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.

The Unexpected Weakness of the Recovery

Our title today comes from a phrase ripped out of context from a recent Wall Street Journal article. The article itself is not important, but the assumption of the phrase was just too rich for us to pass by uncommented upon.

As discussed copiously elsewhere, a propaganda campaign of gargantuan proportions has been unleashed upon the world's populace. The term perception management sums it up nicely. The basic idea is that if people are confident, they will consume. If people will consume, there will be 'work' to do. It is an effort to restore society and the economy to the defined norm of 'the way things were until about two years ago.' Whatever an individual sees or experiences to the contrary (especially unemployment and homelessness), is to be disregarded in favour of the consumerist paradigm.

Almost everything you read or hear will be attempting to reinforce the notion that the recent (and thankfully over) financial and economic crisis was just a bump in the road to ever greater prosperity.

Whether there is a vast conspiracy orchestrated by the Ministry of Truth, or whether it is merely the unconscious coordination of wishful thinking is immaterial. This informational miasma is deadly and if one wants to make it through the Depression without being too battered, one had best learn to recognise the disinformation, not get sucked in, and think straight instead.

The unhappy reality is the Depression is still on and it is going to get worse - a lot worse. Incomes are still falling. It doesn't matter that stocks are recovering or house prices in Australia are hitting new highs. In terms of purchasing power, aggregate incomes are going to be falling for a long time and everyone had better get used to that fact. Tragically, the more the truth is evaded (whether deliberately or otherwise), the worse off everyone will be.

Inflation Coming Soon?

We hold up USA Today as the ultimate sign of what is not, in fact happening. If the rag says to do one thing, we know it's a bad idea; if it says that something is happening, we know it isn't. Which is, as an aside, how we expect to know the bottom of the 2007 Depression is in: USA Today will be screaming that the end is near and everyone is going to die... metaphorically speaking.

That is all a bit arch, of course, but you get the idea. As a for-profit company of popular persuasion, USA Today and other information sources have to amend what they publish in order to maintain mass appeal. The public at large does not want to read or hear especially gloomy news, which is probably why our Depression Gazette will never hit the big time. USA Today, as long as enough people feel it provides the desired style and quality of information, will continue to limp along.

Limping along, however, does not make what the company prints actually accurate. And in that vein, we present this article from USA Today, which spews some very impressive fallacies about the nature of inflation. We recommend reading the article with popcorn, as it is quite a laugh, but we'll take on some of the most egregious errors.

"If inflation does hit, it won't be this year, barring a major jump in oil prices or a drastic change in government philosophy." We wonder how oil prices cause inflation. Additionally, according to ShadowStats.com, the Federal Reserve is printing physical money (i.e. growth in the M1 Money Supply) with abandon. That trend is about as iron-clad a guarantee of inflation, at some point in the future, as one can get. Indeed, the USA Today writer himself writes "The ultimate cause of inflation is an unwarranted increase in the money supply."

"...Unemployment... [is] 9.4% now and widely expected to break above 10% this year."Again according to ShadowStats.com, unemployment is cooking at well over 20% and rising sharply. We personally expect to see 25% unemployment be a reality sometime very soon, if that level has not been hit already. That's not to say that particular non-fact is necessarily the writer's fault, though: it's an artifact of the purposefully inaccurate and under-reporting nature of Government statistics.

The best part, though, was this:

If you're worried about inflation rearing its ugly head soon, relax... You don't get inflation in an economy that's as slack as this one... Inflation just isn't going to happen in this economy.

"A lot of the worries about immediate inflation are examples of financial illiteracy," says David Wyss, chief economist for Standard & Poor's. "You won't get inflation until the economy gets back, and that's at least five years out."... To get to inflation... you need a humming economy, and the [U.S.] economy is barely breathing.

Oh, where do we start, dear Reader? How do we assail such a monument to stupidity? To say that inflation cannot happen except in a 'humming economy' is like saying... oh gods, we don't know! Words fail us utterly!

So instead, we would like to take a trip to reality for a moment and provide an example: Zimbabwe. Zimbabwe's economy has not been truly 'humming' since it was a colony of the British Crown (pre-1965). In fact, it has been in negative 'humming' since 2000 (source), and official unemployment in the nation is now a horrifying 94%. Yet this nation is experiencing an inflation rate so high it is effectively meaningless: 231 million percent annualised. It is lunacy - or perhaps misinformation - to say that inflation requires a 'humming economy' to take place. Zimbabwe is chilling proof of the total untruth of such an assertion.

These errors we've expounded upon, plus a few more, are shockingly out of character with the rest of the article, which is fairly sober and accurate. The writer seems to be going out of his way to drive home his fallacious definition of inflation, and we can only wonder why. Whatever the case, though, we take this as a sign for the contrarians: inflation this way comes. And soon.

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.

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.

Slow Versus Fast Collapse

In the information economy, knowledge is valuable. If one can fine tune one's production to match market demands, one's operation will be more efficient and profitable. But now, across the world, management information systems are flashing "negative growth, liquidate, liquidate!" and managers are responding appropriately. This, in brief, explains the crash-like environment the world's economy is experiencing. One might call it "panic at light speed."

In the coming years as economic decline is compounded with various stresses (such as peak oil, overpopulation, pollution) piling up, does the world risk a fast crash back to the Stone Age? We think not.

All the crashing going on is also opening up opportunities. Necessary investments are being deferred, and at some point in time not too distant, it will become glaringly obvious to make them - at least to some. New technologies, and just plain changes of taste will also open up all sorts of new opportunities. Investment goes on, and economies will hobble along.

We are not saying that the economy as a whole will necessarily be able to grow. Just that enough opportunities for profit will exist to keep the civilisation more or less intact.

Is The Media Crying Wolf?

Since the present epoch is 'The Information Era,' and the economy is the big story of the moment, there is now abundant commentary on the "Deepening Recession." The question of whether the world may be in for a depression has now hit the mainstream.

Given the mainstream media's poor track record of appropriate attention to what is truly relevant, legitimate questions arise: "Is this recession thing just media drum-beating - a 'media event'?" Is the economy even that bad? Or are things actually much worse? Could it just be that it was a bad downturn, but now that it is getting so much press, one can figure the worst is actually over?

Our opinion is that things are actually much worse, and that the bad news will be 'spoon fed,' and not so much as a result of some sinister conspiracy as from the cycle of denial, confusion and slow recognition of conditions as they are.

The essence of the 2007 Depression, like depressions before it, is falling income - whether through pay cuts, unemployment, or lower returns on investments. Falling income sets off a vicious cycle of economic contraction as households spend and save less, tax receipts fall, and organisations invest less - further reducing what will become others' income.

An economist whom we admire, a Mr. Williams, presents a strong case that the USA has been in recession since 2000, and that government statistics to the contrary are unreliable. You may read more about this at his website. If the USA has indeed been contracting economically for the past seven years, then the apparent prosperity was most definitely a bubble. Its crashing down now is only the reality that a shrinking economy cannot support exaggerated consumption.

There is a great deal of productive capacity in the human race and its artifacts. Income is flowing from this capacity, but one must learn to live within and not beyond one's means. When this story is the top of the news, then you will know the worst is over.

Introduction to the Depression

In both good times and bad, good information is a valuable asset. This is especially true when it comes to economic decisions, such as where to look for work, what jobs to do, what to invest in, where to live, and so on. Good information is needed for good decision-making, and from there one can build healthy personal finances; bad information can reverse years of hard work and careful planning.

When times are good, like what the United States have enjoyed until a few months ago, unfortunate decisions can be corrected relatively painlessly. In good times, a lost job can be replaced with a similar one in a different city. Failed investments can be rebuilt within a reasonable amount of time.

However, that was until just a few months ago. Now circumstances are quite different. The information one finds tends to be muddled, confusing, and just plain wrong. In this economic turmoil, unfortunate decisions are much more harmful to personal finances. Good information is more important than ever before, and is a scarce resource.

It is with this blog that we hope to provide good information to the public. We also intend to help enlighten you, the Reader, about the truly grave economic situation. The present economic downturn is not, as some claim, a mere correction with renewed growth to follow soon. Rather, this is the start of a new Great Depression. Furthermore, unlike the Depression of 1929-1939, this one is not an interruption of continual economic growth, but the first of a series of economic contractions lasting the rest of our lives.

Do not think, Reader, that we say this lightly. We are no doom-and-gloomers; we do not believe industrial civilisation is coming to an end, only changing form to fit new realities. The details we will get into in later posts, as well as advice about adapting on both personal and professional levels.

We are hopeful that society and the economy can adjust smoothly. To help this process, we hope to be level-headed voices of reason and optimism. Good information will be vital to make the choices needed to thrive.