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News Across the Spectrum that May Help Explain the Mess We're In. Or Not. |
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Post Election Rant, November 12, 2008 |
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Dear Peacemakers,
In the wake of such an historic election the task at hand is to continue to pay attention to facts on the ground. Despite Obama's overwhelming victory in the electoral college and so many key Red states turning Blue, 47% of the electorate is against what ever it is that Barak Obama and the Democrats hope they are going to accomplish over the next four years. The one question that both McCain and Obama consistently dodged during their debates was "to what degree are you going to have to give up your promises based on the economic realities you are going to inherit?" Let's take a look at what some of the important numbers are that are going to turn our next Commander in Chief into the Janitor in Chief.
The most staggering of them all is the amount of Mortgage Backed Securities that have been sold. These are the economic weapons of mass destruction that Warren Buffet talks about and that George Soros refused to buy because he didn't understand them. The IMF puts the number at somewhere around $1.2 quadrillion (yes that would be over $1,000 trillion dollars). These are mostly pieces of paper based on houses that became way over valued as investors mistakenly assumed that the "home as castle" always increased in value. Housing was chosen by Alan Greenspan as the economic sector to throw money at (through low interest rates) because so many US jobs have been sent overseas. It was the only area in which lots of jobs could be generated here in the US where the houses were being built. Then, surprise surprise, it got to the point where so many houses were built that they couldn't sell them any more. The problem was compounded by home owners who borrowed money against their houses which, at the peak of the housing boom, were worth much more on paper than they were in reality. Everybody was borrowing and spending and borrowing and spending and then when people had to start paying back money they didn't have any more it all started to fall apart. This is where the next scary number comes in--the Credit Default Swap (CDS) market which is worth $62 trillion.
CDS's were originally meant to be an insurance policy on an investment. If the company you invested in fell apart you could still get your money back if you had a CDS. A lethal transformation took place along the way that made a CDS nothing more than a bet that a company would fail. As companies failed and the bets had to be paid the CDS market also fell apart as the companies that wrote the policies could not pay them all back. This process is still in motion and it is why Lehman Brothers failed and why AIG has been given, so far, $150 billion.
The next scary number is the National Debt. While the big news last month was that the National Debt clock in Times Square had to have another digit added as it went from $9 to $10 trillion the untold story was that the actual National Debt, according to David Walker (former comptroller general of the US) was closer to $60 trillion after factoring in unfunded mandates in social security, Medicare, the Global War on Terror, and the bailouts of Fannie Mae, Freddie Mac, AIG, and the entire US banking industry.
This next scary number destroys the myth that the US is the world's strongest economy. That would be the Current Accounts Deficit otherwise know as the balance of trade. It is how much money leaves the US buying things from other countries as opposed to money coming into the country from us selling things. Out of 188 nations the US is in last place with a $731billion deficit (2007). This is because only 11% of the Gross Domestic Product (GDP) comes from manufacturing while 70% comes from consumer spending. We simply don't make enough things of value in the US. All we do is spend mostly using our houses as ATM machines and credit cards. The bottom line of the current problem is that a great deal of this spending has stopped.
Add in US credit card debt of $880 billion and you get the picture. As a nation we are absolutely and utterly broke. These are the facts on the ground that President Obama (or McCain if it would have gone the other way) will have to deal with over the next four years. And there is absolutely nothing anyone can do to fix it and keep the global community from descending into a worldwide depression that will be as severe as anything history has ever seen.
All Ben Bernanke and Hank Paulson have been doing to try to fix it is create MORE debt through the sale of US treasury bonds (basically borrowing money from the rest of the world to the tune of $4 billion every day) and creating money out of thin air by increasing the money supply. What this does is make every dollar created worth less and it is why the cost of everything keeps going up. When the value of stocks, bonds, and housing finally comes back down to more historic, realistic levels (which in the process will create massive unemployment) so many dollars will have been created that they won't be worth anything. It is where inflation runs rampant. The government is currently telling us that inflation is at 6%. They are lying. When historic methods of measuring inflation are considered the rate is closer to 14%. It is looking like all of this may take a decade or longer to get back to anything that can be recognized as close to "normal". We will soon see the entire country looking like the post Katrina Gulf Coast where it is all broken and there is going to be no cavalry coming in from the outside to fix it.
This is where nonviolence and loving our neighbors is the only thing that will save us. Back in the 1930's men stood in orderly lines for hours at a time wearing suits, ties and fedoras looking for work and food while women stayed home (or wherever they could find to live) and took care of the children. It was grim but there was a certain civility that kept it all from descending into total chaos. After the last six months of political campaigning that can only be described as bitterly ruthless it is not hard to imagine things getting out of hand as people become increasingly desperate. It is for good reason that the US Army is in the process of bringing back combat brigades from Iraq to be stationed in American cities to help keep the order.
The sooner we begin to work and plan together no matter who we voted for the better our chances of getting through it all in one piece. We are going to need each other like never before. The question is are we up to the task?
Mike and Barb
Northwoods Peace Initiative
These stories are very important as they show how macroeconomics begin to influence main street. They are all about how global shipping is slowing to a standstill. No shipping, no manufacturing, no selling, no buying. This is where the rubber meets the road (or not)
`Biggest Bubble of Them All' Is Globalization: Chart of the Day
"The 90 percent tumble in the global benchmark for commodity shipping costs since May exceeded the Dow Jones Industrial Average's plunge during the Great Depression, signaling globalization is ``the biggest bubble of them all,'' Bespoke Investment Group LLC said." And here are the graphs to make it clear.
The Shipping News Suggests World Economy Is Toast: Mark Gilbert
"In the third quarter of 2007, Volvo AB booked 41,970 European orders for new trucks. Guess how many prospective purchases Volvo, the world's second-biggest maker of heavy rigs, received in the third quarter of this year?Here's a clue. Picture a highway gridlocked by 41,815 abandoned trucks -- because Volvo's order book got destroyed to the tune of 99.63 percent, with customers signing up for just 155 vehicles in the three-month period, the Gothenburg, Sweden-based company said last week."
With spot rates plunging, rumors are swirling that owners are idling their ships.
"Private dry bulk shipping companies are anchoring their ships as spot rates for the largest Cape-size vessels plunge. If prices continue to head south, it’s only a matter of time before the public shipping companies follow suit."
This is why Paulson had a press conference today. The banks aren't using the bailout to start lending. They are getting ready to buy failing banks or sit on their handouts in case the economy really gets bad.
So When Will Banks Give Loans?
In point of fact, the dirty little secret of the banking industry is that it has no intention of using the money to make new loans. But this executive was the first insider who’s been indiscreet enough to say it within earshot of a journalist. “Twenty-five billion dollars is obviously going to help the folks who are struggling more than Chase,” he began. “What we do think it will help us do is perhaps be a little bit more active on the acquisition side or opportunistic side for some banks who are still struggling. And I would not assume that we are done on the acquisition side just because of the Washington Mutual and Bear Stearns
mergers. I think there are going to be some great opportunities for us to grow in this environment, and I think we have an opportunity to use that $25 billion in that way and obviously depending on whether recession turns into depression or what happens in the future, you know, we have that as a backstop.”
Don't believe what the "experts" are saying? Here's what they were saying in the 1920's. Don't worry. Be happy
Iceland didn't see the fall coming either
Stunned Icelanders Struggle After Economy’s Fall
The collapse came so fast it seemed unreal, impossible. One woman here compared it to being hit by a train. Another said she felt as if she were watching it through a window. Another said, “It feels like you’ve been put in a prison, and you don’t know what you did wrong.” |
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