Ten Things Signal the Depression Continues in 2010

Posted by Michael A. Kamperman on December 31, 2009

1.      The banks are hiding losses and are feverishly downsizing to maintain their capital ratios.  Extremely tight lending standards will continue to crimp the ability of consumers and small businesses to borrow and spend in 2010.

2.      The Obama Administration is focused on reducing the federal budget deficit.  They believe the forecasts calling for an economic recovery next year.  Hence, there will not be a new major stimulus program passed in the first half of 2010.

3.      Residential real estate prices will continue to decline next year.  The plunge in November new home sales showed what will happen to the housing market when the benefits of the tax credit are removed.  The extension of the tax credit is set to expire at the end of April, just when the selling season begins in earnest.

4.      State and local budgets will continue to be squeezed by declining tax revenue.  The federal government will not bridge the deficits even with the stimulus money focused primarily on providing aid to states, municipalities, and school districts.  New York has joined California in the ranks of states with a serious budget crisis.

5.      Many of the unemployed are running out of money.  Millions of people who have been hanging on by a thread will slip into extreme poverty in 2010.  The continued spending from savings and extended unemployment benefits will cease.

6.      Deflation has gained a global foothold in almost all of the industrialized economies.  Should a V-Shaped recovery fail to materialize there could well be a significant sell off in most economically sensitive commodities significantly exacerbating deflationary pressures.

7.      Concerns over Sovereign debt kicked off by Dubai and quickly spilling into Greece will spread.  This will force national governments that have been propping up spending and bailing out banks to retrench.

8.      Beggar thy neighbor strategies are rapidly spreading as protectionism naturally gains sway.  The U.S. has already entered into a tariff tiff with China; first over tires and now over steel.

9.      Political uncertainty in the U.S. surrounding the impact of the health insurance bill, the potential impact of global warming legislation or regulation, and the possibility of a change in the balance of power in Congress after the mid-term elections will leave business leaders cautious during the duration of 2010.

10. Confidence remains low despite all of the Kings Horses and all of the Kings Women trying to put it back together again.  Should several of the above trends worsen confidence could collapse completely in 2010….what then?