The U.S. economy will crash during the second half of 2009. Why?
By Daniel at 23 June, 2009, 1:41 pm
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
Look at the U.S. situation from the perspective of Milton Friedman’s annihilation of keynesian and the perspective of Austrian business cycle theory.
Milton Friedman proved that when governments increase spending, their spending increases weaken the economies of their countries, by taking capital from more productive private activities and giving it to less productive government activity. The severe and obscene spending increases of the hussein regime are causing the U.S. economy to weaken.
According to Austrian business cycle theory, the fed policy of too low interest rates is misallocating capital into real estate and from small manufacturing companies. America’s manufacturing base is eroding. The longer the fed props up real estate, the more severe the Depression America is entering will be.
According to government figures we have about 15 million unemployed in the country right now. At the current rate that will be close to 30 million by the end of the year (unless there is a quick and dramatic turnaround). If only 1% of them cannot pay their mortgage and are foreclosed, that costs the banks around $60 billion ($200,000 average mortgage and the average is probably higher!). If 10% of the unemployed have their credit card debt charged off for non-payment (at an average of $10,000) that costs the banks $30 billion. These are very conservative figures, but it illustrates the damage that unemployment is doing and can do. How many of the unemployed will eventually find jobs? Now, of the one’s who do find jobs, how many will be working for less money?
I have a friend who is a very qualified and experienced office manager. Her income was recently cut by 15% (she was glad just to keep her job). She was transferred to the company headquarters which caused her drive time (and gas expense) to more than double, so she has actually lost more than 15% of her income. She has three grown daughters who have needed help and one new grand baby. She is letting her Mastercard go because they raised her rate and she has decided she has to cut back somewhere. I would speculate that she has had a 700+ F.I.C.O. score for most of her life, until now! How many other people like her are out there and they don’t show up in government data until it is too late?
YES! Debt Issue
I don’t advocate defaulting on your debts, I’m saying widespread debt dumping rooted in insolvency can catalyze with political dissent into a neutron bomb that leaves no banker standing. The bad banks could conceivably be forced to fail by the people.
The bankers steal, they gamble, they pay bonuses today with money borrowed against future tax dollars earned by unborn grandchildren. They renege on their debts and bad bets with impunity.
How long before consumers refuse to play by rules that no longer exist all the way to the highest levels of government?
There may be a point where the adult population looks around and sees that almost everyone they know has ruined credit. At that point, defaults could explode as people decide it is futile to pay back debts if nobody else does.
Say credit card defaults go to 50% and 50% of mortgages go into foreclosure, would that be a tipping point or critical mass of widespread insolvency that could exponentially compound, finding expression in the realization that to refusal to cooperate with the confidence game would end the confidence game that is destroying the country.
What happens when people can’t play the game anymore? How long before there are so many losers in the game that those who still have the means to continue gambling in the ponziconomy refuse to play?
If everyone ends participation in the credit system, the credit system dies. If the suckers forsake the casino, the casino gets shuttered. Revenge against the suicide bankers by consumer debt renouncement could be an unintended result of Total ethical failure of US financial institutions and regulators.
The debts of the US and it’s citizens are not serviceable at current low wage and diminishing price levels.
US citizens could all of a sudden decide to act together and teach the gods of finance a lesson.
Americans are trained that the only way they can affect their universe is by altering their purchasing habits.
A credit boycott could have the same end as debt destruction through monetizing hyperinflation except banks die instead of profiting on the destruction.
Their is a real danger of an American revolution where people participate by doing nothing.
But then the fed gives ford $5 billion today and that will be to buy subprime car buyers because it’s portion of buying pool has grown substantially…the continuing saga of credit score destruction!
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
Related Posts:
Trackbacks & Pingbacks
- Pingback by The U.S. economy will crash during the second half of 2009. Why … on June 23, 2009 @ 4:35 pm
- Pingback by 3 ETFs for Q3 | The Traders Journal on July 1, 2009 @ 3:59 am
This is exactly why I don’t think we are close to getting out of this recession. The money is still not being put into the right venues and the accuracy of just how far in debt this country is has not come fully to terms yet. It’s only beginning. Though it depends on who you ask. There are two polls out that produced significantly different results. Check them out:
http://tinyurl.com/nqh6dh
Great article - I agree, this is the lull before the storm. It feels like everything is at a stand still right now and nothing is moving. You would think with a trillion dollar bailout we would be back in business. However, you don’t fix a credit crisis by taking on more credit. Any financial entities that do have revenue - that’s great. Unfortunately, many people don’t have jobs and/or collateral (gee, I haven’t used that word in years) to pay the loan back.
I too project that slowly but surely the majority of Americans will have to wipe their financial slate clean and chalk up their losses. After a year, I finally found a job making $9 an hour with an advanced degree. I remember telling my sister (prior to January) that the lending and credit systems are going to have to hit rock bottom and we start fresh. Well, it’s going to happen. Only now, we have a few trillion more to add to the pile thanks to our governing body. It was fatal that the U.S. took on more debt. Next on the agenda: hyper-inflation.
I followed the lead of the huge corporations that folded. If there’s no hope for them, there sure as heck isn’t any hope for the American taxpayer. The only thing I can think of is get rid of all debts and begin putting that money away in a place you consider safe. The government can’t even help itself anymore.
Humans are stupid animals, fighting each other physically, economically or politically, never a dull moment and never peace of mind, but they always want to pick a fight, justifying their belligerence on a juvenile belief that we have that instinct from evolution. Evolution is a myth, then why has the croc not evolved since the age of the dinosaurs (croc is the only surviving living dinosaur, and man came millions of years later). All the things that one needs to survive are free, but even those free things are now slapped with the $ to purchase…..clean drinking water for instance and land on which we have birth right to live on. The mechanisms of slavery have been installed to perfection for a long time without humans being slightest bit aware of the giant slave machine, and humans are trapped in it hopelessly. The air is becoming polluted increasingly and eventually we will be seeing clean air cylinders on sale in a few decades. I say, get out of this system while you have the chance and if you can, and don’t look back.