untold amounts of money, which would be very helpful indeed in the Depression.
However, legalisation will likely not be happening under President Obama: he has already made his position clear, and it is an emphatic "no." This may seem surprising to those who expected the President to bring about deep changes to the American system, but in our minds it is further evidence that Mr. Obama is the Herbert Hoover of the 2007 Depression (President Hoover was a supporter of Prohibition; it took until the Franklin Roosevelt Administration until the Era was over).
Perhaps the President after Mr. Obama will help legalise marijuana. We feel that would be a happy thing; there are already too many people in prison for using an herb, which is arbitrarily found to be, somehow, less desirable than alcohol or ordinary tobacco products. On the other hand, if this next President is to be the Franklin Roosevelt of the 2007 Depression, there will be other consequences that are not something we look forward to.
Sunday, May 3, 2009
Bank Losses Growing
This weekend the FDIC took three more U.S. Banks into receivership. The losses absorbed by the FDIC were rather striking. Out of total assets of the three banks of $4,444,500,000 there was a total $1,437,500,000 in expected cost to the FDIC. Added to the FDIC losses are the losses born by stockholders and uninsured creditors of the banks. The total losses are thus well over 1/3 of the value of the assets.
The loss level of FDIC losses to total assets from all 57 U.S. bank failures since the Depression started stands at 5.16%, up from 4.84% last week. Excluding the costless WaMu operation, the level stands at 23.56%, up from 23.08%.
It is impossible to know how much worse the failed banks and not-yet-failed banks are than the survivors. Or indeed, what percent of banks will fail. Nevertheless, we will make a few 'back of the envelope' calculations.
Suppose 10% of the banking industry is slated for liquidation. This would constitute about one and a half trillion dollars of assets. If the FDIC can contain losses to the 5% level that would be 75 billion dollars - a lot of money, but manageable given its substantial credit lines from the U.S. Treasury. If losses are closer to the 25% level, that would be 375 billion, or a good chunk of those credit lines. Substantially more than 25% losses, or more than 10% of the industry doomed means the FDIC will need larger credit lines.
The subject of FDIC credit lines raises an interesting question. How is that money to be paid back? Formally, that means raising the (already high) premiums the FDIC charges banks for deposit insurance. The consequences will include lower savings rates, more bank fees (ouch!), and higher interest costs for borrowing. These effects will aggravate the Depression due to less income from savings, and from the greater disincentive to borrow.
As the Depression grinds on, we will continue reporting the FDIC loss statistics and their possible significance.
The loss level of FDIC losses to total assets from all 57 U.S. bank failures since the Depression started stands at 5.16%, up from 4.84% last week. Excluding the costless WaMu operation, the level stands at 23.56%, up from 23.08%.
It is impossible to know how much worse the failed banks and not-yet-failed banks are than the survivors. Or indeed, what percent of banks will fail. Nevertheless, we will make a few 'back of the envelope' calculations.
Suppose 10% of the banking industry is slated for liquidation. This would constitute about one and a half trillion dollars of assets. If the FDIC can contain losses to the 5% level that would be 75 billion dollars - a lot of money, but manageable given its substantial credit lines from the U.S. Treasury. If losses are closer to the 25% level, that would be 375 billion, or a good chunk of those credit lines. Substantially more than 25% losses, or more than 10% of the industry doomed means the FDIC will need larger credit lines.
The subject of FDIC credit lines raises an interesting question. How is that money to be paid back? Formally, that means raising the (already high) premiums the FDIC charges banks for deposit insurance. The consequences will include lower savings rates, more bank fees (ouch!), and higher interest costs for borrowing. These effects will aggravate the Depression due to less income from savings, and from the greater disincentive to borrow.
As the Depression grinds on, we will continue reporting the FDIC loss statistics and their possible significance.
Saturday, May 2, 2009
Pakistan, War, and Obama's 100 Days
A short post today, as we're a bit pressed for time. We got word of an apartment which needed cleaning out, and boy does it ever. Apparently the former tenant possessed several cats and dogs... and a goat. No, we do not jest, a goat. Still, free stuff is free stuff; we don't call ourself a frugal Scotsman for no reason.
Within the first one hundred days of U.S. President Barack Obama's term, he's behaved more or less as we expected. He's been busy, busy, busy: cutting deals with the super-huge banks, handing blank cheques over to American International Group, nationalising automobile manufacturers... and otherwise cementing our opinion that he is the Herbert Hoover of the 2007 Depression. A quick read even of President Hoover's wikipedia page shows eerie similarities between policies of these two Administrations.
But the one thing that President Obama hasn't done, which we were (and are) expecting him to do is to start a new war. Quite the contrary, he seems to be actually ending the occupation of Iraq! However, he has ordered a 'surge' in Afghanistan, which will probably end badly. Afghanistan is the meat-grinder of the world, where over-confident militaries are broken, defeated, and taught some humility in the process.
The only place which might be worse to invade than Afghanistan is probably Pakistan... and we have the sneaking suspicion that the U.S. may be 'invited' in by the Pakistani government to help 'secure' the nation against 'the Terrorists.' The rumblings for such a thing are already evident, at least to us, in articles like this one from the Associated Press. We suggest keeping an eye on the situation, as it could become very exciting very quickly if the U.S. decides that Pakistan needs 'assistance.'
Within the first one hundred days of U.S. President Barack Obama's term, he's behaved more or less as we expected. He's been busy, busy, busy: cutting deals with the super-huge banks, handing blank cheques over to American International Group, nationalising automobile manufacturers... and otherwise cementing our opinion that he is the Herbert Hoover of the 2007 Depression. A quick read even of President Hoover's wikipedia page shows eerie similarities between policies of these two Administrations.
But the one thing that President Obama hasn't done, which we were (and are) expecting him to do is to start a new war. Quite the contrary, he seems to be actually ending the occupation of Iraq! However, he has ordered a 'surge' in Afghanistan, which will probably end badly. Afghanistan is the meat-grinder of the world, where over-confident militaries are broken, defeated, and taught some humility in the process.
The only place which might be worse to invade than Afghanistan is probably Pakistan... and we have the sneaking suspicion that the U.S. may be 'invited' in by the Pakistani government to help 'secure' the nation against 'the Terrorists.' The rumblings for such a thing are already evident, at least to us, in articles like this one from the Associated Press. We suggest keeping an eye on the situation, as it could become very exciting very quickly if the U.S. decides that Pakistan needs 'assistance.'
Friday, May 1, 2009
Finding Profit in a Depleted World
Today's World presents some truly amazing contrasts. For example, about a billion people on the planet enjoy human history's only episode of mass affluence. On the other hand, about two billion people endure the most profound poverty. Most economists believe that it is entirely possible for everyone to enjoy an affluent lifestyle. On the contrary, our opinion is that mass affluence was a transitory phenomenon based on aggressive exploitation of nature, and nature is nearing exhaustion.
What prospects are there for enterprising individuals in this exhausted world? Let's start with food.
Modern farming is a grotesque of the natural cycle of sowing and reaping. It poisons the soil, killing its inhabitants and stripping its nutrients. Modern agriculture's 'soil' becomes merely a medium into which to put chemical fertilisers. This strategy, this 'green revolution' is declining in efficacy. Farmers of the future will simply have to return, gradually or all at once, to more classical methods.
The consequence of that retreat from modernism will be a tremendous decline in yields and the end of agricultural abundance. Food will become more expensive relative to other goods. Enterprising individuals will learn to eat lower on the food chain - tending towards vegetarianism. Perhaps more significantly, they will learn to prepare this diet for themselves, as the current food marketing system - from fast food restaurants to the purveyors of prepared meals - is still pushing the burger, fries and soda version of nutrition.
Moving on from food, we take up shelter. In North America, at least, the modern concept of shelter has also become a grotesque. The 'McMansion' and the strip mall in their suburban seat is a dreadful distortion of living space. Sadly, most North American compact towns and cities were more or less destroyed to make way for sprawl. Unfortunately, there is very little money to build space that is worth living in, so people are going to have to make do with what exists.
If you are lucky enough to live in a place that remains along the traditional village or urban neighborhood line, then you can simply enjoy it. For the rest, you will have to make the best of what is closest to that. Enterprising individuals will take care to site their living situations optimally. If you can't get to pretty much everything you need to in a 15 minute walk (or less), you should move on. Car-dependent place have no future. Consider making do with as little space as you can manage, sharing larger abodes with more people, if necessary.
Clothing is by far the easiest item to manage for the time being. It can be bought by the bag at many thrift stores, or at least quite inexpensively. Clothing can be mended to keep it going for quite some time. Do not be vain about clothes. It is silly. Having clean clothes in adequate repair is much more important than fashion. And in any case, fashion that you create with what you find is much more interesting than fashion that you buy.
Food, shelter, clothing. That is pretty much all anyone needs materially. Beyond this is luxury. If you don't agree - well, you're entitled to your opinion - but remember your 'needs' are just what you perceive them to be, and please don't force the responsibility of their satisfaction upon others.
What prospects are there for enterprising individuals in this exhausted world? Let's start with food.
Modern farming is a grotesque of the natural cycle of sowing and reaping. It poisons the soil, killing its inhabitants and stripping its nutrients. Modern agriculture's 'soil' becomes merely a medium into which to put chemical fertilisers. This strategy, this 'green revolution' is declining in efficacy. Farmers of the future will simply have to return, gradually or all at once, to more classical methods.
The consequence of that retreat from modernism will be a tremendous decline in yields and the end of agricultural abundance. Food will become more expensive relative to other goods. Enterprising individuals will learn to eat lower on the food chain - tending towards vegetarianism. Perhaps more significantly, they will learn to prepare this diet for themselves, as the current food marketing system - from fast food restaurants to the purveyors of prepared meals - is still pushing the burger, fries and soda version of nutrition.
Moving on from food, we take up shelter. In North America, at least, the modern concept of shelter has also become a grotesque. The 'McMansion' and the strip mall in their suburban seat is a dreadful distortion of living space. Sadly, most North American compact towns and cities were more or less destroyed to make way for sprawl. Unfortunately, there is very little money to build space that is worth living in, so people are going to have to make do with what exists.
If you are lucky enough to live in a place that remains along the traditional village or urban neighborhood line, then you can simply enjoy it. For the rest, you will have to make the best of what is closest to that. Enterprising individuals will take care to site their living situations optimally. If you can't get to pretty much everything you need to in a 15 minute walk (or less), you should move on. Car-dependent place have no future. Consider making do with as little space as you can manage, sharing larger abodes with more people, if necessary.
Clothing is by far the easiest item to manage for the time being. It can be bought by the bag at many thrift stores, or at least quite inexpensively. Clothing can be mended to keep it going for quite some time. Do not be vain about clothes. It is silly. Having clean clothes in adequate repair is much more important than fashion. And in any case, fashion that you create with what you find is much more interesting than fashion that you buy.
Food, shelter, clothing. That is pretty much all anyone needs materially. Beyond this is luxury. If you don't agree - well, you're entitled to your opinion - but remember your 'needs' are just what you perceive them to be, and please don't force the responsibility of their satisfaction upon others.
Subscribe to:
Posts (Atom)
Posts
