Some Thoughts on 2010

So we took off the last bit of 2009, and the first bit of 2010, and after coming back to it, we realise we still have nothing in particular to say. That, however, has never stopped us before, so we look forward to another year of fun and games on the world scene, as the 2007 Depression rolls on. Since 2010 is still figuring out which way is up, we thought we'd offer some ideas as to how the year is going to look.

Previously, we called 2009 the Year of the Whinger; boy, were we ever right (insert back-patting here). The banks whinged, and got money; the health insurance companies whinged, and will probably get money; the auto manufacturers whinged, and got money; the home-builders whinged, and got money. Come to think of it, the only people who whinged and were ignored was the Citizenry, of the various countries which forked over said money, who really didn't want all the aforementioned whingers to get all that money. Oh well, they don't know what's best for them, now do they? Don't they know that they need autos, and health insurance, and banks, and home-builders? Why, what would a modern economy look like without these centrepieces of industry? Perhaps they'll learn better.

At any rate, this year, 2010, is certainly shaping up to be quite the doozie, what with the U.S. Treasury removing - not raising, but eliminating - the cap on how much money can be poured into the haemorrhaging enterprises known as Fannie Mae and Freddie Mac. Additionally, justice has been thrust to the side, with a U.S. judge throwing out a murder case against Blackwater agents (i.e. U.S. mercenaries), because the Government prosecutors botched, perhaps purposefully, the case. And the U.S. Transportation Security Administration is hounding a pair of bloggers who published the details of supposedly super-secret security directives. Say that last part ten times as fast.

But what will 2010 be, you ask, dear Reader? Well, we're getting to that. 2009 saw corporate powers across the globe - but perhaps most spectacularly in the United States - with their collective hands out, begging to be kept from going under. At the same time, we see that being the point where those same corporate powers have cemented their control over the Governments which gave them the money, to the detriment of the Citizenry to which a Government is supposedly responsible. This year, we see the fallout of that move start to make itself evident.

Simply put, the moves, for instance, by Goldman Sachs in the U.S., are of such a patently, and odiously, self-serving nature, it doesn't take a genius to figure out the Citizenry has gotten screwed so that Lloyd Blankfein can keep his $43 million a year for doing God's work - oh, we wish we had thought of that one! At the same time, we have a sneaking suspicion that the world markets will take their next big nosedive toward their final destination, which is a 90% drop or so from the peak.

Do you hear what we hear? Yes, the gnashing of teeth: those who got bailouts will grumble they did not get enough bailout; those who will pay for all the bailouts will grumble about how there is already too much slop in the trough. Both sides will be gnashing, and foaming at the mouth; take a look at the latest bailout of GMAC, as an example of what we're talking about. There will be many, many more bailouts, and we would like to be on record as saying this is the year the FDIC will need a direct bailout to keep operating. Ted Butler, we hear, recently stated that 2010 is the year when JP Morgan Chase closes its heart-stoppingly humungous silver and gold short positions; we'd like to put ol' JP on that list of bailouts-waiting-to-happen, too.

Simply put, this will not be a pretty affair, and might indeed result in the civil unrest which James Kunstler and Gerald Celente have been ranting about for about a year already. It could certainly result in the loss of legitimacy of the most bailout-happy Governments, as their respective Citizenry will see continued, extremely unpopular, bailout-age as a sign those Governments are no longer responsible. History has shown that, when Governments no longer seem responsible, they tend to become quite despotic and oppressive, to keep an increasingly restive population under control.

So, we posit two trends: the teeth gnashing on the part of corporate interests, screaming for another series of big bailouts, to ensure their primacy in a depressionary economy; and the teeth gnashing on the part of Citizens, riling against both the previous bailouts, and new bailouts being forced down their throats. Governments will respond to these two, conflicting demands by funnelling vast amounts of money, either directly or indirectly, to their corporate masters; whist simultaneously increasing the bread and circuses for the masses to keep them placated and obedient.

There you have it, then, dear Reader: 2010 is the Year of the Teeth Gnashers. The two different poles of the gnashers - i.e. the Citizenry and the corporate elite - will attempt to pull on Governments to be aligned more strongly with one, against the other. Unfortunately for the Citizenry of the world, they have already lost this fight, probably a long time ago; the corporate interests have the field, as it were. If those interests are smart, which they might or might not be, they will recognise the need to maintain the illusion that Governments are still responsible to the Citizenry, and make token gestures of hollow sacrifice. This, coupled with a sharp uptick in bread and circuses, will likely be enough to keep the Citizenry of the world in check, and docile.

We would like to make it clear, though, that we don't quite see massive civil unrest, a la James Kunstler or Gerald Celente, happening this year. This is not to say the possibility isn't there, of course - the 18th Century French aristocracy assumed the rabble would simply take their lumps, as it were, but those same aristocrats all had their heads chopped off during the Revolution. However, we feel that Governments will be able to maintain the illusion of responsibility to their respective Citizenry through most, if not all, of this year. Next year, 2011, we think all bets are off; we could see that being the year when even major OECD Governments start to loose their aura of faux responsibility.

However, if civil unrest does occur this year, it will likely be in those countries where the Citizenry has a long and noble tradition of taking to the streets. France, Greece, and Italy, for example, are the most likely, in our mind, to see some form of uprising, along with Spain and Portugal. The United Kingdom is a lesser possibility, along with the rest of the core counties of Europa (i.e. Germany, et cetera); Canada, Australia, Russia, and Brasil are not likely to see revolts, as those populations are either relatively docile, or well-policed. The United States, as the most docile and beaten-down country on the planet, will almost certainly not see anything resembling unrest. China, though, is the wild-card, in our mind: it will either have no problems whatsoever, thanks to the famous heavy hand of Communism, or it will completely blow to pieces, taking any mirage of a recovery down with it.

We end with a little tune, sung to Old MacDonald Had a Farm:

Ol' Lloyd Blankfein had a trough,
E - I - E - I - N!
And in that trough he poured some slop,
E - I - E - I - N!
And some slop! slop! here, and an oink! oink! there,
Here some slop, there an oink,
Here some slop, there an oink!
Ol' Lloyd Blankfein had a trough,
E - I - E - I - N!

Ol' Lloyd Blankfein did God's work,
E - I - E - I - N!
...et cetera...

Households at the Edge

According to a recent survey, many people would find it impossible to raise just $2000 in 30 days from any source - savings, credit, family, friends, etc. - in a pinch. The table below is extracted from the article, which is well worth reading.




The results are shocking to say the least, especially for the USA - supposedly the "richest country in the world." $2000 is not a lot of money when one aspires to a middle-class lifestyle; it could represent the cost of car repair, a home repair, a minor medical problem, and so forth.
These sorts of things crop up continually.

Mexico is no great surprise, but the fact that the UK, Germany, and the USA (all supposed major economic powers) rate worse than Argentina - a country with serious issues in its struggle to remain prosperous and civilised - should be cause for concern. This survey, if accurate, indicates that not only are half of UK, German, and US households there essentially broke, but most of the other half is so frayed financially they are in no position to help out poorer friends and relations; or perhaps simply socially support networks have collapsed. In either case (and both could be true) the situation is terrible.

This is not the sort of economic information we would like to see near the beginning of this Depression - and yes, we are still early on in this thing. Faced with falling income and no standby resources to fall back on, it is clear that more and more supposedly 'middle class' households are going to sink into financial ruin merely from routine financial stresses.

Our advice to our readers is simple: make sure you are living well below your means; that your net worth is rising and not falling; that you have ample financial resources (savings, lines of credit, willing friends or family) to draw upon should the need arise. This is serious stuff - it may require you to drop many of the trappings of middle class life in order to prevent ruin.

There are ample horror stories out there about people who discovered 'middle class poverty' by not changing their spending habits in the face of income loss. Typically they expect "something is going to happen" to fix their deteriorating situation: a new job; selling the house; etc. But that "something" never happens.

More and more, what were for many once reasonable expectations - say, getting a full-time job - are going to be as likely as having a winning lottery ticket. In a nutshell, this is why getting through the Depression is going to be about survival. Don't delude yourself; ignore the blather on the telly; get real about what is happening.

Ireland Blows Out

This article from the Telegraph speaks volumes. A few highlights: at one point during the boom, 1/5 of all workers were in construction; Ireland now has 350,000 empty houses (for a population of 4.2 million); house prices are expected to fall by 80%; there are 16,000 taxis in Dublin - a city of 500,000.

In high relief for all the world to see, Ireland's mania has gone completely to bust. The former tiger of the Eurozone is now a basket-case. If ever there were a case of classical economics at work, it is here: the Depression is a natural consequence of the mania that proceeded it; and the greater the mania, the greater the depression.

Just as the harlots enter the Kingdom of Heaven as the avant-garde, so Ireland will lead the nations that relied too much upon the FIRE (Finance, Insurance and Real Estate) Economy straight to economic Hell. In her train are the United Kingdom, and the United States. Perhaps Australia and Canada will escape the worst because they actually still produce things that people want - though this is looking increasing less likely since the world seems to be entering an 'all-fall-down' depression.

Sovietisation Revisited

A recent article in The Sunday Times (UK) discusses creeping dependency on the public sector. In previous posts we have discussed the problem of government spending in a declining economy, and the concern that government's share of the economy may go past the optimum.

It is clear that, at least in large parts of the U.K., things have probably gone well past the optimum. In Northern Ireland, for example, the state controls 77.6% of spending. We are reluctant to 'push the red', but it is looking like the U.K. is heading for economic collapse along the lines of the Soviet Bloc in the late 1980s and early 1990s.

Economies can only function properly if there are many decision makers. If economic decisions are concentrated in the hands of the state, inefficiencies are too great for the system to gainfully employ the population. One need only to look at the history of the Soviet Union to see the failure of that direction.

If these were saner and more rational times, perhaps Britain's demise could serve as a warning beacon to nations contemplating expanding their public sectors. Unfortunately, the siren song of 'stimulus, stimulus, stimulus' sounds too loudly in the ears of the citizenry.

Watch the Vultures Choke

With the stock markets of the world looking like so many corpses across the financial desert, the vultures are beginning to circle. They fancy they smell a mighty feast, and in their minds they'll soon be dining on the choicest meats available. With beady eyes fixed upon 'investments,' they feel the markets are dead enough for them to safely swoop in.

For instance, we present this piece from the Financial Times:

"Vulture funds believe British companies will offer the best investment opportunity in Europe this year, as the country faces a sharper slowdown than its European neighbours. A poll of the funds, which invest in financially distressed companies, ranked the UK ahead of Germany, France and Russia."

Although we don't know the future, we can read the handwriting on the wall, and we suspect these vultures are falling into a value trap (see this previous post for more on such traps). Frankly, the markets haven't crashed nearly enough for our liking, and in the United Kingdom, they have a really long way to go. No 'asset' is anywhere near its bottom, especially in nations like the U.K. and the United States.

We posit that these vultures will move in swiftly and with great fanfare, patting each other on the back for scooping up 'bargains of a lifetime.' Soon thereafter, we expect the world markets will take yet another hard nosedive. The 'smart' money will be wiped out, and the carcasses of the vultures will join those of their supposed feast.

In this economic climate, we suggest it is better to be financial jackals. One shouldn't just wait until the prey stops moving: one should let it sit and rot for awhile. Jackals find that foetid meat aids the digestion... and so will it aid investing.

Twilight of the United States?

We've been reading quite a bit recently about the U.S.S.R. Morbid curiosity? Perhaps, dear Reader, but not without an ulterior motive: Soviet Russia was the last major, industrialised nation to have a catastrophic meltdown. That's not to say we necessarily expect such a thing to happen here... but it's wishful thinking to say 'it can't happen' in the United States, or the United Kingdom, or the Eurozone, et cetera.

Such comparisons are not without their merit, especially as the government spending of the United States and United Kingdom are becoming ever-larger percentages of those nations' respective national economies. Large percentages of government spending in GDP are hallmarks of socialism... but if the government is the entirety of the economy, that's soviet socialism.

This potential transition is seen in moves like the U.K. nationalising the Royal Bank of Scotland, or the U.S. taking over Fannie Mae and Freddie Mac. Quantitative easing and monetisation of debt can bee seen as further steps towards sovietism. Perhaps the final nail in that coffin is the comment by Dmitry Orlov, that President Obama is America's Gorbachev. Mr. Orlov is a smart man, and he saw the post-Soviet collapse first-hand. We take him seriously.

Tragedy, or Farce?

With the latest joke rolling out of the Zimbabwe Central Bank, we wonder why such ridiculousness is able to thrive so long. In all honest, we feel that a $100 trillion note is probably Farce, but we really cannot be certain.

The history of Zimbabwe is most definitely one of Tragedy: a nation in continual economic collapse, aided and abetted by non-stop embargoes brought on by the United Kingdom and the United Nations, among others. The fine, upstanding governments of the world really know how to dole out "change," don't they?

It seems in history that every Tragedy has a correlating, and larger, Farce. In this case, the Farce is the embargoers -- the United States, the United Kingdom, the European Union -- following in the footsteps of the Tragedy they helped create. Many policies, such as price controls and rapid expansion of national money supply, have been well-tested by Zimbabwe's central bank.

In the flaming tailspin of the 2007 Depression, this collection of nations are flirting with the very same financial policies that Gideon Gono used to make Zimbabwe's hyperinflation-from-Hell. As the Wikipedia article notes, perhaps ironically, Mr. Gono is a "proved deflation-fighter." Mr. Bernanke, of the Federal Reserve, M. Trichet of the European Central Bank, and the Rt. Hon. Mr. Darling of the Bank of England are all working to fight deflation, as well.

They might not have noticed, but they're following in the footsteps of a failed nation.

Dark Clouds over the Eurozone

In a wee little article, Bloomberg released the news that the United Kingdom will not be allowed to join the euro. As a friend of ours noted, the shorter the article, the worse the news. In this case, it means that the European Union is going to let the pound sterling hang in the wind, as it were. This will not be good for the pound, of course. One of the big hopes for the pound was the possibility for exchanging them in for new, shiny euros.

British Parliament, figuring they have nothing to lose, is deliberating on whether or not to loose the dogs of war: quantitative easing. By allowing the Bank of England to delay its reporting of the amount of money it's pumping into the U.K. economy by a month or so. It's not like the Bank knows what it's doing anyway, but this move ensures the pound sterling will die a screaming, hyperinflationary death.

As if to rub salt in and rub sandpaper over the festering wound is this charming piece from the London Times. The action of taxing savings accounts will amount to nothing more but confiscation, a rape of savers in order to 'restore prosperity.' We suppose the mindset is, 'if you won't spend it, we will!'

Although this problem is presently only the United Kingdom's, it is not isolated from the rest of the Eurozone. If it appears that the Bank of England's efforts are working, the rest of the European Union will not be far behind in implementing similar policy. As central bankers are a reactive lot, and not anticipatory, the Eurozone will not see the doom of the pound sterling -- and indeed the euro itself -- until hyperinflation has already murdered the currencies.