In spite of all the hardships of 2009, and those likely to continue in 2010, I wish you all a "Happy New Year." Yet 2010 will be a year of many challenges for the nation and our struggling economy. The intelligentsia of the nation, voicing itself through the Blogs on the Internet, long ago put an end to the fallacious notion that we were experiencing a recovery in late 2009. Even though the stock markets rallied, they are now so divorced from realities of the Main Street economy that the DOW or S&P 500 are no longer even remote indicators of our true economic situation. While both the administration and the mainstream news media will continue to talk about recovery, the nation will struggle on trying to find some traction in an environment where no recovery is really possible. How long can the manipulations holding the market up continue? Methinks reality bites soon, and the indexes will head into a steady decline.
The GDP numbers pundits sometimes point to as evidence of "growth" largely rest on the massive government spending--in effect, on more unsustainable debt. When will it ever be paid back? And how long can the government continue to simply raise its debt ceiling to fund programs aimed at breathing life into the economy? It is clear that the government, which represents only 30% of total annual spending, cannot in itself take over responsibility for the whole economy.
So what exactly will we recover to, a return to housing speculation and credit based consumption? A continuation of the astronomical debt accumulation that now threatens to swamp every level of our society? Who in their right mind thinks housing is about to make a dramatic recovery and begin appreciating at 20% or 30% as it did in the early boom years? Who in their right mind thinks commercial real estate is healthy, growing and appreciating in value? Answer: no one. I have seen no credible analysis that indicates any sustained recovery is underway or even possible for residential or commercial real estate. All the present effort is still in "bailout mode" for the banks. They quietly remove the cap for funding the bankrupt Fannie and Freddie, opening the door to more massive losses in these two great mortgage landfills. Banks have been busy wrangling with mortgage alteration rules, lobbying against "cramdown" loan modifications, buying securities and derivatives in the dollar carry trade, reducing credit lines and raising interest on credit cards--not lending.
Then where will the recovery come from, business growth? At the moment, business is so strapped for credit that growth is largely off the table, particularly in the small business sector that often relies on their own revolving credit to sustain operations. Are banks about to suddenly open their vaults and lend to small business that have little collateral and dim prospects for sales in the difficult year ahead? Of course not. Banks will continue what they have been doing, borrowing from the Fed at 0.25% interest and then leveraging back into derivatives. And without a sudden, and rapid expansion in the main street business sector, where will new jobs come from? (The temporary government hiring for the 2010 census will evaporate by year's end. Every job they "create" that way will be short lived and soon destroyed. ) With real unemployment at 22% in this country, how can anyone believe that we can get back to earlier levels of "consumption" to drive up business sales? It's a vicious circle. No sales-No jobs. No jobs-No sales.
Is there a new breakthrough in technology that will suddenly lift the economy from its doldrums? I would love to think that we could have a boom involving alternative energy for both cars and housing, but I just don't see any development of sufficient scale to have an impact on the economy. Sure, the electric cars will hit the streets soon, but only for those who can afford them, or convince a bank to lend them the money to buy one.
Put all this together and ask yourself what we are recovering to? As James Kunstler said in his first post of the new year: "Whatever you thought our economy was the past thirty years -- whatever model of it you have in your head -- that is definitely not what we are going back to."
Consider what this means... particularly if you run a store that sells nick-nacks to tourists. 2010 will be a year where necessity becomes the primary taker of all our disposable dollars. Yet, one still must have hope in that this necessity may be the mother of invention. What will replace the old consumer credit society? Give that some thought for 2010.
The GDP numbers pundits sometimes point to as evidence of "growth" largely rest on the massive government spending--in effect, on more unsustainable debt. When will it ever be paid back? And how long can the government continue to simply raise its debt ceiling to fund programs aimed at breathing life into the economy? It is clear that the government, which represents only 30% of total annual spending, cannot in itself take over responsibility for the whole economy.
So what exactly will we recover to, a return to housing speculation and credit based consumption? A continuation of the astronomical debt accumulation that now threatens to swamp every level of our society? Who in their right mind thinks housing is about to make a dramatic recovery and begin appreciating at 20% or 30% as it did in the early boom years? Who in their right mind thinks commercial real estate is healthy, growing and appreciating in value? Answer: no one. I have seen no credible analysis that indicates any sustained recovery is underway or even possible for residential or commercial real estate. All the present effort is still in "bailout mode" for the banks. They quietly remove the cap for funding the bankrupt Fannie and Freddie, opening the door to more massive losses in these two great mortgage landfills. Banks have been busy wrangling with mortgage alteration rules, lobbying against "cramdown" loan modifications, buying securities and derivatives in the dollar carry trade, reducing credit lines and raising interest on credit cards--not lending.
Then where will the recovery come from, business growth? At the moment, business is so strapped for credit that growth is largely off the table, particularly in the small business sector that often relies on their own revolving credit to sustain operations. Are banks about to suddenly open their vaults and lend to small business that have little collateral and dim prospects for sales in the difficult year ahead? Of course not. Banks will continue what they have been doing, borrowing from the Fed at 0.25% interest and then leveraging back into derivatives. And without a sudden, and rapid expansion in the main street business sector, where will new jobs come from? (The temporary government hiring for the 2010 census will evaporate by year's end. Every job they "create" that way will be short lived and soon destroyed. ) With real unemployment at 22% in this country, how can anyone believe that we can get back to earlier levels of "consumption" to drive up business sales? It's a vicious circle. No sales-No jobs. No jobs-No sales.
Is there a new breakthrough in technology that will suddenly lift the economy from its doldrums? I would love to think that we could have a boom involving alternative energy for both cars and housing, but I just don't see any development of sufficient scale to have an impact on the economy. Sure, the electric cars will hit the streets soon, but only for those who can afford them, or convince a bank to lend them the money to buy one.
Put all this together and ask yourself what we are recovering to? As James Kunstler said in his first post of the new year: "Whatever you thought our economy was the past thirty years -- whatever model of it you have in your head -- that is definitely not what we are going back to."
Consider what this means... particularly if you run a store that sells nick-nacks to tourists. 2010 will be a year where necessity becomes the primary taker of all our disposable dollars. Yet, one still must have hope in that this necessity may be the mother of invention. What will replace the old consumer credit society? Give that some thought for 2010.
