The Next Leg Down in the New Great Depression Has Begun
Posted by Michael A. Kamperman on February 8, 2010
The Dow Jones closed below 10,000 as investors are becoming increasingly nervous about the ability of governments to step forward and solve the economic crisis. Global economies cannot revive unless significant amounts of additional government spending continue to take the place of private sector spending. However, governments cannot cut deficits and support the global economy with higher spending at the same time. The crisis surrounding the debts and deficits of Greece, Spain, and Portugal expose Europe as leaderless and rudderless. Now is not the time to ask Greece, Spain, and Portugal to accept fiscal austerity and more economic pain. Yet that is exactly what Europe’s leaders are doing. The U.S. remains equally leaderless and rudderless as the states are asked to swallow the same type of bitter fiscal austerity pill by the Whitehouse and the Congress. Global governments appear frozen and incapable of stepping up and meeting the challenges that face us. Confidence is always fragile. No one in a leadership position is capable of putting Humpty Dumpty back together again. Money is heading back under the mattress. Let’s be clear, nothing has been fixed. The credit markets remain broken. Sleight of hand statistics like those used in the unemployment report are not working any more. People are waking up and realizing that the unemployment rate went down to 9.7% because we have thrown more workers out of the want to work bad enough category, not because we actually created jobs. The Labor Department reported we have the same number of Jobs in January as we did in November, yet the unemployment rate dropped from 10% to 9.7% despite population growth. Weekly unemployment claims started rising again before the loss of confidence even swept the markets. Now there is a very good chance the momentum to fire more workers will gather steam.
Our country has over 6 million people that have been out of work for over 6 months. Where is the plan to put all of them, that’s right all of them, back to work? Cutting taxes isn’t going to do it. A feeble $100 billion jobs bill isn’t going to do it. Faith in the markets isn’t going to do it. We need to see a real plan. So far no leader in Washington has put forward a comprehensive plan to put America back to work.
In 1931 there was false optimism the economy stabilized and the worst was over, then the next big leg down in the economy hit and eventually drove the unemployment rate to 25% in 1933. It appears the next leg down in our economy has begun. The global economy cannot be sustained without significant increases in global government spending. Spending cannot continue without large deficits. The solution is to print money to reduce government debts and increase government spending at the same time. No leader is currently advocating this. Both the Bank of England and the Federal Reserve have naively backed away from quantitative easing. What our leaders fail to see is first they came for the Gypsies, then they came for the Jews, then they came for us. First the deficit hawks are coming for Southern Europe, then…
Badtux said,
One thing to note is that a huge hunk of the Alt-ARM’s come due for rate reset in 2011. As in, as huge a hunk as sub-primes in 2007. We aren’t done with this collapse in asset values by any means, and I’m suspecting that most banks are still carrying these loans at full price on their books even though they’re mostly worth maybe 60% of full price at best. That’s going to blow a huge hole in their balance sheets. You want to know why banks aren’t lending? It’s because they *know* that they have that huge hole in their balance sheets, and are frantically trying to fill it so that they don’t have to go back for another handout that would likely result in them being nationalized next time.
That’s what happens when we try to hide problems under the covers rather than fixing them. If we’d just forced the banks to mark to market up front and then taken them over for how much of their equity we had to put in in order to make them solvent again, and adjusted loan balances on those loans to real value and rewrote them to conventional fixed-rate mortgages, this would be over. But noooo, we had to pretend that the banks weren’t insolvent… and we’re still pretending. And that scares the bajeezus out of me, because our so-called leaders are acting as if there *isn’t* that huge overhang of alt-ARMs waiting to blast another hole in our banking system…
Not to mention that all the cretins are coming out of the woods to push the same ridiculous nostrums that didn’t work during the *first* Great Depression, such as the notion that 10% unemployment and 0% interest rates somehow means our capitalist system lacks resources to adjust supply to meet demand and thus we should “liquidate” yet *more* of the economy. They know this is “true” because they read it in Hayek — yes, Hayek, the same miserable excuse for a human being who insisted that the reason 1/3rd of Germans were unemployed in 1931 was because they *CHOSE* to be unemployed. Yes, Hayek actually claimed German unemployment in 1931 was caused by LAZY GERMANS! That kind of nonsense led Hitler to assuming power, because Germans knew they weren’t lazy — just as Americans today know they aren’t lazy. Yet still the cretins insist on the same old snake oil that didn’t work in 1931… and insist it’ll work *this* time. And they have some of our so-called “leaders” on their side! Inexplicable. A combination of historical illiteracy and mathematical illiteracy like I haven’t seen since the last teabagger coven.
Siiiigh! We are so, so, so f**ked.