Marketwatch ran an article on Wednesday with the prominent tag line that the Fed says a "Second Great Depression has been averted." The headline was "Fed Breathes Huge Sigh of relief!" Perhaps the chairman should have a closer look at some actual economic data before he makes such pronouncements. Here is a link that clearly shows we are well into a Depression scale event, and tracking or exceeding losses sustained in the Great Depression.
It's too bad that the Main Street economy in the US isn't so cheery either. Foreclosures continue at a breakneck pace. California's situation was so bad they had to pass an emergency bill to freeze foreclosures for 90 days to try and stop the bleeding. But the Option ARM and Alt-A mortgage loan reset waves have only just begun. With the default rate on these loans already at 35%, just where is that number going when they all start resetting to higher monthly payments in the next 12 months? (Hint, through the roof).
Unemployment is also continuing unabated. California is at an official 11.8% U-3, which means the more realistic U-6 number here is well over 18% now. My guess is that we will have a U-6 of 20% unemployed nationwide by the end of 2009. Can anyone tell me where new jobs will come from? Don't expect the Real Estate market to chip in, as it will be a dead market for a decade. These numbers haven't been this bad since 1930-1931.
As unemployment gets worse, the last refuge of American spending, the credit card, is no longer an option. Cards are maxed out, and those that once had open credit had their lines reduced and interest rates hiked. Credit remains frozen on Main Street, and now you can't even transfer a credit card balance with JP Morgan Chase without paying a whopping 5% fee. No more using one credit card to pay another there.
All this points to no dramatic increase in "consumer spending," which is supposed to be 70% of the economy. So what it comes down to is that nothing has changed in housing, unemployment and consumer spending. Business can't get credit either. But hallelulia! The Fed has spoken and they say there will be no second Great Depression.
Yet the news from financial gurus was equally cheery in 1930, as headline after headline declared the worst over and a recovery imminent. So I'm not closing the book on "Great Depression II," nor am I heaving any great sigh of relief now. There's just entirely too much pain in the pipeline still, and this is while oil prices stay relatively low. Remember $150 oil? We'll visit those numbers again in the not too distant future.
It's too bad that the Main Street economy in the US isn't so cheery either. Foreclosures continue at a breakneck pace. California's situation was so bad they had to pass an emergency bill to freeze foreclosures for 90 days to try and stop the bleeding. But the Option ARM and Alt-A mortgage loan reset waves have only just begun. With the default rate on these loans already at 35%, just where is that number going when they all start resetting to higher monthly payments in the next 12 months? (Hint, through the roof).
Unemployment is also continuing unabated. California is at an official 11.8% U-3, which means the more realistic U-6 number here is well over 18% now. My guess is that we will have a U-6 of 20% unemployed nationwide by the end of 2009. Can anyone tell me where new jobs will come from? Don't expect the Real Estate market to chip in, as it will be a dead market for a decade. These numbers haven't been this bad since 1930-1931.
As unemployment gets worse, the last refuge of American spending, the credit card, is no longer an option. Cards are maxed out, and those that once had open credit had their lines reduced and interest rates hiked. Credit remains frozen on Main Street, and now you can't even transfer a credit card balance with JP Morgan Chase without paying a whopping 5% fee. No more using one credit card to pay another there.
All this points to no dramatic increase in "consumer spending," which is supposed to be 70% of the economy. So what it comes down to is that nothing has changed in housing, unemployment and consumer spending. Business can't get credit either. But hallelulia! The Fed has spoken and they say there will be no second Great Depression.
Yet the news from financial gurus was equally cheery in 1930, as headline after headline declared the worst over and a recovery imminent. So I'm not closing the book on "Great Depression II," nor am I heaving any great sigh of relief now. There's just entirely too much pain in the pipeline still, and this is while oil prices stay relatively low. Remember $150 oil? We'll visit those numbers again in the not too distant future.
