double dipping

Unemployment hit 10.2% nationwide, a number not seen since 1983. In some states, like California and Michigan, it is much higher. And for those unfamiliar with the "US method" of calculating unemployment, or those eager to compare unemployment across different countries, it is good to point out that real unemployment in the US is much higher than 10.2%. The real number probably hovers well over 15% and in some states it may top 20%.

The discrepancies arise because the US jobless benefits are very short term compared to those of other countries. The US has the smallest safety net of any developed country. Many people do not qualify for unemployment benefits and have to make do with part-time jobs or employment that is much below their skill and competence (and pay) level. In other countries citizens are far less likely to be forced into such situations. The US also does not count people who have given up looking for jobs altogether.

Although the rate of unemployment is slowing, I predict that a pickup is to be expected. Foreclosure rates are still quite high and new foreclosures are likely now that people are losing employment. Many odious ARMs are also expected to reset leading to further foreclosures. It seems very likely that the Christmas shopping season will be another dismal failure and when that happens more retailers are expected to go out of business. At the very least new rounds of layoffs are coming.

So why is the stock market rallying? The reason is rather simple. There is tons of money sitting on the sidelines. Many have made fortunes in the bubbles and a lot of money is constantly added to retirement plans (even though it is decreasing now that jobs are lost). The money has to go somewhere and there are few palatable options. Investors have been waiting for (what they consider) a long time and so a rally was unavoidable. Unfortunately this is just more churning and it will lead to further losses which may end up damaging the "recovery" even more.

It is obvious that the stimulus package was way too small. Unfortunately the appetite for more stimulus money is gone. What that means is that the recession will last much longer. But given how destructive our economy is and how it is threatening our long term survival on the planet, that may well be a good thing in the long run. If people were rational, one could hope for a two-pronged solution, where people agree to change their destructive lifestyles in return for help from the government. That seems about as unlikely as convincing an alcoholic to stop drinking. All the money that is put in will quickly go to feed further addiction. And so it is that we, like the drug addicts that we are, will rather go down in flames, than wake up and change.

rejoice, the recession is over...NOT

It is all over the news. The GDP grew by 3.5% in the third quarter putting an end to longest recession in recent history. Some experts are quick to point out that the "real" number might be even higher. Wow, it is finally over? Drink the koolaid while you can.

There are a few experts who are more cautious and who do worry that the good news may be a bit premature. They point to such factors as government spending and cash for clunkers. They also see other worrisome signs. Such as the fact that 1/20 houses in Las Vegas is in foreclosure. Or that the foreclosure wave is spreading to such far out places like Biloxi, MI, or Sioux Falls, SD, or Lincoln, NE. Should that worry you?

In Merced, CA, 1 in 27 properties is in foreclosure for a total of 3,092 units. Vegas has 40,408 units receiving a notice. Despite optimistic news from the nation's realtors, the negative amortization pay-as-you-go mortgages are still not factored in. Most of these are just starting to reset to their "real" monthly payments. These "real" payments are so far out of whack that we can expect that the vast majority of home-owners won't be able to pay them. Or they won't want to pay them now that their property is so far under water.

They certainly won't be able to pay if they are losing their jobs or have lost their jobs recently.

Unemployment is still rising and a new wave of big layoffs is coming. I am sure that will do wonders for foreclosures, and consumer spending. Christmas is coming and what a Christmas it will be!

Whatever the GDP might say, don't believe it. We are not out of the woods yet. Not by a long shot!

good for your health

A story posted on CNN today confirms what I have been saying all along. Recessions are good for you. You smoke less, eat less, eat out less, and drive less. Add in less shopping and more exercise and you can see why we all need a recession. Given the current wave of obesity, make that a long recession. Nothing will do more for public health than a severe reduction in consumption.

The recession has other beneficial effects as well: it decreases air pollution and the production of greenhouse gases. It slows global warming. There is less traffic and less cargo being shipped around. We decrease ocean pollution. All those things are good for the planet (which really means our habitat on the planet, because the planet itself does not really care) and ourselves. Another good thing is that people rein in their reproduction and that helps with overpopulation.

It appears that even the increased stress from losing one's job, or worries about providing food and shelter for one's family is rather insignificant compared to the gains we make elsewhere. Remember, there is no free lunch, ever. And to stay on theme: suicides do increase during recessions and depressions, but that effect is so small as to be negligible.

If anything, the research confirms how flawed, misguided and unhealthy our economic model really is. Rather than bring good things to us -isn't that the way we think about a thriving economy? That it is good for us?- a thriving economy cuts down on our life-expectancy, both as individuals, and as a species on this planet.

No, you are not better off when you have a bigger house, a bigger SUV, a bigger TV, and a bigger stereo. You are not better off when you can buy all the soda and food you like. You are not better off when you can travel to faraway places. Those things don't make you healthier or happier. All that talk about health and happiness is just false advertising and it is about time that someone cracks down on it.

You will not feel better if you eat out. You will just get fatter and fatter. You will not be better off if have a faster car. Quite to the contrary, you may feel frustrated more often in the inevitable traffic jams. You will not be healthier if you have a bigger house. You will just have a bigger headache to worry about and you will have to yell louder to find your family members. You will not feel better if you take long hot showers, you are drying out your skin and may contract a deadly lung infection. The list goes on and on.

so you thought it was over?

It amazes me how easily people give in to wishful thinking or are swayed by a bit of summer optimism. There are those who seriously believed the recession was over. You could add the White House, the Fed and some associated economists, but of course one does not know whether those guys really believed it (I hope not) or whether they were just doing what they are paid to do, i.e. be super-optimistic and give rosy forecasts.

In any case, even my friend Krugman seems convinced we have averted disaster. And that may well be true, we may have averted a sudden collapse of the financial system with all the havoc that would produce. However that does not mean we are out of the woods. Far from it. For several decades now Americans have lived as if there were no tomorrow. They have outspent themselves and accumulated debt. More than half of the households in the country have zero net worth. All of that in an economy that depends on consumer spending for 3/4's of its value. It is not something you can remedy in a few months, or even a few years.

There is a silver lining to all this. I already noted that greenhouse gas production -as well as habitat destruction- is dropping. That is good. People are also consuming less. That is good too, even though it will cause more hardship in the short run. Hopefully it will cause enough hardship so we make some changes to our economic system. And that is what worries me the most. Change is always hard and changing this economic system will be super, super hard to do. To be honest, I hope it will happen, but I am almost certain it won't.

It may be impossible to change the current economic system unless the US collapses or revolution ensues. That is the lesson we learn from history. No matter how much trouble a country is in, and or how many people rebel, the rich tend to get richer and the poor poorer until the latter are so downtrodden and destitute and so numerous that a revolution is inevitable. We are a long way from that scenario.

The other option, a loss of economic driving force, the disappearance of the engine, resulting in a collapse of the empire, seems far off too. Although the latter is the more likely scenario for the US, it is at least fifty to a hundred years out. Waiting for such an event is not a smart thing to do. We should try to remedy our problems before they run out of control.

So what can we do to change?

The solution is quite simple. We need to learn to live within our means. We need to consume less and we need to focus on our local area when it comes to shopping, production and jobs. We need to stop driving, flying and shipping stuff around so much. We need to remove the non-value creating parts of the economy, the ones that depend on cheap oil and environmental destruction.

Unfortunately that is not what we see happening. Instead people are desperate to keep up their life-style and they revert to shopping at Walmart instead. That is the wrong thing to do. These people are behaving like drug addicts who will settle for a cheaper fix, as long as they get some fix.

What we need to do is do away with chain stores like Walmart that destroy local economies and sell goods below cost. We need to replace them with smaller stores that pay fair wages and sell local goods, not trinkets shipped in from China. That would lead to a revival of local job opportunities and jobs that create real value instead of churning through excesses. We need to disable most of our financial institutions. These guys bring no value whatsoever. Apart from causing regular boom and bust cycles they make everyone poorer on a daily basis by charging fees while creating nothing of value.

We need to let of go of this crazy economic system that just shuttles wealth around instead of creating it.

we're going to six

The Dow went down in the 7,000 range today. Just as I predicted a while ago. And we are not done yet. I am sure we will go into the 6,000's before long. I also think the threat of deflation is now very real. The administration keeps on saying the chances are low, but they also said the American economy was fundamentally sound. I think it is fundamentally flawed.

They also said a lot of other things that make no sense, like housing prices always go up, and any housing market is local, and we may go into a recession -we already are-, and we should invade Iraq, and they have WMD's. Fortunately the administration is on its way out. The new one promised change and we will give it the benefit of the doubt, at least for now. Don't hold your breath though, you might suffocate.

Believe it or not, but what is happening in the market is good news. I say that even though my savings and retirement accounts are losing money like leaky sieves. I am somewhat worried too, but ultimately I see it as a sacrifice for the common good.

We are going to become more frugal and any sane environmentalist needs to applaud such a move. Unfortunately, in an economy that relies on consumer spending, that means great and widespread pain is inevitable. But the end result can be a good thing. It's a bit like giving birth. It hurts but in the end it is worth it. 

What we need now is for someone to step in and raise gas prices. I know many of you think I am crazy for saying this, but it is necessary. Like a cigarette tax, we need to get people away from gas and energy waste. The sooner we do so the better. I hope -but doubt- that Obama has the guts.

the dreaded R-word

It is always ironic to see how nobody wants to admit that we are in a recession. Everyone stubbornly keeps on repeating: less consumer spending may lead to a recession, the economy may be entering a recession, these events raise the probability of a recession, etc. etc. All the while hoping that by the time it is all confirmed the recession will be over. That way one never has to say the dreaded R-word. 

This time around though there is "help" from another source. It is not the type of "help" we all hope for but it is there nonetheless. We will never have to admit that we are in a recession because by the time we finally capitulate, we will be in a deep depression. That is right folks, we are entering a depression. Take it from George Soros for confirmation. He said as much in testimony to Congress today.

Since most of us are not old enough to remember a real depression, we can all be a little aloof or smug about it. It sounds bad, but it is hard to imagine that things will really get that bad now. Surely things will get better soon. Maybe Obama will save us?

I suspect "reported" unemployment may go as high as 12-15%. The real unemployment will be more like 20-25%. I also think the risk of deflation is now very high. An informal sort of deflation is already happening and luxury goods are routinely sold for 20-30% less than "manufacturer's suggested retail prices," or MSRP. 

The WSJ had an article today highlighting this phenomenon. It had an upbeat title announcing bargains to be had. But pretty soon those $80 designer jeans (down from $200+ MSRP) will remain on racks.

The poor can't afford them, pretty soon the middle class won't want to spend this much either, and the rich will have to "hide" lest they become victims of jean-jacking.

On another note, George W. went on record defending free trade. There, now you know free trade is in trouble. Once George W. has to take up its cause, the end is near. The free market is now on par with success in Iraq. We're turning the corner folks. Just hold on for a while longer.

depression

Most recently, on August 4th, I reminded everyone of the long slowdown that was yet to come. It now appears even I may have been too optimistic. At the time, my estimate was about 12-18 months of downturn. Now I would say it looks more like 3-5 years. Yes, years. You are not reading that wrong. And even that estimate could be way off. Because we haven't seen the end of the credit crisis yet. Not to mention that some people may actually be exacerbating it right now by short selling and other devious tricks.

One thing Mr. McCain said is very true. It was driven by greed. Greed all across the board. From the top to the bottom. And that is one thing Mr. Obama has a hard time admitting. It is easy to point to the rich, but this time everyone played along. The "regular" people had a very active role in all this. Of course, the damage they did was limited by their limited resources, but given that there are so many of them, their contribution cannot be ignored.

Before we give these candidates too much credit though, it behooves us to point out that stating the obvious is easy, however painful it may be to admit to it. Doing something about it is a different matter. And here is a crisis that was decades in the making. How to undo that is not trivial. It all started with Ronald Reagan's de-regulation mantra. Yes, it does go that far back. The anti-government stance that killed regulatory oversight is the root of it all.

Remember in the late 80's when books started appearing warning us of the great slowdown of the 90's? The new great depression. By the mid 90's you may even have joined in with the chorus of nay sayers who welcomed another doomsday prediction gone bad. But chances are you forgot all about it. Or it got lost in the fake scare of Y2K. Remember that one? That was an obvious hoax.

But the coming depression was not. It was merely postponed by a series of bubbles. Things like that happen. Money and paper gains just moved around from one bubble to the next, until they ended up in housing units that are emptily bleaching in the desert sun. Or nearly-paid-off units that were refinanced so their owners could upgrade their kitchens, bathrooms, pools, and SUVs. Now all these gadgets are sitting pretty in foreclosed properties.

During those bubble years we did nothing to make matters better. Quite to the contrary, we exacerbated the problems by venturing into Iraq. By giving tax cuts to the very rich. By further de-regulating and privatizing organizations.

Our war games have made matters much worse. It doesn't so much matter whether we win or lose, whether we leave with honor or not. What matters is that we have sunk inordinate amounts of money we don't have into a hopeless endeavor, whose only "saving grace" is that it made some people incredibly rich.

The money is gone and we have little to show for it. Sure we can pat ourselves on the back and say:"we turned a corner," but in doing so we left our hard-earned cash behind.

As for de-regulation and privatization, has it occurred to you that our government is now taking over the bulk of the financial and insurance industries? Freddie and Fanny, AIG, the list will get longer, rest assured. We are "nationalizing" industries. Hopefully we will be smart enough to regulate them as well. It would be foolish just to pay the bills without reprimanding the offenders. But then again, foolish things seem to be the rule these days.

a long slowdown with a silver lining

It appears the US economy is in for a long slowdown. By all measures, the current recession is going to last much longer than anyone anticipated. Partly to blame for this error in judgement is the current happy-go-lucky attitude that says all downturns are quick and painless. It won't happen this time around. There are warning flags everywhere and some predict the worst is yet to come. If so, we could be in for several years, if not a decade of pain, much like what the Japanese experienced in the 1990's.

If this would turn out to be true, there will be one bright silver lining. A massive slowdown in the US would likely be followed by slowdowns everywhere else. And if the global economy slows down, consumerism will slow down too. That means less waste, less pollution, and less greenhouse gases. It also means some renewable resources such as fisheries, wetlands, and forests may have a chance to recover. All in all, it could be a good thing for our habitat on the planet.

However, for an economic downturn to have a measurable effect on the environment, it will need to be long (very long by our standards) and profound. That means lots of pain and not just at the pump. It also needs to see an extremely slow recovery and not some sudden exuberance that blows out all the stops and nullifies in months what took years to accomplish.

It has been said that short downturns are worse for the environment. Some have said that people may turn to cheaper but dirtier fuels such as coal. Others claim people will keep inefficient cars and appliances longer and therefore consume more energy. All that is irrelevant of course and in many cases replacing an older more inefficient car with a new one causes far more pollution and waste than holding on to the old model. 

It is something hardly anyone is willing to acknowledge. Nobody ever takes into account the amount of carbon and pollution needed to produce the new car. Replacing working items with newer models is a consumerist mantra. It is a feel-good situation meant cover up wasteful consumption.

In any event, I have said it many times before, efficiency does not matter. What matters is the absolute amount of pollution and greenhouse gases produced. Nature does not care about efficiency. It is irrelevant. 

What is true however, is that short downturns barely matter. And if followed by a period of accelerated growth, the total effect will likely be worse than if the economy had grown at a slower but steady pace instead.

There is another silver lining to all our misery and pain. If we experience a number of prolonged slowdowns it may prevent us from hitting a wall anytime soon. For that to materialize, the world population will have to go down. Fortunately, the West appears set for negative growth. Here the population is aging and replacement is in many instances not keeping pace with the expected decline. 

The rest of the world however is growing at a rather furious pace. Currently it is set to more than make up for Western decline. A long global slowdown could put a damper on such enthusiasm. We may not like it, but there is little doubt it would be good for our long-term survival as a species.

an economic stimulus package

A bipartisan group got together and wants to put some money in your pocket. Although it won't arrive until later this year, lawmakers hope it will motivate you to start spending right away. And guess what, people interviewed on the evening news were all too eager to do their patriotic duty and consume more. Only one person, no doubt found after interviewing dozens of candidates, said they would save the money. Go figure.

Surprisingly enough, the package is mostly aimed at the middle classes. And that is right because they are large in number and numbers is what we need to get spending going. But don't hold your breath. Before this becomes law, the rich and superrich will make sure they get their "fair" share and then some. It is all part of a kinder capitalism.

Already the Journal of Greed has published calls to extend the largesse to those who least need it. Because they are the ones "who create the jobs." Just how naive do these guys think we are ? Most jobs in America are created by small and mid-size businesses run by thrifty entrepreneurs. If anything the superrich lay off workers to jack up their earnings per share and line their pockets even more.

In another provision that is sure to delight many, lawmakers want to extend the conforming loan limit to over $700,000 from the current $300,000 or so. While it is aimed at staving off foreclosures -we doubt it will have any effect- it is yet another indicator that the government is serious about supporting oversized and hugely overpriced housing. Whatever it takes to extend the unsustainable patterns for a few more years.

It has been said that humans are problem solvers. That our brains are good at solving complex issues. And that therefore we should not worry about things like climate change, pollution, threats to the food supply, etc. In due time, we will "solve" all these problems. Our intelligence and technology will bail us out.

I have no doubt that humans are extremely good at solving puzzles. I have no doubt that many of us could solve the big problems that are looming ahead. But I sincerely doubt that we will. A close look at history shows that people don't. What happens over and over again is that powerful societies run headlong into the wall and collapse.

Because greed is many times stronger than rational thought or intelligence. Instead of keeping energy prices high, politicians and economists will go out of their way to reduce prices and stimulate excess waste. Instead of facilitating a return to a normal economy -one of necessities- lawmakers dole out money to spend on unnecessary items. Up to 70% of our economy is now dependent on unnecessary spending. If you think this will keep going, think again. No country no matter how rich can keep this up for very long. But the longer they do, the harder they crash.