I just can’t help but feel that we’re living in a version of The Matrix that wasn’t quite programmed properly. Things don’t “feel” right, I can’t make the basic math add up, and while I certainly don’t think I’m the “hide in a bunker wrapped in tinfoil” kind of guy, I think global governments are trying their hardest to pull one over on us peons.
I’ve been reading from a wide range of sources lately, and that has led me to do a lot of thinking. I think everyone should do as much with an important topic like their own money, but I guess since I’m more of an individual investor I actually like the topic. While I have no training in economics, financial planning or investing, I firmly believe that what I read and see in main stream media is almost pure crap.
I’m fully aware that market corrections are normal, healthy and desired. But for all the talk of this not being The Great Depression 2.0, I can’t see how things can end well. Through normal recessions, I’d be on board with continuing monthly contributions to an investment plan, even if one were to hide out in cash, with the knowledge markets would bounce back. But based on my thoughts below, I honestly don’t see how this is even “just” a severe recession.
If you can provide arguments to counter my paranoia, I’d be glad to hear them.
Much of my concern is US based. I think they’re in deep, deep trouble. Two often repeated phrases, “When the US sneezes, Canada catches a cold” and “The US consumer is 70% of their economy” lead my list of worries. We obviously do a lot of exporting to the US. So what’s good/bad for them, is good/bad for us. Sure, we have China stockpiling our resources, but I would think they’re going to hit a saturation point very soon. Furthermore, a lot of the slave-made crap China produces gets sold to the aforementioned “in deep doo-doo” US. Yeah for globalization.
While I’m not saying Canada is a model economic citizen, we do have many natural resources, a manageable debt (well, let’s see what it looks like after Harper is done with it) and a supposedly more stable financial system. While the US could implode, and indeed cause us much hardship, I like to think we could be somewhat self sufficient while we retool and bounce back.
So why is the US still in trouble? They’ve been spending far in excess of their income, have racked up far too much debt at all levels. Governmentally (federal, state and local), individually and in several business areas as well (commercial real estate, anyone?) So what appears to be the proffered solution to this from The Great Teleprompter Reading leader?
“We need to get credit flowing again”
Umm, to whom, exactly? Everyone is in debt to their eyeballs already! Never fear, that hasn’t stopped the feds from taking the lead. Never mind that their legally imposed 12.1 Trillion debt limit will be hit around October of this year, at their current pace. They’ll just go to Congress and ask for a credit card limit increase to 13 Trillion. Course, they’ll then have to go to the Chinese, Japanese and Saudis and see if the credit card is still accepted. But since that seems to be less and less reliable, I suppose they’ll just rely on ol’ Helicopter Ben “In sworn testimony to congress I stated I would not monetize the debt, but I don’t think Quantitative Easing/POMO purchases of recently issued Treasuries really count as monetization” Bernanke. He’ll make sure the credit card goes through.
OK, so if the feds can spend, spend, spend, how ’bout everyone else? I don’t think most states and cities can legally go into debt with ease. The bang up job by the IOU issuing movie star out in California comes to mind. Great, they balanced their budget. Only had to release 40,000 criminals, amongst other things. That budget should last long. Income and sales tax revenue is plummeting faster than Obama’s popularity. The money they made from the state “garage sale” should last for all of about half a day. How ’bout Arizona? One of their proposed solutions was to sell house and senate buildings and then lease them back. That sure sounds like they’re on stable financial footing. As far as cities go, I hear Philadelphia and Detroit are good role models for one to look up to.
But forget about governments, keep it simple, stupid – it’s all about the consumer. They’ve been there before and they’ll be there again!! Yeah, right. They started borrowing more than they should have back in the 90s, and have only ramped up steadily since then. That tech boom near the turn of the century was great. Lots o’ easy money in stocks, let’s spend it. No matter that someone popped that bubble, Maestro Greenspan urged bankers to come up with alternative ways for people to afford houses. Look ma, my house just tripled in value and everyone knows house prices NEVER go down. Lots o’ easy money in house appreciation, let’s spend it. But some wise-ass came along with that pin again and popped THAT bubble. Hmmm, haven’t really been getting great raises lately, but goshdarnit, I *DESERVE* new stuff, like that new ipod to replace the ancient one I bought six months ago. Lemme see, stocks down, house down, OOOH! credit card. Phew! I still have wealth.
So we are now expected to believe that the consumer will bounce back, start spending again, and all the green shoots everyone on TV is seeing are real and not purely fictitious? I don’t recall anyone telling me definitively where people are going to get the money to consume again? They can’t keep up with the interest payments on their outstanding debt as it is. In the US the banks are jacking up credit card rates, here in Canada, I see TD finally caved the other day and became the last bank to raise HELOC rates to prime PLUS one percent. Those higher rates will help consumers get out of debt quicker. Should I even mention the US is still losing 500,000+ jobs a week? I love the ‘reported’ U3 numbers, and how the total of those on unemployment are starting to decrease. Uh, yeah, they’re starting to decrease, but that’s cause people are hitting the end of the benefits, and rolling off onto extended benefits, which should obviously not be counted in U3 numbers!?!?! But don’t worry, if you don’t have a job and haven’t had one for at least half a year, you’ll be back and spending in no time. Wouldn’t want to report the U6 number, which is more accurate, but even that is lacking. People might actually start to ask poignant questions of elected leaders if they knew the unemployment rate was closer to 16.5% as opposed to a measly 9.8%.
But GDP will likely have a positive print this quarter and maybe even next. Car sales boomed in August. Housing sales are up. Careful you don’t trip over all the green shoots. Sure, Keynesians are rejoicing. But the positive GDP print is purely thanks to the fed spending. Given my thoughts on the consumer above, I cannot fathom how that could turn into a kick start of the economy. It seems more like a kick the can down the road a few months and pray. Car sales boomed thanks to the insanely stupid Cash for Clunkers program. Way to pull forward demand that will not exist later. How are September sales looking? Ditto for house sales. Get the FHA to help underwrite mortgages with 3.5% down, and you don’t even need that much if you use the 8,000 grant from the government for your down payment. Of course house sales are going to go up with this kind of incentive. Remember, people *DESERVE* material goods NOW. If you can’t even save up 3.5% for a down payment yourself, what do you do when the dishwasher blows up and you need new brakes on the car cause they wore down while you were driving home with the new plasma TV for your new house.
But maybe I’m just too negative on the short term, longer term will be great. Like, when all the baby boomers retire, many of them now with less assets thanks to the market slide. Sure, they’ve gained 50%+ in 6 months, but that’s still a good drop from the highs of 2007, or was it 2008. (Side note, is it just me, or is a 50% gain in 6 months pure insanity at any time, let alone when the S&P 500 trailing 12 months PE is around 130 or so??) But think of the pensions. Boomers have cushy pensions to fall back on. Yup, I’m no actuary either, but with the stampede of companies getting away from defined benefit plans to defined contribution plans, I foresee only rosiness for pension futures. (Sarcasm doesn’t convey well in the written word. I’ve used a lot of it up to this point, hopefully you caught some of it). Woefully underfunded pensions, combined with unrealistic payout benefits should lead to some interesting times for upcoming retirees, and the consumer economy, of course. Unless you have a cushy government pension. In which case don’t worry, you’ll get paid by the government, which will get it by taking more from people like, oh, I don’t know, me.
I promise I’m nearing the end, but no good “end of the financial world” paranoia would be complete without talking about the US banks. TV tells me the banking crisis is over. The banks have been saved, and all is well. But what they don’t spend a lot of time explaining, is that most US banks are quite likely insolvent. In no particular order:
* Mark-to-fantasy real estate assets. Carry them on their books at full price, even though prices have dropped and in many cases people have stopped paying their mortgages. Good thing they lobbied the FASB (Financial Accounting Standards Board) back in the first quarter of 2009 to let them do this, and not that pesky mark-to-market crap which resembles reality. Gotta keep the asset side of the ledger looking big and strong.
* Change their terms of ‘delinquent mortgages’, like Wells Fargo did, by increasing the time to 90 days. Gives them another couple months before they have to report the crap on their books. (And did you hear the one about Wells Fargo buying a mortgage from Wells Fargo? Cool, that means another 90 days before they have to declare it delinquent) Ah accounting gimmickry, I could go on and on. I’m no Al Rosen, but with the one accounting class I took in the twelfth grade, even I can see things don’t quite add up.
* Need money? Mosey on up to the Fed and get some using pure crap for collateral. (Don’t worry, nobody can audit the fed, so they won’t see how truly desperate you really are. What? Ron Paul and Barney Frank with their bill HR1207? You don’t think POTUS and friends will let that happen, do you?)
* The FDIC is broke. Poor Sheila Bair. She’s had to close, what, something like 94 banks so far this year? That seems like a big number, and how many hundreds are on the “problem list”. By now her fund to make sure the good sheeple get their deposit money back has pretty much been run dry. Yeah, yeah, she’s got a potential line on 500 billion from the treasury. But nowadays, who doesn’t have access to easy money from the treasury? They’re just giving it away, (just don’t look at the DXY). She’s so desperate that she’s floated the idea of asking healthy banks to loan the FDIC money to help other banks. I think my head just exploded. I need insurance, so I’ll go to the insurance company, and on top of paying my premiums, I’ll also loan them money in case I need insurance so they can give it back to me? How the he** does that work in a functioning economic system?
Yeah, seems like Geithner, Bernanke and Obama have righted the ship.
It really just seems like they’ve swept everything under the rug, delayed any real fixes by a few months, given as much money as they could to the bankers who bribed, er donated so generously to all politicians’ campaigns.
I’m *really* trying to see hope and recovery. But it just seems like the last 20 years of living well beyond our means is catching up to our collective self. I think things are still spiraling downwards, yet no politician has the guts to right the ship once and for all.
Cause that would mean that people would actually have to be unplugged from The Matrix. Which is, of course, political suicide.
PS. Go borrow money and buy something. Anything. (that was sarcasm again, btw)
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