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Saturday June 27, 2009 07:25 AM CDT
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Life In Depression 2.0
I've been doing the research for this week's Peoplenomics.com Report (Meet "The Wall" Archetype) which deals with two very curious kinds of 'walls' that will become apparent over the next two months, or so. The first 'wall' is the one California is being marched to on the budget front while the second is some discussion of what some investors - even though they can see the crapstorm on the horizon - are frozen behind their mental 'walls' (paradigm constructs/boundaries) to the point where they are frozen and unable to act in advance of events. The story of 'deer-blinded-by-headlights' in the face of approaching disaster that kept people in Banda Aceh standing on the beach looking a the 'big wave' coming toward them...
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The astute investor realizes that the 'dance' between the inner and outer realities is often best considered by looking for memes and archetypes in play. As, for example, the concept 'Diaspora' in the www.halfpasthuman.com predictive linguistics has been forecasting showed up in the mainstream financial press this week as the Wall Street Journal, no less, headlined how the "Unemployed hit the road to find jobs."
At the same time there have been numerous moves afoot in Washington to sell 'climate change' / cap & trade as 'solutions to what ails us.' Overnight, the House passed the energy-climate bill, which was strictly along party lines between the democons and republicorps, which in turns both are financial boot-lickers to the lobbyists who really run the country. One has to wonder who'd be left to run the country were it not possible to go to Washington poor and return a few years later not only rich, but set up for life.
As Fox columnist Glenn Beck's article headline "Cap and Trade is about Power and Control" certainly comes as no surprise, since that's what Washington politics always has been about, at least since the bankster coup of 1913.
And speaking of which, you saw where Ben Bernanke is getting a bit afraid - to the point of making what one could interpret at veiled threats, should the move to audit the (not really) Federal Reserve come to pass? Dandy video and coverage over here.
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Despite how you choose to interpret the chief moneychanger's comments, it's already too late. The inexorable forces of greed are about to push us into the second leg down beginning sometime between two weeks hence and mid-September.
Not that it should come as any surprise when it gets here, since a one-year-running total of bank offices and ATM's closing is certainly running at levels that are actually above the Great Depression rates with five more banks taken over by the FDIC on Friday of this week.
In fact if you look just at the closures since the National Bank of Commerce failing in January (the first of 2009 to bite the dust)( you will find a total of 45 banks have failed this year which doesn't sound too bad until you count up the number of failed offices: 323 to be exact, and since we're just barely 6-months into the year, that pencils out to 53.8 bank offices per month failing.
Comparative Depression Studies
To be sure, the Second Depression is more difficult for most people to perceive, through no particular fault of their own. It's that time really are different, which is why it's said that history doesn't exactly repeat itself; only that it rhymes.
Consider some of the data I've presented previous - and try to take all these factors as a 'whole' so you can wrap your head around what's going on:
Bank Failures:
This is an almost impossible number to meaningfully compare because of changes in technology between the 1930's failures and the 2008-on collapse which arguably is still picking up steam. Back then, online banking, ATM's and such didn't matter. Still, there are banks failing all over the place and this week's closures/reorganizations impacted 13 bank branches. How does that compare with the roughly 3,000 banks that had failed in the first 2½-years of the first Depression? It could be argued that when both online and in-person plus ATM's are added, we're doing about the same. Or, worse.
Personal Impacts
One thing is true of Depression 2.0: You're going to feel it later than your parents (or grandparents) did in the 1930's. Just considering the $200-billion in bank bailout money spent (and not even considering the draw-downs of FDIC, the average cost in constant dollars per capital was around $483 (2009 dollars) then versus $650 just in bank bailout money (not counting AIG, GM, and other printing press adventures) this time around.
Why isn't it widely acknowledged yet? Simple...
Immediacy of Impact
The main difference is that by 1933 (when $3½ billion call it) had disappeared in failed banks, the money was immediately gone. That caused people to immediately stop spending because the losses were both personal (bank shuttered) and devastating (since business accounts also failed).
In today's disaster-in-slow-motion, FDIC is simply arranging shotgun marriages/takeovers, and where necessary printing up dollars from their 'insurance' funds to cover the losses. However, whether FDIC can survive with enough money to keep up the paper issuance is arguable. At some point, FDIC will likely be forced to go to (guess who?) The Treasury or Fed to make ends meet and that, in turn, will fuel inflation.
Credit Cards As Relief
In the 1930's event, there was something called 'relief' - think of it as a forerunner of the modern welfare system. We don't have 'relief' per se, but we do have unemployment insurance, and for people who have been 'caught out' with jumbo mortgages and falling home prices, the credit card has been providing food on the table for millions.
Except now, we're seeing that banks are quickly lightening up on credit card limits - while at the same time increasing their interest rates, which will have the net effect, from a public policy standpoint of reducing the amount of relief available. Bad policy, as I see it, but then again, no one asked George. The alternative would be to declare a federal usury cap on credit card operations and take over that set of money-changers and implement a digital currency system parallel to the paper system, with tight controls and convertibility to either a gold & silver, energy, or calorie standard. But, again, no one asked.
Taxation Issues
As was the case in the 1930's, we're about to run into a major slide in tax revenues to run government. The problem in a nutshell is that property tax revenues and income taxes (Did I mention sales taxes? You get the idea, right?) are all going to fall over the next few years and as they do, the wet dreams of a federal budget anywhere short of hyperinflationary levels becomes unreachable.
Housing prices are going to continue to fall. Just for example, I talked to a couple of know in southern California this week who had to file BK last year - the $650,000 home they had at the peak sold for about $283,000 a year later. Guess where those losses go?
From a tax standpoint, 100% inflation could push it back up to $566K, so you can see why hyperinflation from a policy standpoint is actually desirable.
In fact, 200% inflation would be even better, and my guess is that's how all this will eventually work out with everything costs 3-04 and maybe 10-times what it costs now, such that bankers will be able to remain whole in their loans and government will continue to increase spending.
The trick, in all this, is that us regular human's aren't being filled in on these underlying pressures. Yet, I do have a number of friends who also see it coming. One of my local acquaintances and his wife are building a brand new home right now because they figure that within a year (or three at the outside) the inflation to pay for all of what's going on right now will massive increase their net worth.
Same reason that I bought an old collectable sports car; in times of inflation prices of things down go up - the Big Lie covers up this simple fact: The purchasing power of money gets watered down.
If you want to get a good handle on the future, consider what things will be like when inflation to 10-times current prices comes along.
Gold will be up around $8,000 an ounce. Silver at least $150. A new car will be up in the $200,000 range. A home that may be had now for $100,000 in some areas could pop to $1-million.
While that's going on, oil will be up around $700-$800, Gasoline $20-25 at the pumps and milk could touch $50/gallon.
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The biggest danger to the Fed's money monopoly (a power reserved in the Constitution for Congress, which abdicated in 1913) is that if they can't print money fast enough, and push it out into the financial system, there comes a point where incipient deflation comes in. And that's bad for everyone.
Inflation works because it destroys cash savings, and promotes the power-crazed political agenda of concentration of government control and actively says "Rent your lifestyle, don't own it outright - you'd have to be a fool to do that!"
You can see how they are trying to keep their foot just lightly on the gas by studying the reconstructed M-3 rates here at Trader Bart's site, which is based on John Williams 'Shadow Stats" work.
By the way, John Williams (Shadow Stats) called this in 2008 with his report you can read here that says - among other things, that "Hyperinflationary Depression Remains Likely As Early As 2010"
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There's some theoretical work that says governments maintain power and control by the application of force. Sometimes it's control of food, other times control of money, and yet others, through the invention (creation) of an external enemy - whether it's warring hordes from somewhere or the designer flu/diseases.
Whether it's all somehow orchestrated by secretive groups that meet once a year for the most elite of Bohemians or building-burger insiders, or whether it's just how chaos in a competitive financial blender works, is not something we need to agree on this week.
All we can do is look at the numbers:
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The Dow lost about 101 points for the week.
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FDIC closed down 13 bank branches of five more banks.
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Cap & trade is being hyped because it will give the PowersThatBe still more control mechanisms\
And since I'm not writing Saturday columns any more, I think I'll hit the shower and then head down to the local ham radio club's Field Day outing and see if I can't score a breakfast burrito.
Independence of thinking, independence in communications, food, water, seem like worthwhile things to invest in, along with independence in energy and most everything else.
One closing point as Saturday's coffee gets cold: You work for 'the man' during the week. I'd ask if you're working as hard in your own behalf toward a personal long-term vision is your 'spare' time? If you are, you're among the few humans to do so.
See you Monday morning...(unless you're a subscriber, in which case, I'll explain how California going broke is another likely windfall for offshore hedge funds. It's cute how they do it...it really is...)
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Send comments to george@ure.net
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