There are a number of disturbing trends that can be discerned, if one has the time, from rummaging through the data coming out of the Bureau of Economic Analysis. One is that out of the $89.4 billion growth in national income from the second quarter of this year to the third, $12.8 billion was growth of "subsidies". That does not refer to "cash for clunkers" and so forth, but money heading from the taxpayer into government enterprises (our guess mostly Fannie Mae and Freddie Mac - but really, who knows?). How that can be construed as income is bizarre enough, but it's not good news that 1/7 of third quarter growth comes from something so fishy.
But such accounting shenanigans could be dismissed as mere noise compared to some really big numbers - such as the jump in the profits of our corporate masters: $110.4 billion dollars. One might astutely note that this is actually more than the increase in national income, $21 billion more as a matter of fact. Or putting the whole matter another way, all (and then some) of the much touted 'recovery' is growth of corporate profits, and the rest of us will just have to make do with the scraps.
But the really bad news is something hidden (in the sense that it is not presented by itself - but has to be derived from two data sets) and insidious: the approaching excess of consumption of fixed private capital ($1525.5 billion) over fixed private investment ($1,712.6 billion). We say "approaching" because obviously the latter figure is larger than the former, but it has been falling at a rate of 21% over the year ending September 30 (and without a third quarter "recovery") and 4% the year before that.
Between bank lending contracting, the real estate market collapsing, and corporations being inclined to invest their winnings overseas, there isn't much prospect for anything other than continued decline in fixed private investment. We really can't say if the rate is going to accelerate or moderate but even if it continues at, say, a moderated 10%, the cross over would likely come in late 2010.
What this means in plain English is that at some point in the near future, the economy will reach a state where consumption of capital exceeds its formation, and there will be no prospect of any kind of economic growth ever, until growth in private investment materialises. It could be a long wait.
Showing posts with label economic collapse. Show all posts
Showing posts with label economic collapse. Show all posts
Tuesday, December 22, 2009
Thursday, October 29, 2009
FDIC Bank Failure Report - Impossibly Late Edition
Apologies to all, but it's been a busy week. We're wrapping up our summer efforts, and save a few last projects we will soon have more time to devote to this blog.
***
This week, the Federal Deposit Insurance Corporation closed seven banks: Partners Bank, of Naples, FL; American United Bank, of Lawrenceville, GA; Hillcrest Bank Florida, of Naples, FL; Flagship National Bank, of Bradenton, FL; Bank of Elmwood, of Racine, WI; Riverview Community Bank, of Otsego, MN; and First Dupage Bank, of Westmont, IL. The total assets of the closed banks were $1,163,900,000, and total deposits were approximately $1,032,100,000. The cost to the FDIC is estimated at $356,700,000.
According to our methodology, the recoverable value of the bank was $675,400,000, or only 58.03% of the declared asset value. This makes this week's closure slightly above the cumulative recoverability since December, which stands at 57.46% (essentially unchanged from last week's 57.45%).
Cumulative cost-to-FDIC was brought to $46,457,800,000. This closure brings the total declared assets of FDIC-failed banks (since December of 2007) to $480,962,480,000, and total FDIC-insured deposits to $322,801,020,000. The recoverable value of all failed banks was only $276,343,220,000 (57.46% of the declared value).
***
First off, we welcome Wisconsin to the 2007 Depression; the Land of Cheese has enjoyed the scent of its first - of many - bank failures. Additionally, we pat ourselves on the back, because at long last Florida is receiving the attention we predicted it would (see the commentary at the end of our piece). We called it almost a month ago, so please pardon us while we feel terribly smart. At any rate, Florida is in for a very, very painful time, have no doubt; the whole State's banking system is a morass of ultimate financial doom. We don't know if this is the beginning of that pain, or just a blip, but we're quite confident that Florida is going to see vast numbers of banks falling dead in their tracks from toxic mortgages, et cetera.
We noticed a surprising trend with this week's closures: a large percentage (95.27%) of the assets of all closed banks were successfully sold off, either outright or under a loss-share agreement between the FDIC and the acquiring institution. We don't have much back data (we'll work on that), so this might be a fluke of the week... but we wonder if the Federal Government's calling the recession over is actually working. Call us crazy, but we're just not feeling the love on this one. If the 'great recession' were actually over, we would expect to see that in improving quality of bank's assets. They have definitely not improved.
However, is seems that acquiring institutions feel the economy will be improving in the future, so they're happy to snap up most of the assets of the failed banks, no matter how toxic. The frisky animal spirits have possessed them at last, so they put on their war paint, do a victory dance, and march off to position themselves for the 'great recovery.' Apparently these acquiring institutions have forgotten they are akin to wolves; wolves can only consume fresh meat, and it seems these predators haven't noticed their prey is rotten. We don't know when the nasty effects of bad assets will start to bother the predator banks, but when the effects start it will be exciting. If acquiring institutions start to be closed by the FDIC, expect the U.S. to take the mother of all nosedives.
***
On the basis of the ratio of bank closures to population (i.e. simply the number of failures in the State, with no account of assets or deposits), the ten most afflicted States are listed here. Only those States which have two or more closures are considered.
1. Georgia
2. Nevada
3. Illinois
4. Minnesota (up from #6)
5. Utah (down from #4)
6. Kansas (down from #5)
7. Oregon
8. Missouri
9. Colorado
10. Florida (new to list)
The recoverable value represents how much of declared assets are actually worth on the open market. The following are the ten States with the lowest recoverable value; only those States which have had two or more closures are considered in this analysis.
1. Florida (32.44%)
2. California (40.11%)
3. Colorado (42.76%)
4. Michigan (43.07%)
5. Nevada (50.13%)
6. Georgia (53.74%, down from 53.76%)
7. Utah (55.39%)
8. Arizona (56.08%)
9. Washington (56.18%)
10. North Carolina (56.7%)
***
Well, shucks, more back-patting for us: Florida is now officially on both lists. We fully expect the State to ratchet up to the #1 spot on closures-to-population, and stay firmly in the lead on the recoverable value scale. The collapse of Florida's finances will likely be coupled with the final catastrophic implosion of the vast majority of well-off senior citizens' own finances. Why? We suspect that most of the elderly retirees in Florida have a big portion of their wealth in over-valued real estate, and when the State's real estate bubble pops and that value goes down, down, down, those seniors are not going to have much to fall back on. Social Security will not be enough to support them in the style to which they've become accustomed, and they will be forced out of their homes and into the homes of their children.
That's, of course, making the rash assumption that their children still have homes of their own. If the Baby Boomers have taken the hit at around the same time, the United States is going to see a large indigent population of elderly and Baby Boomers, whinging about how it isn't fair. No one in power will be listening, we suspect; the ear of the Federal Government is firmly owned by banks. Indeed, at that point the Government might not have any money at all to throw around - at least, no money that can actually buy anything.
The question rattling around in our mind is this: is Florida the first domino in a really big economic catastrophe? Or will it be another California, and simply be a bigger sag in the overarching, slow-motion collapse of the U.S. economy? We really don't know, but we could certainly see it either way. We'll be pondering that thought for a later blog post.
***
This week, the Federal Deposit Insurance Corporation closed seven banks: Partners Bank, of Naples, FL; American United Bank, of Lawrenceville, GA; Hillcrest Bank Florida, of Naples, FL; Flagship National Bank, of Bradenton, FL; Bank of Elmwood, of Racine, WI; Riverview Community Bank, of Otsego, MN; and First Dupage Bank, of Westmont, IL. The total assets of the closed banks were $1,163,900,000, and total deposits were approximately $1,032,100,000. The cost to the FDIC is estimated at $356,700,000.
According to our methodology, the recoverable value of the bank was $675,400,000, or only 58.03% of the declared asset value. This makes this week's closure slightly above the cumulative recoverability since December, which stands at 57.46% (essentially unchanged from last week's 57.45%).
Cumulative cost-to-FDIC was brought to $46,457,800,000. This closure brings the total declared assets of FDIC-failed banks (since December of 2007) to $480,962,480,000, and total FDIC-insured deposits to $322,801,020,000. The recoverable value of all failed banks was only $276,343,220,000 (57.46% of the declared value).
***
First off, we welcome Wisconsin to the 2007 Depression; the Land of Cheese has enjoyed the scent of its first - of many - bank failures. Additionally, we pat ourselves on the back, because at long last Florida is receiving the attention we predicted it would (see the commentary at the end of our piece). We called it almost a month ago, so please pardon us while we feel terribly smart. At any rate, Florida is in for a very, very painful time, have no doubt; the whole State's banking system is a morass of ultimate financial doom. We don't know if this is the beginning of that pain, or just a blip, but we're quite confident that Florida is going to see vast numbers of banks falling dead in their tracks from toxic mortgages, et cetera.
We noticed a surprising trend with this week's closures: a large percentage (95.27%) of the assets of all closed banks were successfully sold off, either outright or under a loss-share agreement between the FDIC and the acquiring institution. We don't have much back data (we'll work on that), so this might be a fluke of the week... but we wonder if the Federal Government's calling the recession over is actually working. Call us crazy, but we're just not feeling the love on this one. If the 'great recession' were actually over, we would expect to see that in improving quality of bank's assets. They have definitely not improved.
However, is seems that acquiring institutions feel the economy will be improving in the future, so they're happy to snap up most of the assets of the failed banks, no matter how toxic. The frisky animal spirits have possessed them at last, so they put on their war paint, do a victory dance, and march off to position themselves for the 'great recovery.' Apparently these acquiring institutions have forgotten they are akin to wolves; wolves can only consume fresh meat, and it seems these predators haven't noticed their prey is rotten. We don't know when the nasty effects of bad assets will start to bother the predator banks, but when the effects start it will be exciting. If acquiring institutions start to be closed by the FDIC, expect the U.S. to take the mother of all nosedives.
***
On the basis of the ratio of bank closures to population (i.e. simply the number of failures in the State, with no account of assets or deposits), the ten most afflicted States are listed here. Only those States which have two or more closures are considered.
1. Georgia
2. Nevada
3. Illinois
4. Minnesota (up from #6)
5. Utah (down from #4)
6. Kansas (down from #5)
7. Oregon
8. Missouri
9. Colorado
10. Florida (new to list)
The recoverable value represents how much of declared assets are actually worth on the open market. The following are the ten States with the lowest recoverable value; only those States which have had two or more closures are considered in this analysis.
1. Florida (32.44%)
2. California (40.11%)
3. Colorado (42.76%)
4. Michigan (43.07%)
5. Nevada (50.13%)
6. Georgia (53.74%, down from 53.76%)
7. Utah (55.39%)
8. Arizona (56.08%)
9. Washington (56.18%)
10. North Carolina (56.7%)
***
Well, shucks, more back-patting for us: Florida is now officially on both lists. We fully expect the State to ratchet up to the #1 spot on closures-to-population, and stay firmly in the lead on the recoverable value scale. The collapse of Florida's finances will likely be coupled with the final catastrophic implosion of the vast majority of well-off senior citizens' own finances. Why? We suspect that most of the elderly retirees in Florida have a big portion of their wealth in over-valued real estate, and when the State's real estate bubble pops and that value goes down, down, down, those seniors are not going to have much to fall back on. Social Security will not be enough to support them in the style to which they've become accustomed, and they will be forced out of their homes and into the homes of their children.
That's, of course, making the rash assumption that their children still have homes of their own. If the Baby Boomers have taken the hit at around the same time, the United States is going to see a large indigent population of elderly and Baby Boomers, whinging about how it isn't fair. No one in power will be listening, we suspect; the ear of the Federal Government is firmly owned by banks. Indeed, at that point the Government might not have any money at all to throw around - at least, no money that can actually buy anything.
The question rattling around in our mind is this: is Florida the first domino in a really big economic catastrophe? Or will it be another California, and simply be a bigger sag in the overarching, slow-motion collapse of the U.S. economy? We really don't know, but we could certainly see it either way. We'll be pondering that thought for a later blog post.
Wednesday, October 7, 2009
Economic Stress Report for October 2009
Once again we've gathered sufficient data to provide an update on the Economic Stress Report. According to our analysis method, the following are the top ten States on our list of economically stressed states. We present them here in order of highest to lowest severity:
1. South Dakota
2. Vermont
3. Ohio
4. Arizona
5. Kansas
6. Nevada (new to list)
7. New Hampshire (new to list)
8. Connecticut (new to list)
9. West Virginia (down from #8)
10. Indiana
The big, pleasant surprise for us in this report is that the top five states are unchanged from last report. New additions to the second decile are: Nevada (up from #11 of last report); New Hampshire and Connecticut (both not even on the 'watch list' of last report!). Falling out of the second decile are Montana (down to #11); Washington (down to #12); and New York (down to #13).
The consistency of the top states gives us hope our methodology is fairly sound as more data pours in. That several of these states are on our list should be no surprise to anyone - Ohio, Arizona, Nevada, and Indiana. Perhaps more remarkable is that the famous basket-case of California is missing. We don't think the absence of the Golden State in our stress measure is in any way a positive reflection on California's economy. Rather, we believe that worse conditions lie elsewhere under the radar of widespread public attention.
1. South Dakota
2. Vermont
3. Ohio
4. Arizona
5. Kansas
6. Nevada (new to list)
7. New Hampshire (new to list)
8. Connecticut (new to list)
9. West Virginia (down from #8)
10. Indiana
The big, pleasant surprise for us in this report is that the top five states are unchanged from last report. New additions to the second decile are: Nevada (up from #11 of last report); New Hampshire and Connecticut (both not even on the 'watch list' of last report!). Falling out of the second decile are Montana (down to #11); Washington (down to #12); and New York (down to #13).
The consistency of the top states gives us hope our methodology is fairly sound as more data pours in. That several of these states are on our list should be no surprise to anyone - Ohio, Arizona, Nevada, and Indiana. Perhaps more remarkable is that the famous basket-case of California is missing. We don't think the absence of the Golden State in our stress measure is in any way a positive reflection on California's economy. Rather, we believe that worse conditions lie elsewhere under the radar of widespread public attention.
Friday, August 28, 2009
Economic Stress Report for August 2009
Once again we've gathered sufficient data to provide an update on the Economic Stress Report. According to our analysis method, the following are the top ten States on our list of economically stressed states. We present them here in order of highest to lowest severity:
South Dakota
Vermont
Ohio
Arizona
Kansas
Montana
Washington
West Virginia
New York
Indiana
Of those States on our watch list, the following have suffered bank closures - another sign of economic stress - since December 2007:
South Dakota (1 closure)
Ohio (1 closure)
Arizona (2 closures)
Kansas (3 closures)
Washington (2 closures)
West Virginia (1 closure)
New York (1 closure)
The past month or so saw two big surprises for us: first was the very rapid fall of Maryland from stressed to 'troubled.' We're not completely convinced that Maryland's situation has suddenly improved for some reason, The State is still on our watch list, but it is no longer stressed, according to our analysis. Even so, we suspect that things will be getting quite a bit worse in Maryland, especially when the Federal Government is forced to commence personnel cutbacks (whenever than might occur), or when large numbers of bank failures finally take place.
The second surprise was Vermont's meteoric rise to runner-up basket case of the Union. We can only assume that Vermonters were somehow heavily over-extended, which quickly came back to haunt the economy in general, but that's just hand-waving. Frankly, we're not exactly sure why Vermont is apparently in such bad shape, so if any of you, Dear Readers, have thoughts, please share.
At this point we're hopping onto our old horse and ranting about South Dakota, still the worst-off State in the Union, according to our analysis. Simply put, we suspect that some political shenanigans are going down to prevent South Dakota from suffering the effects of its zomboid banking system. We have some thoughts on that, which we'll touch on in a future post, but suffice it to say that South Dakota should have had so many bank closures by now, it's not even funny.
Moving on, Ohio continues to hold third place for another month, so we take this as a sign that the State is in bad shape. Presumably the collapse of the American car industry continues to hit the State hard, and we expect that this condition will continue to worsen (perhaps by the eventual failure of Ford, or the re-failure of Chrysler or General Motors). Whatever the case, though, we feel it is a sign that Ohio is experiencing a relatively stable rate of economic contraction, as evidenced by its stable place as #3.
As a final note, we're very pleased to see that an increasing number of those States on our top ten list have suffered bank failures. This we take to be a good sign, perhaps indicating that our stress analysis will have a strong correlation with future bank failures. Time will tell, at any rate; the next report can likely be expected around the end of September.
South Dakota
Vermont
Ohio
Arizona
Kansas
Montana
Washington
West Virginia
New York
Indiana
Of those States on our watch list, the following have suffered bank closures - another sign of economic stress - since December 2007:
South Dakota (1 closure)
Ohio (1 closure)
Arizona (2 closures)
Kansas (3 closures)
Washington (2 closures)
West Virginia (1 closure)
New York (1 closure)
The past month or so saw two big surprises for us: first was the very rapid fall of Maryland from stressed to 'troubled.' We're not completely convinced that Maryland's situation has suddenly improved for some reason, The State is still on our watch list, but it is no longer stressed, according to our analysis. Even so, we suspect that things will be getting quite a bit worse in Maryland, especially when the Federal Government is forced to commence personnel cutbacks (whenever than might occur), or when large numbers of bank failures finally take place.
The second surprise was Vermont's meteoric rise to runner-up basket case of the Union. We can only assume that Vermonters were somehow heavily over-extended, which quickly came back to haunt the economy in general, but that's just hand-waving. Frankly, we're not exactly sure why Vermont is apparently in such bad shape, so if any of you, Dear Readers, have thoughts, please share.
At this point we're hopping onto our old horse and ranting about South Dakota, still the worst-off State in the Union, according to our analysis. Simply put, we suspect that some political shenanigans are going down to prevent South Dakota from suffering the effects of its zomboid banking system. We have some thoughts on that, which we'll touch on in a future post, but suffice it to say that South Dakota should have had so many bank closures by now, it's not even funny.
Moving on, Ohio continues to hold third place for another month, so we take this as a sign that the State is in bad shape. Presumably the collapse of the American car industry continues to hit the State hard, and we expect that this condition will continue to worsen (perhaps by the eventual failure of Ford, or the re-failure of Chrysler or General Motors). Whatever the case, though, we feel it is a sign that Ohio is experiencing a relatively stable rate of economic contraction, as evidenced by its stable place as #3.
As a final note, we're very pleased to see that an increasing number of those States on our top ten list have suffered bank failures. This we take to be a good sign, perhaps indicating that our stress analysis will have a strong correlation with future bank failures. Time will tell, at any rate; the next report can likely be expected around the end of September.
Sunday, July 5, 2009
Imagining a Better Future
Seeing how we are writing here about the Depression - which may last a very long time and turn out to be a dramatic economic collapse - we feel it important to state once again we are confident that the future can actually improve for anyone who is prepared for it.
The most important preparation is to be optimistic in the sense we mean it: making the best out of every situation. At its most trite: when life hands you lemons, make lemonade. Loss can be liberating if you find new fields in which to apply yourself.
Of course it is also important to avoid certain traps that will stifle your ability to survive and prosper in the coming years. The biggest trap is the notion that things will go back the way they were. This even applies to a lot of notions of 'prosperity', 'growth' and so forth. More specifically it applies to notions people have about what is worth investing in: a career, real estate, the stock market. Most of the systems that have worked to make people better off in the past are breaking down, and will not deliver the goods going forward.
So what do you invest in? Try to invest as much as possible in yourself, your skills, your tools, things you have control over which will help you produce income or reduce expenditures. You must take full responsibility for your income, and for living within your means.
The biggest shock the world is facing is that the era of an ever-growing stream of material goods and services is coming to an end, and will become an shrinking stream for quite some time. Happily, your quality of life is not measured by how much stuff you can buy. But you have to focus with ruthless efficiency on managing your income and expenses or you will find yourself a Depression victim.
To have a better future, you must also avoid having a worse future. However, for many with debts, children, or other substantial obligations the future may be unavoidably worse before it gets better. In any case, try to identify your weaknesses with some cold honesty, and shore them up.
The route to prosperity is simple in theory: live within your means (no matter how meagre) and profitably invest the surplus. In practice this can be extremely challenging, but it is achievable.
The most important preparation is to be optimistic in the sense we mean it: making the best out of every situation. At its most trite: when life hands you lemons, make lemonade. Loss can be liberating if you find new fields in which to apply yourself.
Of course it is also important to avoid certain traps that will stifle your ability to survive and prosper in the coming years. The biggest trap is the notion that things will go back the way they were. This even applies to a lot of notions of 'prosperity', 'growth' and so forth. More specifically it applies to notions people have about what is worth investing in: a career, real estate, the stock market. Most of the systems that have worked to make people better off in the past are breaking down, and will not deliver the goods going forward.
So what do you invest in? Try to invest as much as possible in yourself, your skills, your tools, things you have control over which will help you produce income or reduce expenditures. You must take full responsibility for your income, and for living within your means.
The biggest shock the world is facing is that the era of an ever-growing stream of material goods and services is coming to an end, and will become an shrinking stream for quite some time. Happily, your quality of life is not measured by how much stuff you can buy. But you have to focus with ruthless efficiency on managing your income and expenses or you will find yourself a Depression victim.
To have a better future, you must also avoid having a worse future. However, for many with debts, children, or other substantial obligations the future may be unavoidably worse before it gets better. In any case, try to identify your weaknesses with some cold honesty, and shore them up.
The route to prosperity is simple in theory: live within your means (no matter how meagre) and profitably invest the surplus. In practice this can be extremely challenging, but it is achievable.
Friday, June 26, 2009
Where to Look for Distress
We had a conversation the other day with a friend of ours, who was wondering where and when he might begin to see signs of the Depression we've been incessantly talking about for months. "When will people start saying that they can't afford anything? When will they realise they cannot spend money on their trinkets anymore?" was the general thrust of his questions. We wish to expound on our answer here, in today's post.
The problem with looking to people for signs of the effects of the 2007 Depression is simply that human beings have an immense capacity for self-deception. People tell themselves - and anyone else who will listen - that things will get better as soon as the economy recovers; or as soon as Ralph gets a new job; or when the widget factory reopens; or any number of things. In our opinion, none of these things are ever going to happen (i.e. the economy is not going to recover; Ralph is not getting a new job; the widget factory is permanently shuttered).
The reasons that human beings have this awe-inspiring capacity for self-deception are not clear, and indeed a full half of Sociology is devoted to discovering said reasons (the other half being devoted to profiting from the phenomenon). However self-deception comes about, it is a force which cannot be overstated, estimated, or compensated for.
Self-deception also makes it impossible to look at what people say or do in order to judge the extent and depth of the Depression. Typically speaking, a person will never admit that their situation is dire... or indeed, that he or she is experiencing difficulties of any sort!
An issue now arises: how does one look for evidence of the 2007 Depression if one cannot look to people? Our suggestion is to look to the infrastructure one constantly uses in one's daily life. As a South African woman once wrote to James Kunstler, "It began with a few potholes in the road... Potholes may well be the singular measure of the calamity we are in or about to face." Read that letter, Dear Reader, and watch the roads around you. We've been watching our city's roads, and we are very disturbed with what we see.
The problem with looking to people for signs of the effects of the 2007 Depression is simply that human beings have an immense capacity for self-deception. People tell themselves - and anyone else who will listen - that things will get better as soon as the economy recovers; or as soon as Ralph gets a new job; or when the widget factory reopens; or any number of things. In our opinion, none of these things are ever going to happen (i.e. the economy is not going to recover; Ralph is not getting a new job; the widget factory is permanently shuttered).
The reasons that human beings have this awe-inspiring capacity for self-deception are not clear, and indeed a full half of Sociology is devoted to discovering said reasons (the other half being devoted to profiting from the phenomenon). However self-deception comes about, it is a force which cannot be overstated, estimated, or compensated for.
Self-deception also makes it impossible to look at what people say or do in order to judge the extent and depth of the Depression. Typically speaking, a person will never admit that their situation is dire... or indeed, that he or she is experiencing difficulties of any sort!
An issue now arises: how does one look for evidence of the 2007 Depression if one cannot look to people? Our suggestion is to look to the infrastructure one constantly uses in one's daily life. As a South African woman once wrote to James Kunstler, "It began with a few potholes in the road... Potholes may well be the singular measure of the calamity we are in or about to face." Read that letter, Dear Reader, and watch the roads around you. We've been watching our city's roads, and we are very disturbed with what we see.
Thursday, June 25, 2009
Some Realistic Information on Collapse
Building on the previous two posts, we present further information on the rapidity of economic contraction in the world. As we've been harping on for quite some time, the severity of the 2007 Depression is not to be underestimated. At the same time, many Government and other official statistics appear to be 'cooked,' to say the least.
The IMF has recently predicted that the Republic of Ireland's economy is going to contract by 13.5%... between 2008 and 2010. This is hopeful, in our opinion. The Irish Republic has had quite a binge on easy-credit-leveraged growth, via the Euro. The time, we posit, has come to pay the bills, and we aren't exactly confident that the Irish economy has any depth of resiliency to draw upon in this situation. We frankly expect that the IMF's drop of 13.5% in the Republic's economy could be realised - even exceeded - in just this year alone.
The most realistic data we've seen so far is from the UN Office for Drugs and Crime. According to this BBC article, in 2008 opium production fell 16% world-wide, and cocaine production in Colombia has dropped 28%. We suspect that these drops occurred in the second half of 2008, as the onset of the Depression neared. In all honesty, we're not sure how drug production and economic activity are correlated... but we suspect that the collapse in opium and cocaine will be mirrored by collapse in the greater world economy.
The IMF has recently predicted that the Republic of Ireland's economy is going to contract by 13.5%... between 2008 and 2010. This is hopeful, in our opinion. The Irish Republic has had quite a binge on easy-credit-leveraged growth, via the Euro. The time, we posit, has come to pay the bills, and we aren't exactly confident that the Irish economy has any depth of resiliency to draw upon in this situation. We frankly expect that the IMF's drop of 13.5% in the Republic's economy could be realised - even exceeded - in just this year alone.
The most realistic data we've seen so far is from the UN Office for Drugs and Crime. According to this BBC article, in 2008 opium production fell 16% world-wide, and cocaine production in Colombia has dropped 28%. We suspect that these drops occurred in the second half of 2008, as the onset of the Depression neared. In all honesty, we're not sure how drug production and economic activity are correlated... but we suspect that the collapse in opium and cocaine will be mirrored by collapse in the greater world economy.
Tuesday, June 9, 2009
Electricity Use Declines
This report from Communist China: Electric consumption is down 4% from last year. How the economy overall can be reported to show growth in the face of falling electricity use is perplexing. This simplest explanation is that the communist government is merely making up GDP numbers that make the government look good even while the country's economy is crashing.
Fabricated statistics in China is nothing new. It is one of the hallmarks of a failing political and economic system - in this case, the curious hybrid of communist totalitarianism with a capitalistic flair. Somewhat more reliable statistics can be found in OECD countries, but a fair amount of massaging goes on there as well.
In the USA, electric generation is down (as of February) 7.3% year over year, according to the Energy Information Administration. As it was not a mild winter, the drop can be logically associated with decreased need in industry.
We will be attempting to post further honest measures of the economic situation in the future. However, with the problem of faulty - or even make-believe - statistics, not to mention constant misinterpretation, the quest for quality information is difficult at best.
Fabricated statistics in China is nothing new. It is one of the hallmarks of a failing political and economic system - in this case, the curious hybrid of communist totalitarianism with a capitalistic flair. Somewhat more reliable statistics can be found in OECD countries, but a fair amount of massaging goes on there as well.
In the USA, electric generation is down (as of February) 7.3% year over year, according to the Energy Information Administration. As it was not a mild winter, the drop can be logically associated with decreased need in industry.
We will be attempting to post further honest measures of the economic situation in the future. However, with the problem of faulty - or even make-believe - statistics, not to mention constant misinterpretation, the quest for quality information is difficult at best.
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.
Friday, April 10, 2009
Underestimating the Damage
Thoughtful commentators on the economy are noticing big changes afoot: less dining out; more 'value' shopping; and so forth. So far, they are being rather conservative in their estimations of how far the citizenry is going to be cutting their spending on consumer items. For example, people speak of dining out in the USA being reduced from 50% of the food budget to 40%, returning to the level of 2000.
We believe this is ridiculously over-optimistic. In 1955, dining out was 25% of the food budget. Remember, 1955 was a time of prosperity. Since the world is sinking into a Depression that will last for ten years or more, it would be more realistic to see the luxury of dining out returning to a very low proportion of food spending - say 10%.
In a nutshell, we expect to see this collapse in restaurant and other luxury spending because making it through the next ten years is going to be increasingly a matter of economic survival. More and more of the population will be feeding themselves primarily by way of government food assistance (which does not allow for prepared meals) - as long as such assistance lasts, and most of the rest will sensibly economise by eliminating dining out.
For households not to commence draconian economisations at this point is an invitation to poverty and potential destitution. Such economisations will become more and more evident on a survivor basis. Functioning households will be economical, non-economical households will be dissolved or become economical.
In spite of increasing awareness of deterioration, there is an almost ubiquitous fantasy that recovery is nigh, and when it arrives the population will return to its consumeristic ways. Such a recovery is simply never going to materialise. When, and more importantly if, something akin to economic progress resumes at some point in the increasingly distant future, the economic landscape of the world will be utterly and permanently changed.
We intend to survive this transition and, more than that, experience as much as we can of our idea of the good life. We hope, Reader, the same for you. The severity of the Depression and its consequences must not be underestimated if you wish to be a survivor.
Consider the lessons of the survivors of the Great Depression (1929-1939): pay for everything with cash; make do, mend, use it up, do without; throw away nothing that could be put to use. Our progenitors were altered (often traumatically considering most survivors became compulsive hoarders at least to some extent) by the experience. And remember these are the survivors! Think how much worse it was for the non-survivors!
We believe this is ridiculously over-optimistic. In 1955, dining out was 25% of the food budget. Remember, 1955 was a time of prosperity. Since the world is sinking into a Depression that will last for ten years or more, it would be more realistic to see the luxury of dining out returning to a very low proportion of food spending - say 10%.
In a nutshell, we expect to see this collapse in restaurant and other luxury spending because making it through the next ten years is going to be increasingly a matter of economic survival. More and more of the population will be feeding themselves primarily by way of government food assistance (which does not allow for prepared meals) - as long as such assistance lasts, and most of the rest will sensibly economise by eliminating dining out.
For households not to commence draconian economisations at this point is an invitation to poverty and potential destitution. Such economisations will become more and more evident on a survivor basis. Functioning households will be economical, non-economical households will be dissolved or become economical.
In spite of increasing awareness of deterioration, there is an almost ubiquitous fantasy that recovery is nigh, and when it arrives the population will return to its consumeristic ways. Such a recovery is simply never going to materialise. When, and more importantly if, something akin to economic progress resumes at some point in the increasingly distant future, the economic landscape of the world will be utterly and permanently changed.
We intend to survive this transition and, more than that, experience as much as we can of our idea of the good life. We hope, Reader, the same for you. The severity of the Depression and its consequences must not be underestimated if you wish to be a survivor.
Consider the lessons of the survivors of the Great Depression (1929-1939): pay for everything with cash; make do, mend, use it up, do without; throw away nothing that could be put to use. Our progenitors were altered (often traumatically considering most survivors became compulsive hoarders at least to some extent) by the experience. And remember these are the survivors! Think how much worse it was for the non-survivors!
Monday, February 16, 2009
The Depression and Organised Crime
Organised Crime works in essentially three ways: it runs illegal businesses; it runs legal businesses illegally; and it skims profits off of legitimate enterprises, both private and governmental. Is the Depression hurting organised crime through a drop in revenues? Or are criminals use more 'muscle' to maintain or even increase their cash flows?
Sadly, the answer seems to be the latter. Bloomberg has recently reported Italy's organised crime revenues surged 40% last year.
What effect will this have on the economy at large? If organised crime is increasing its share, and government (thanks to Keynesianism) is also expanding through make work projects, how much can be left for the honest enterprise actually delivering the people what they actually want at a reasonable cost?
The prognosis is not good. The natural course the Depression is to squeeze the economy down to a basic core of efficient enterprises. The more the economy is burdened by crime among other inefficiencies (the aforementioned luggage inspectors come to mind), the more the end state of the economy at the bottom of the cycle will resemble mere survival.
Sadly, the answer seems to be the latter. Bloomberg has recently reported Italy's organised crime revenues surged 40% last year.
What effect will this have on the economy at large? If organised crime is increasing its share, and government (thanks to Keynesianism) is also expanding through make work projects, how much can be left for the honest enterprise actually delivering the people what they actually want at a reasonable cost?
The prognosis is not good. The natural course the Depression is to squeeze the economy down to a basic core of efficient enterprises. The more the economy is burdened by crime among other inefficiencies (the aforementioned luggage inspectors come to mind), the more the end state of the economy at the bottom of the cycle will resemble mere survival.
Wednesday, December 31, 2008
Energy Independence the Hard Way, Part 2
Read Part 1 here.
Yesterday's post asserted that the United States will painfully achieve energy independence in the coming years, through economic collapse and demand destruction so pervasive and deep that it boggles our mind. Nevertheless, we see this eventuality as a certainty for the U.S. Today we give details.
The 2007 Depression, as we have said many times before, is lowering income; that is the nature of an economic depression. In the United States, one can expect to see income on par with the global average ($10,000 per person). This means an approximate loss of 78% of present United States average income ($45,800).
This destruction of income will come hand-in-hand with several other, global trends. The first is peak oil: the unstoppable decline in oil production, ever since production peaked in 2005. Oil exporters, like Saudi Arabia, are already beginning to divert more of their production for domestic use, and less for exports. Once the fall in global oil consumption, due to the Depression, is overtaken by the fall in oil supply, the price of oil will inexorably rise.
Additionally, the U.S. Dollar is rapidly facing its demise as the world's reserve currency. As the world savours one last economic violation at the hands of Bretton Woods, the call has gone out for Bretton Woods II, and a global central bank. This is the death knell for the privileged position the U.S. Dollar enjoys, and the end of inexpensive imports for the USA.
Putting these trends together, everyone will be poorer in the United States. Gasoline will be far more difficult for the average American to buy. Because of both these trends, personal vehicles as they are known today (i.e. gas-sucking commuter tanks) will no longer be affordable for all but a tiny minority. We posit mopeds will be the more attractive option, or motorcycles, if one feels affluent.
This change in income and transportation will necessarily bring a change in living space (see an earlier post). In 1950, the average American enjoyed 292 square feet; the McMansion binge makes today's number around 900 square feet per person. A 75% drop in today's average living space per person seems about right to us. This, taken together with improvements in energy efficiency, will greatly diminish the need for home heating, lighting and cooling. Commercial space, especially retail, can expect a equivalent slimming down.
In conclusion, we come back to President-elect Barack Obama's economic stimulus programme at change.gov. Billions of dollars, if not trillions, are going to be thrown at the "energy problem"... but we will bet good money it will have no lasting effects. The economic collapse we've outlined is an unstoppable force that has a programme of its own.
Smell that in the air? That's change.
Yesterday's post asserted that the United States will painfully achieve energy independence in the coming years, through economic collapse and demand destruction so pervasive and deep that it boggles our mind. Nevertheless, we see this eventuality as a certainty for the U.S. Today we give details.
The 2007 Depression, as we have said many times before, is lowering income; that is the nature of an economic depression. In the United States, one can expect to see income on par with the global average ($10,000 per person). This means an approximate loss of 78% of present United States average income ($45,800).
This destruction of income will come hand-in-hand with several other, global trends. The first is peak oil: the unstoppable decline in oil production, ever since production peaked in 2005. Oil exporters, like Saudi Arabia, are already beginning to divert more of their production for domestic use, and less for exports. Once the fall in global oil consumption, due to the Depression, is overtaken by the fall in oil supply, the price of oil will inexorably rise.
Additionally, the U.S. Dollar is rapidly facing its demise as the world's reserve currency. As the world savours one last economic violation at the hands of Bretton Woods, the call has gone out for Bretton Woods II, and a global central bank. This is the death knell for the privileged position the U.S. Dollar enjoys, and the end of inexpensive imports for the USA.
Putting these trends together, everyone will be poorer in the United States. Gasoline will be far more difficult for the average American to buy. Because of both these trends, personal vehicles as they are known today (i.e. gas-sucking commuter tanks) will no longer be affordable for all but a tiny minority. We posit mopeds will be the more attractive option, or motorcycles, if one feels affluent.
This change in income and transportation will necessarily bring a change in living space (see an earlier post). In 1950, the average American enjoyed 292 square feet; the McMansion binge makes today's number around 900 square feet per person. A 75% drop in today's average living space per person seems about right to us. This, taken together with improvements in energy efficiency, will greatly diminish the need for home heating, lighting and cooling. Commercial space, especially retail, can expect a equivalent slimming down.
In conclusion, we come back to President-elect Barack Obama's economic stimulus programme at change.gov. Billions of dollars, if not trillions, are going to be thrown at the "energy problem"... but we will bet good money it will have no lasting effects. The economic collapse we've outlined is an unstoppable force that has a programme of its own.
Smell that in the air? That's change.
Subscribe to:
Posts (Atom)
Posts
