The Real Deal

A recent letter to SurvivalBlog.com shows that at least one person out there has his or her head screwed on mostly right. The conclusions, unfortunately as is typical on that site, run toward the 'get your guns' mentality. However, the honest and intelligent observations are worth quoting at length.

The economy has taken a dramatic turn for the worse for many Americans. Hundreds of pages could be written to describe how it happened and who did it. While many individuals and households have had the financial resources and good fortune which will allow them to weather economic uncertainty, many will simply not be able to maintain their standard of living. Many two income households are now one income households and that income may have decreased due to companies cutting back on work hours. This situation has been occurring for many Americans for many many months, forcing people to assess what is important and downgrade their lifestyle. The time to make hard decisions has arrived, and will dramatically alter the lives of many for years.

People who relied on spouses to pay the bills are now paying the bills. Those who have relied on savings and unemployment benefits to maintain their standard of living are now faced with the reality that those resources are exhausted. Bills are not being paid. Healthcare premiums are not being paid. Automobile and household maintenance is being neglected which will create costlier repairs down the road. Simply put:

• You might have to stop making your car payment and save those payments up to buy a used car. The car you currently have financed will be repossessed.
• You might have to stop paying your mortgage and save those payments up to move into an apartment.
• You might have to give up your healthcare, your magazine subscription, your club membership, your vacation plans, your charitable donations, your cell phone, your internet access or home phone service, your lawn care service, your financial support that you provide to friends and family who are having financial problems themselves, and many more expenditures not listed here.
• You might have to contact an attorney to discuss bankruptcy.
• You might have to sell off your possessions and assets.
• You might have to move in with other families, friends, relatives, or shelters provided by the government or charitable organizations.
• You may come to realize that what you thought was valuable and important to you has no value or significance at all.

Basic human needs will become the biggest priority in your life after you shed the things that have merely brought comfort and convenience to you. You may be forced to downscale your lifestyle so dramatically that it will cause you to question your own intelligence and hindsight for not planning for such a life changing event.

We have a few comments to make on these observations. First, in light of how little access to emergency funds American (among other) households have as mentioned in yesterday's post, deferring maintenance on houses and cars is a species of financial brinkmanship that will not only require "costlier repairs down the road," but quite possibly become the 'straw that breaks the camel's back' of the impaired household finances.

As for having a car, our addition would be that you may find yourself needing to set up a living situation that doesn't require you to own a car - either sharing a car with a relative or friend, or walking and/or using public transit.

As these strategies for downward mobility become increasingly utilised, they will cause GDP to decline. Not only will demand for goods and services shrink, but the informal market (yard sales, thrift stores, eBay, etc.) will become flooded with cheap, liquidated stuff. We expect this strategy to be employed eventually by a majority of the population as the Depression runs its course and cascading failure undermines the economic system.

We find it a sad commentary on the state of 'the Press' that such an honest report can only be found in a 'fringe blog' and beyond that, as a letter. The Ministry of Truth does seem to have a lockdown on the situation. Telling information can be found, however, if you look for it. According to a recent Gallup poll, November year-over-year consumer spending is down 20%. This is a knock-your-socks-off, the-economy-is-in-a-Depression-folks number if there ever was one. The report qualifies its information as "self-reported" but even so, it seems a heck of lot more reliable to us than the bogus recovery spiel coming out of the Ministry of Truth.

Pathetically, the Gallup commentary states: "On a national level, the spending new normal suggests slower economic growth than otherwise might be expected in the years ahead." Let's take a look at 'economic growth' in the USA at present.

According to the Bureau of Economic Analysis, the growth rate is 2.8% in the third quarter of 2009. Consumer spending allegedly increased 2.9%. In order for the approximately -25% gleaned from Gallup data and the official +2.9% to reconcile, households would have to wildly increase their spending for housing (hard to do in the face of lower rents, skipped mortgage payments, and household formation gone into reverse), professional services (bankruptcy lawyers, anyone?), and so forth. Frankly, we don't think such a reconciliation is possible, and we smell a R-A-T.

A Clunker of an Economic Policy

Yesterday, the world was greeted by a much-trumpeted USA GDP report showing 'growth' has returned. Admittedly, the 'growth' was primarily the result of Federal Government stimulus, mainly in the form of the first time house-buyer credit, and the 'cash-for-clunkers' plan. These two giveaways really only pulled consumption forward as opposed to creating new demand. The collapse in auto sales after its programme ended proves the point.

More disturbingly, having the economy increasingly dependent on debt-funded, government stimulus is not a sound policy. Let us illustrate by analogy. Suppose Mr. Miller was down on his luck. Mr. Baker next door has a brilliant idea: "I have an unused credit line down at the Bank. Suppose I max it out and use the funds to buy flour from Mr. Miller. I need to buy flour anyhow. I'll just stock up and then gradually use it up." Mr. Miller is, naturally, delighted when the order for a tonne of flour comes in. He even needs to hire an assistant, Jack, and now Mr. Miller can order that new mill stone he'd been hankering after. GDP is now growing again!

Only here's the fly in the ointment: as Mr. Baker starts buying less flour as he draws down his stock, Mr. Miller's sales are lower than ever! Jack gets laid off and ends up moving into his parents' basement. Jack's former landlord is unable to find a new tenant and starts baking his own bread to economise. Mr Miller also reluctantly cancels the order for the new mill stone. Mr. Mason, faced with no prospects of further business, sells his home and joins a monastery. Mr. Baker is faced with falling sales, and now a hefty interest payment on that line of credit. GDP is falling again, and even worse than before!

A debt-binge set up the world economy for the 2007 Depression. The attempt to keep the debt party going will end in tears. Mark our words! [cue spooky music]

The Great Fall of China

We have always felt that China's strengths are greatly overstated. It always seemed to us that glowing reviews of the PRC were editing out many inconvenient details about the nature of China, thereby making investment in China - financial or otherwise - seem like a good, though risky, venture. As the leading industrialising power in the world, the PRC garnered quite a bit of clout, especially as its economy grew at a pace which seemed to defy all natural limits. The nation produced more cheap plastic crap than the biggest spendthrifts in the world - Americans - could possibly absorb.

In the past we came up with a short list of reason why we felt China was doomed to collapse somewhere along the line: a severe disproportion of male to female citizens; no strong tradition of common law; and a totalitarian Communist government. These three things, we felt, are any one of them sufficiently problematic to deal a serious blow to the PRC.

And then the 2007 Depression happened, and the game changed completely. Communism is, in practice, a cannibalistic system: it requires constant inputs of new resources - both raw and financial - in order to keep the State-run enterprises from going belly up. This wasn't such a concern in a growing world economy, because there was always more resources to throw at bloated and inefficient industries. But now, the world economy is shrinking thanks to the Depression; the pain of which will be vastly increased by Peak Just-About-Everything.

Other factors are lining up to suggest a serious blow to China. For instance, the World Bank has predicted that Foreign Direct Investment in China is going to drop by 20% this year. Although that will not create a concurrent 20% drop in China's economy, it will help to bring down 'growth' to some degree. If 'growth' is too low, the PRC will not be able to give jobs to its vast population, and they will be very angry about that.

Additionally, we read that vicious riots have broken out in the capital city of Xinjiang, apparently brought on by ethnic tensions. This, we posit, is going to become evermore common in China in the months and years ahead. Simply put, the PRC has ravaged China in the hope of generating those stellar economic growth numbers, and now they will no longer be able to make good on their promises. The one-billion-plus Chinese are not going to be happy, especially as they find the nation's export sector is in shambles.

We also learn that the GDP of China has been overstated by about 40%; it is only a $6 trillion dollar economy. That's a serious bite out of the PRC's ability to keep its population in check via jobs and pay cheques. Even the Indian Defence Review is making noises about China's impending difficulties.

In conclusion, we have to wonder how not only China's own population expects the PRC to make good on its promises of growth and prosperity, but why much of the rest of the world is hoping that China will haul them out of recession. China has, at least by our reading, become a cornerstone to 'recovery,' a cornerstone which we think is both faulty and due to fail in less time than one might think. When China does fall, as we believe it will, all talk of recovery will end, and the world will be forced to realise that the situation in the 2007 Depression is very dire indeed.

More Evidence USA Entered Recession in 1999

Some months back we posted evidence that the last 10 years have been a period of recession in the USA, at least for the majority of the population. Today we present more.

In this Clusterstock Chart of the Day, one can see the amount of income that comes from Government Transfer Payments has risen from about 12% of all income to 18% over the last 10 years. This is a 50% increase.

We also offer John Williams' Shadow Government Statistics showing a GDP essentially in recession from 2000 onwards.

As we said before, the US economy is in worse shape than is generally recognised. It would appear the 'recovery' from the last official recession was chimerical. The debt-fueled consumption bubble only set the stage for a stronger crash.

The Clusterstock commentary helpfully points out, "thus the process of household debt becoming government debt takes place." In the debt-bubble, households borrowed money and instead of investing it, spent it as if it were income. Now those debts must be repaid or defaulted upon. In order to prevent a contraction of credit and debt-deflation, the US Government is borrowing enough to keep all debts in the aggregates rising. Among other ways of spending this borrowed money, it is handing out a larger dole - replacing, at least in part, spending money households can no longer borrow from home equity loans and credit cards.

At some point in the future not to distant, we expect the Government's ability to create new credit effectively cut off. At that point the inevitable debt-deflation will come - though we anticipate the debt will not be paid off, but rather destroyed by hyperinflation.

A Depression Trajectory

As a sort of follow-up to yesterday's post, we will muse a bit on how much world GDP decline to expect to this Depression.

One assumption that we are making is that over the next twenty years or so, fossil fuels will become too expensive to use very much as... well, fuel. The world is not going to run out of oil, gas, or high quality coal - but their fuel use will mostly be limited to its highest ends (i.e., not for mass private cars, heat, or electricity). In the post-fuel hydrocarbon era, much of the remaining supply will be used for non-fuel uses such as fertiliser, plastics, and specialty chemicals.

Its a rather uncertain thing modelling collapse, but it is not unreasonable to say that hydrocarbon production may decline 90% or so in the next 20 years. That may seem outrageous, but many people like ourselves who make a study of this matter are arriving at similar conclusions. Consider this recent post at The Oil Drum. It's a bit technical, but Figure 3 is worth a thousand words.

As every schoolchild knows, or at least ought to know, the industrial economy grows or shrinks with the supply of fuel. If fuel production declines 90%, the economy will fall by a similar amount. There will be efficiency, nuclear power, solar power, hydropower, and many other ways to mitigate the loss of energy available to society - hopefully enough to keep things civilised. And once Civilisation has weaned itself off fossil fuel, economic growth just may well resume from a new, low base and at a slower rate.

We believe an energy-intensive economy such as the USA's will experience roughly a 90% decline over the next 20 years. At the end of the Depression, per-capita income is likely to be in the neighborhood of $5,000 a year in current dollars.

We suggest the Reader consider what life might be like for them on such an income, or a bit more or less - depending on their skill level. Also to consider what sort of means they would have to produce any income in a world where most people can afford very little beyond the basics of food and shelter.

It will be very difficult to hope that investment capital will produce much income. Which industries will even survive this depression? Virtually all bonds are sure to default, including government ones - either directly or through inflation. Successful investors will likely be the active, hands-on sort.

To earn income will require being involved with a surviving industry, such as agriculture. Otherwise you will need to become entrepreneurial, and hard-working. Though challenging, the changes ahead are manageable - as long as you keep a positive outlook.

U.S. Industrial Output Does The Time Warp

One of the traditional ways to define a Depression from a recession (or "deep recession," as some prefer), is to see 1) a minimum 10% decline in Gross Domestic Product, as well as 2) a recession which lasts over three years. We have argued previously that the United States has been in a recession since 1999 or 2000, so the second proviso is probably well exceeded. The first is more difficult to pin down, since the GDP numbers in the United States are typically manipulated for political reasons.

One can find reasonable proxies for GDP data in the news organs of the U.S., as well as Government data. As our co-writer has previously noted, retail sales were down an adjusted 9.2% (source, see Table 2) year-over-year from this past February.

Additionally, the latest information suggests that U.S. industrial output has dropped a whopping 12.8%, year-over-year this March. This is the lowest level of output since December of 1998; an entire decade of output has already been lost in the 2007 Depression, only a year and a half in.
Add to that the Federal Reserve's report that industrial capacity utilisation fell to 69.3%, the lowest level on record since recording began in 1967, and the economy is looking pretty grim indeed.

As it is industry, not retail or High Finance, which makes an economy functional, this drop is very troubling. It represents both serious unemployment, and - perhaps worse still - the destruction of productive capacity via lack of maintenance. We say worse, because although new workers can be trained by old workers, the knowledge is useless if the machines are unusable. It is exactly this in the oil industry: the longer prices stay down, the more capacity to meet future demands will be annihilated.

Whatever the case, though, the picture can be shaded even darker, as the Census Bureau suggests that, year-over-year in February, the drop was more like 14.8% (source, Table 2).

Considering all this information, we feel it is possible to give a hypothetical time-frame for the duration of this Depression. Assuming a 15% year-over-year drop in output, and also assuming that the economy will find an initial bottom after a 50% drop, we posit that the bottom will possibly be in about three years from now (as one additional year has already past). After that, we think a 75% drop-from-peak is probably the longer-term outlook, but that time-frame is not predictable at present.

Approaching the 10% Decline

Although there is no single, consensus definition of what a Depression is, one widely accepted marker is a 10% contraction in the GDP. So far, by official numbers, this is still a ways off in most countries. But it is getting harder to fudge away the increasingly obvious.

March retail sales in the USA were reported yesterday having declined 9.4% year-over-year. This is now the fourth month in a row of sales declines in the vicinity of 9% year-over-year. Granted retail sales aren't the whole economy, but they are a fair proxy for the economy.

We don't expect this crash level of sales declines to continue - although it is possible - but it won't take too much longer for this shrinkage to put the economy into deeply red territory for the year. As we have stated before, we expect the Depression to continue for years. Even if there are a number of "growth quarters" sprinkled here and there (and we do expect them), the contraction should prove relentless.

For some time forward there will be a recovery bias to all reports about the economy. The drivel coming out of the Federal Reserve System is especially illustrative. It is going to take a while for it to sink in that things are bad, getting worse, and not going to recovery quickly.

Ireland Doesn't Need a Bailout?

Anyway you look at it, Ireland's economy is in shambles. The formerly fastest growing member of the EU is now the fastest shrinking - with a rosy, Government forecast of -8% change in GDP this year.

Finance minister Lenihan defiantly claims the nation does not need a bailout from the EU. He defiantly claims that in spite of his staggeringly expensive (1/2 annual GDP equivalent) rescue of the Irish banks, "there will be no bailout of the banks."

The government, not having the luxury of being able to print up money, is being forced to raise taxes to service the new debt as well as meet existing obligations in the face of what would otherwise be rapidly declining tax revenues. This, of course, will soon be seen as a fatal policy blunder. Raising taxes in a Depression is, as everyone who was paying attention in economics class knows, a big no-no. It is taking money out of the hands of the people when they need it most.

Mr. Lenihan is merely a crony and cannot exactly be blamed for this misstep. Presumably, some policy wonks in the Irish Finance Ministry - taking a cue from the Yanks perhaps - are thinking (in Irish Gaelic, of course), "If we reliquify the banks, they will lend again and people can buy houses again, 'n stuff." So pinching the average worker is an acceptable trade-off.

We'll bet any taker that Irish banks won't do squat to revivify the Irish economy, and that the masses are going to have to cut spending even more. We sense a vicious cycle forming.

The end state will be Ireland out of the EU (sans bailout) and its economy worse off than it has been in decades. Emigration will not prove the safety-valve it has in the past as the former destination lands will look less kindly on newcomers. We suspect Ireland is where damage from the 2007 Depression may be most acutely felt, completing the rags-to-riches-to-rags cycle.

Unemployment versus Contraction

We were reviewing the statistics at Shadowstats - a service that reports relatively honest economic data for the USA - and noticed a 19% unemployment rate (ouch!) and a 4% rate of GDP contraction (bad, but not that bad). Two points immediately leapt up: one, there is a fairly wide divergence; and two, this is divergence in an opposite direction from the Great Depression.

The divergence points to the chronic unemployment and underemployment that exists in the US. Even at the peak of the economy in 2000, approximately 12% of the workforce was redundant. If GDP is to contract in this Depression as much as in the Great Depression (50%), and unless there is to be 60% or more unemployment, more currently employed workers are going to have to take reduced hours or rates of pay.

The nation is faced with a highly problematic scenario. At some point in the not-too-distant future, the Federal Government will have exhausted its borrowing power to maintain welfare payments and its own operations. We have discussed in prior posts how both welfare payments and government salaries will have to be cut. We expect these to be cut through price inflation.

Many private sector organisations will be facing the task of whether to cast redundant workers into a fraying social safety net, or 'sharing the pain' by cutting hours accross the workforce. Self-employed persons will be facing involuntary 'part-time' status. Price inflation will also deliver pay cuts to the private sector.

The course the nation takes to adjust the population to lower economic output will have a decisive impact on how orderly the adjustment is. The more desperately 'turf' is defended and groups attempt to clutch onto their income, the greater the polarisation of income and the potential for social disruption. If there is a consensus to 'share the pain' - even if through inelegant methods such as inflation and higher taxes on the remaining productive elements - there is less potential for acute stife. Unfortunately, the more coercively the pain-sharing is achieved, the more long-term harm is done to the economy: inflation distorts investment decisions, and taxation inhibits productivity.

Clearly, the nation is still sufficiently affluent to handle some economic abuse - but there is a limit to how much. We are not optimistic that there is any collective will to institute a sounder basis for economic development. Alert individuals, on the other hand, will find even in a less benign environment adequate possibilities of prosperity.

Health Care Catastrophe

Mr. Obama wants to "reform" health care spending in the USA. It looks like that means spending more money. Apparently the USA already spends over $8,000 per person on all things medical (nearly 1/5th of GDP). We believe that long-term, USA GDP will fall much closer to the world mean, about $10,000 per year. Obviously the USA cannot spend 4/5ths of its income on medicine.

This is not good news for the U.S. medical complex. Given that the USA spends about twice as much per capita on medicine as other developed countries, there is plenty of fat to be cut. Some countries go further such as Singapore or Cuba, for example, which have adequate health care systems (certain measures of public health are higher than for the USA), at a small or tiny fraction of the cost per capita (1/5th and 1/25th respectively).

It is apparent that a vast reduction in medical spending need not necessarily yield a vast reduction in medical care. Though, considering the disarray in the U.S. system, a decline of quality is likely. What is certain is that incomes for those who make their living in the industry are bound to fall dramatically or just go away.

Among the many super-sized industries in the USA, medicine is among the most bloated. We expect the Depression will cut it down to a sustainable level dramatically smaller than its current size.

Down and Down She Goes, Where She Stops, Nobody Knows

The numbers are pouring in daily: shipping is down, trucking is down, exports are down, imports are down. Typically these numbers show declines on the order of 10 to 20 percent year over year. Is it naive to suppose that the U.S. economy has declined 10% or so over the last year? Apparently, as the U.S. Government reports that the U.S. economy actually grew by 1.3% in 2008.

Frankly, we just don't believe that number. Mr. John Williams at www.shadowstats.com is reporting a 4% decline in U.S. GDP in 2008, which seems more realistic.

In any case, the decline is accelerating. The fourth quarter GDP numbers would have come in worse if there hadn't been an inventory buildup. As inventories are worked off in the face of collapsing demand, production will fall further.

The 2007 Depression is a new bird for everyone. Nothing quite like it has ever happened before. The last Depression (1929-1939) occurred with a vastly different set of social and economic parameters, and is not really a prototype for current events.

No one can present a formula for making it through the 2007 Depression. Survivors will be relying on improvisatory skills. It will be an era of living by your wits.

Keynesianism Can't Save the Economy

As TIME magazine has noted, "we are all Keynesians"... again. Mr. Keynes has certainly made quite the comeback from the graveyard, and his reanimated fingers are slipping back into the modern economic pie. This is taken as a 'good thing,' a point which we won't belabour. However, if the shuffling zombie of Mr. Keynes were able to take stock of his economic surroundings, he might notice things are a little different now, than in the 1930's.

In 1930, according to usgovernmentspending.com, the United States government's direct spending was 13.22% of the national economy, up from 11.29% the year before. By 1939, at the bottom of the 1929 Depression, government spending was 20.66% of GDP. Not a whole lot by today's standards, as 2008 saw direct spending of 36.59% (guesstimated on the site), but about double the percentage of 1929. Doubling government spending was indeed a shock at the time.

As a vignette of Mr. Keynes makes clear, shock value was very important to him. He was all-around an economic shock jock, as his disciple Paul Krugman puts plainly. Shock is what makes Keynesianism work: the shock of a sudden expansion of government spending in the private economy.

We seem to remember a quote from President-elect Obama (although we cannot remember the source) stating that whatever Mr. Krugman wants, Mr. Krugman will get. He's the Nobel laureate, after all... and he's screaming, "spend!"

Right now, though, the so-called 'economy' of the United States is already about 40% government spending. The "jump-start" effect that Keynesianism looks for may require a doubling of government spending in an economy. At the same time, the United States economy is shrinking rapidly... so the end result of a proper Keynesian shock could leave the U.S. government as 100% of the economy, give or take.

Does this new Congress, or the President-elect, or both, have the political will to turn this country into a new Soviet Union? We truly do not know, but if the economy became the government's, the United States would be as Red as Red could be.

The Impact of Government in a Shrinking Economy

Volumes have been written on the effect of government spending on economic growth. Observers of nearly all political persuasions (anarchists and totalitarian communists aside), believe there is an optimum point of government involvement in an economy. An economist by the name of Richard Rahn came up with his eponymous curve which attempts to use empirical data to plot growth rates in GDP versus government spending as a share of GDP. Unfortunately, Mr. Rahn's methodology's scientific efficacy is debatable, but it is intuitively obvious that there must be some point of optimum (if it isn't intuitively obvious consider this: in a state where there is virtually no government spending, economies collapse as crime and piracy run rampant - e.g. Somalia; and when government makes virtually all the economic decisions you end up with another kind of failed economy - e.g. the Soviet Union).

All other things being equal, the spending of governments would tend to fall along with the economy in the 2007 Depression. As income declines, so do tax receipts. States of the USA have to balance their budgets (more or less) and so must cut spending to match the decline of taxes. The US Federal Government (along with most other national governments) has no such restraints, and much is being made at present of how much deficit spending to make to 'help' the economy. Could too much government spending go past the point of 'help' and into 'hurt'? How much of the economy can be in the government's hands without collapse setting in?

The EU government spending as a percent of of GDP has tended around 50%, while by comparison, the USA has tended around 40%. If the OECD economies contract by 50% and government spending does not shrink along with it, the percentages will rise to 100% and 80% respectively. Obviously, this is well past the optimum.

At some point into the 2007 Depression, governments will likely be forced to shrink. This will not be a matter of libertarianism, but of practical economics. Painful choices will be made, some of them critical. Health care, education, national defense, police, fire departments, food stamps, pensions? Where will the axe fall?

Is Medical Care a Necessity or a Luxury?

We do not propose to answer this question on an ethical basis, but on an experimental one. We believe that the 2007 Depression will cut into incomes so severely that social observers may get an answer to the question based on patterns of spending cutbacks.

It is irrelevant whether medical costs are paid out-of-pocket, through insurance schemes, or by a government. In the coming years there are going to be severe budgetary constraints at all levels in society from the household to the United Nations. Whether the decisions are made individually or politically, the issue of whether to spend on medical care is going to loom ever larger.

This also raises the question: if medical spending is to continue, what spending will be sacrificed? Obviously, goods and services which are noncontroversially considered luxuries such as travel, dining out, and entertainment may be first in line to the scaffold. After that, electronic and durable good purchases may be deferred or forgone. Then we are getting into the 'meat and potatoes' - necessities.

The USA has, notoriously, the most expensive and least broadly available health care system in the world. If the same or more money is spent, will the USA become a nation of people metaphorically taking each others' blood pressure? In 2008, Medical spending was 17% of GDP. If GDP falls 50%, will medical spending become 34% of GDP? Or will priorities change?

If the axe falls on medical spending the implications are quite dramatic. Workers and investors in the industry have been used to steady (often lucrative) work, and reliable returns. What will the consequence on consumers be? Will even more Americans find themselves uninsured and without access to anything but the most primitive services?

Many questions...with many answers forthcoming in the years ahead.

The Doom of Air Transport

One or both of two things is going to happen in the very near future: kerosene is going to become a lot more dear as light, sweet crude fades away to the specialty corner of refiners' crude oil menus; and most of the people now flying or sending cargo by air will become too poor to afford the luxury.

The implications of this are devastating for a huge chunk of the developed world's economy. Aside from the airline and airport industry, the pain will be felt most acutely in regions dependent on air tourism, and airplane building.

According to the Boeing company, air travel has been growing even faster than World GDP. When World GDP shrinks as we expect, air travel can be expected to shrink much, much faster as GDP shrinkage will likely be skewed towards OECD countries who are the primary users of air travel.

Losses can be expected to pervasive and vast. Airports themselves represent hundreds of billions (maybe trillions) of dollars of sunk capital. That capital supports a great quantity of municipal bonds, and the income of investors who depend on them. The collapse of air transport should prove quite a bit more economically disruptive than the failures the 2007 Depression to date, even including the likely end of the 'Big 3' auto makers.

Of course, it will all come as a 'surprise', and 'No one saw this coming,' will again be the refrain. We wish we could say, "You read it here first, folks," but people have been warning about the demise of air travel for decades. If these Cassandras had been listened to, the USA would still have a decent passenger rail system.

It's a good thing boats use the left-overs from refining oil...