Posted by Michael A. Kamperman on February 22, 2010
The Core CPI index was reported as minus .1%. This is the first time since 1982 the core rate has been negative. It won’t be the last. We are in store for many more negative Core CPI readings over the next couple of years. Housing costs in the form of rent and owner’s equivalent rent make up over 40% of the Core CPI rate. While the government should be using an estimate of actual home prices to calculate the cost of home ownership, it remains wedded to the concept of using owner’s equivalent rent which was introduced in 1983. While housing prices were falling dramatically for over 2 years, the CPI calculated the cost of home ownership as rising because rents were rising. Now the lag effect of the deep contraction in the housing market has spilled over to rents and rents are declining. Vacancy rates for apartments are now over 8%, and these units are having to compete with recent foreclosures and short sales purchased by investors and turned into rental units. Hence, the pressure on rents will remain relentless over the next couple of years unless there is a dramatic uptick in employment. Too many young men and women are graduating from college without the prospect of a full-time job that can cover their living expenses and they are being forced to move back home with Mom and Dad. Additionally, many pe0ple who are financially strapped are moving in with friends or relatives. The glut in housing will take a lot longer to work off than most experts expect.
The Core CPI is actually reflecting where we have been. But troubling to my mind is the more the government reports the country is experiencing deflation, then the more it will become a reinforcing self fulfilling prophecy. First of all many wage negotiations are tied to the CPI rate, as is Social Security. This will lower incomes. Additionally, as people see and perceive that prices are actually falling they will do the rational economic thing which is to delay purchases. Fewer purchases will lead to fewer jobs and fewer people capable of buying or renting a house. It is ironic that the Fed wanted to signal to the markets a return to normalcy by raising the discount rate last week only to have a negative print in the Core CPI rate bring in to question any attempt to tighten. It is only a matter of time before the Fed reverses and resumes its program of quantitative easing, just as it has been only a matter of time before the housing price declines would turn the Core CPI rate negative. Our country has too much debt, and now it has falling incomes to service that debt.
We are not alone. In fact we are legion. Most of Europe shares our fate. We now share Japan’s deflationary fate of the last 20 years. Japan sent a clear signal that when economic calamity hits the worst thing to do is to be too timid and then compound the error by propping up too-big-to-fail-too-broke-to-lend Zombie Banks. The history book on the shelf is always repeating itself….Waterloo. The Greek led euro crisis indicates deflation is inevitable in Europe as well. It also has sparked a significant rally in the dollar which is killing any hopes of an export led recovery. Message to Lawrence Summers, the whole world cannot adopt the Chinese model of selling four times as much as it buys from everyone else. There is an upside to the negative Core CPI rate. It will highlight the dramatic decline in the velocity of money and focus attention on the need for the Fed to print more money.
Posted by Michael A. Kamperman on November 28, 2009
Dubai dropped a debt bomb on unsuspecting speculators and this will set off another round of dominoes falling into each other one by one. The Islamic bonds Dubai wants relief from were trading at a 10% premium to face value and were of course were highly rated by Standard & Poor’s when Dubai said it needed more time to pay. Now those same bonds are priced at 50 cents on the dollar. Everyone apparently assumed Dubai’s oil rich neighbor Abu Dhabi would bail it out even though it had no contractual or implied arrangement to do so. Without a bail out it was obvious Dubai couldn’t pay its debts. The city-state borrowed heavily to build a beautiful city by the sea. The problem is the buildings are mostly empty and neither buyers nor renters can be found at almost any price. Property values officially fell in half before the debt bomb was dropped. As construction crashes to halt in Dubai for the foreseeable future it will further detract global GDP. And, it will decrease the demand for steel and cement and engineering firms and construction workers in an industry already massively oversupplied. Furthermore, it will tighten credit markets making it more difficult to start a new venture. If Dubai were an isolated incident all of this could be absorbed and would amount to a hiccup. But the Dubai story is both common and global.
Dubai shares it currency the dirham with the other city-states of the United Arab Emirates and doesn’t directly control the United Arab Emirates Central Bank. Hence, Dubai cannot print away its problem. Consider that the countries that share the euro have the same problem as Dubai; they cannot print away collapsing real estate bubbles. Also consider that some of the same investors in Dubai bonds that assumed Abu Dhabi would step in are some of the same investors in Irish, Spanish, Italian, and Greek bonds who are assuming some form of support will be coming from France and Germany in a pinch even though there is no contractual or implied reason to think so. Dubai’s default also raises questions about implied guarantees from various agencies of a multitude of nations when no contractual arrangement to step in exists. The Dubai debt bomb has ended a wink and a nod lending.
The longer shadow cast by Dubai’s default will not be the questions surrounding assumptions of what governments will and won’t step in to resolve a crisis not of their own making. The real shadow is unsustainable and imprudent overbuilding when there is no reason to believe demand exists for the new infrastructure. The Dubai economic miracle was a mirage just like the U.S. housing bubble fueled by AAA rated subprime mortgage-backed securities was a mirage. But the biggest economic mirage in the world soaking up huge amounts of commodities is China. Like Dubai, China has massively overbuilt its real estate markets far beyond actual demand and it keeps building. In inner-Mongolia China has built the beautiful modern city of Ordos for the one million residents of the old city of Ordos. But the new city is so expensive none of the residents can afford to live there and the city literally sits empty and no one lives in it. Non-economic projects continue to sprout all over China. All mirages eventually vanish. It is only a matter of time before China drops its own bomb on the global economy and deflation hits commodities like it is hitting real estate, consumer goods, and wages.
Posted by Michael A. Kamperman on October 14, 2009
It may happen as soon as tomorrow. The core rate for CPI includes everything except for volatile food and energy prices. Over the last 12 months the overall CPI rate has declined by 1.5%, primarily due to a pullback in food and energy prices. But for the most part the Core CPI rate has risen slightly month after month despite rampant deflation. Over the last year the CPI has calculated that rents and owner’ equivalent rents (the economist’s substitute for home prices) have risen by an annualized rate of 1.8%. It is mindboggling that the federal government’s statisticians have been using the cost of renting shelter as a substitute for actually buying a house. Everyone knows home prices have dropped dramatically during the last 2 years. The reason the Core CPI rate is about to turn negative is rents are now rapidly falling throughout the U.S. Rent and owner’ equivalent rent combined account for 30% of the overall CPI calculation. Importantly, they account for 40% of the Core CPI calculation. Most economists and investors pay much closer attention to the core rate than to the overall rate due to the volatility of food and energy prices. This summer apartment vacancies reached 7.8%. Landlords are forced to lower prices to attract tenants. Once the Core CPI rate turns negative it will confirm the U.S. is in a deflationary spiral brought on by the credit crisis.
The CPI rate is built into many contracts and negotiations in the U.S. Most employers’ base raises for employees on a cost of living adjustment, plus potentially something extra for merit. With the Core CPI rate trending negative the only raises given to U.S. workers will be for merit. Stagnant and potentially falling wages in the U.S. will only lead to lower prices as consumers and businesses are strapped with excessive debts. They need the forces of inflation to raise their incomes and the prices of their assets to service their debts. This year people on Social Security did not receive their usual annual cost of living raise. Less income will lead to lower top line revenues for businesses. This will mean cost cutting will be the only way maintain or grow profits. In the U.S. cost cutting for businesses is code for more layoffs. Getting out of this deflationary spiral will be very difficult because of the way incomes in the U.S. are tied to the CPI rate.
The Fed is currently pushing on a string and has been unable to get the Zombie banks to increase lending. The only way to fight deflationary expectations is for the Federal Reserve to print a lot more money. Yet some members of the Fed would like to exit their quantitative easing program believing the economy is recovering and inflation is around the corner. These attitudes should change once the Core CPI rate confirms deflation. The good news is the release of minutes from the Federal Reserve’s last meeting showed that some members of the Fed are still open to upping the quantitative easing program.
Posted by Michael A. Kamperman on October 9, 2009
Some Governors at the Fed have recently been speaking out about the need for a rapid exit strategy from the Fed’s accommodative policies. They must think a speculative pop in the markets is equivalent to price stability and economic stability, which are the two things the Fed is charted by Congress to focus on. Is the home listed from a realtor down the street from you in a bidding war? Is your friend from college who has been unemployed for a while inundated with job offers? The American people are suffering. They are unemployed and they cannot sell their home because their mortgage is underwater. The objective of the hawkish Fed governors speaking about the need to have a rapid exit plan is not intended to push for interest rates to be raised in the near term. The comments are intended to push for an end to quantitative easing and the other policies the Fed has put in place to provide extra support to the economy. To date the Fed has done too little, not too much. Consumer credit fell another $12 billion in August despite getting a big boost from auto loans because of the cash for clunkers program. The banks are continuing to tighten credit standards. Auto sales fell back to extremely depressed levels in September as soon as the clunker program ended. Home prices will begin falling again now that the first time home buyers tax credit is no longer driving home sales. How could anyone at the Fed be worried about exit strategies when the real U-6 unemployment rate is 17%.
The hawkish Fed governors are simply too concerned about inflation returning. They see the dollar falling and gold reaching new highs and they assume the markets are signaling significant inflation is just around the corner. Not a chance. Real wages in the last unemployment report rose by only a penny over the preceding month. Hours worked fell to 33.0. Every industry has significant amounts of idle capacity. Inflation comes from too many dollars chasing too few goods. Since over half of the country has a subprime credit score, access to cash to purchase goods is restricted. Since industrial capacity is still way below 80%, there is no shortage of goods in any sector of the economy. Until these dynamics change there is no reason to fear inflation. It doesn’t matter how high gold gets, because the fundamentals of the economy will not support inflation.
What the hawkish Fed Governors should be panicked about is deflation. The fundamentals of the economy point to deflation. In the Great Depression deflation ended in 1933 after FDR declared a bank holiday and created FDIC, which ended the bank runs and brought money out from under the mattresses and back into the banks. He also ended the physical exchange of paper dollars for gold. He ordered the conversion of gold money for $20.67 per ounce in U.S. paper dollars. Then, in January of 1934 FDR devalued the dollar by 40% by raising the gold per ounce conversion rate to $35. We have no such tricks up our sleeve today to end deflation. What we do have to end deflation is quantitative easing. The Fed Governors need to be talking about why they need to print more money rather than how quickly they are prepared to withdraw support for the economy.
Posted by Michael A. Kamperman on September 22, 2009
I’m not holding my breath. The Fed seems more concerned about pundits and speculators hyping potential hyper-inflation than about poor working stiffs in America with no job. But at this meeting the Fed needs to take a stand and up its program of quantitative easing rather than signal a plan to unwind it. At the last meeting the Fed extended the deadline to complete its purchases of $300 billion in Treasury bonds from the end of September to the end of October to soften the impact when it withdraws support for the Treasury market. Many expect the Fed will similarly extend the purchase of federally guaranteed mortgage-backed securities into next year to taper out of that program. For the Fed to withdraw support for the markets it needs to affirmatively answer two key questions; is the real economy experiencing a sustainable recovery and is there sufficient capital from other sources to replace the extra cash the Fed has been pumping into the market? The answer is a clear no to the question of whether the economy is experiencing a sustainable recovery. The answer is probably no to the question of whether or not alternative capital resources are available to replace the Fed’s printed cash.
Over the weekend Edmunds reported that September auto sales are running at an annual rate of 8.8 million units, the lowest annual sales rate of the year. This is the worst year for per capita auto sales in the post World War II era, and this month is looking to be the worst month during the worst year for auto sales. That is not a sign of an economic recovery, it is a sign the economy is starting to resume its slide. And it is real time data. I look for a slide in homes sales to follow the slide in auto sales as soon as the first time home buyers tax credit expires on November 30.
The more interesting question is does the cash exist outside of the Fed to support the needs of the mortgage markets and the bond markets? While we won’t know for sure until the Fed pulls its support, it certainly doesn’t look like the funds exist. The FHA has reported its reserves are close to falling below the regulatory minimum. Rather than asking Congress for more money the FHA has decided to tighten its lending standards. That won’t be very supportive for lower priced home sales. Additionally, the NYT reported a shocking story that the FDIC was considering borrowing money from the banks it regulates because it is running out of reserves. The FDIC has a line of credit from the Treasury but is apparently reluctant to tap it. The Whitehouse wants to save any additional deficit spending for healthcare reform. It is afraid that the votes in Congress won’t materialize to spend more money if the Congress believes the economy needs a lot more deficit spending. At the same time there is going to be a push at the G-20 meeting to raise the capital reserve requirements on banks to reduce their overall risk. On the surface this seems like good policy. But in a debt-induced deflationary depression the last thing governments should be doing is adopting policies that will further shrink the money supply by further deleveraging the banks. This policy will only exacerbate the powerful deflationary forces already unleashed in the economy. The only way out of a deflationary depression is to spend one’s way out. Yet people cannot spend money they don’t have and investors cannot purchase mortgage-backed securities with cash they don’t have. The ball is in the Fed’s court and I am concerned they are about to fumble it.
Posted by Michael A. Kamperman on September 15, 2009
There is now no way out. Today Bernanke and Obama sealed certain economic doom. Fed Chairman Ben Bernanke irresponsibly stated that “technically” the recession is over. Yes, the U.S. will probably report positive GDP this quarter thanks to cash for clunkers and first time home buyers scrambling to ink deals before the deadline. But none of this is sustainable without more help from Washington. The words spoken by Bernanke and President Obama today renders the political possibility of giving the economy the help it really needs all but nil. It will now be the spring of 2010 before a reassessment is made of whether significant additional measures should be taken to aid the economy. The only way it will be before the spring is if unemployment reaches 11% sooner rather than later, a real possibility. How can Bernanke, a so called expert on the Great Depression, declare our recession is over when credit to consumers and businesses is still falling. The vast majority of the money supply in the U.S. comes from credit, not cash. As long as credit is shrinking deflation will continue to take hold. As for President Obama he can certainly talk the talk. He said he was focused on jobs as part of his talk to the AFL-CIO on the need for healthcare reform. But talk is cheap. What we need is a leader who can walk the walk. While President Obama said he was focused on jobs he offered nothing in the way of new initiatives to stem rising unemployment. This amounts to the same liquidationist strategy adopted by Herbert Hoover in the early 1930’s.
The nation’s largest lender, Bank of America, reported today that credit card defaults have risen to 14.54%. Normally charge-offs are in line with the unemployment rate. This lends credence to the concept that the true unemployment rate is closer to the U-6 measurement of 16.8% rather than the official U-3 measurement of 9.7%. The federal government’s statisticians can throw 2 million people out of the official labor force. But that doesn’t mean those 2 million people can still pay their bills. The Bank of America report corresponds closely with the report that 13.2 % of all mortgages in America are 30 days or more past due. It also corresponds closely with the report that consumer credit in July dropped by $21.6 billion. Metrics to measure credit such as the TED Spread and Libor no longer have the same meaning that they did in the past. This is because national governments have stepped in and guaranteed transactions between their largest banks and other institutions. Fear of a systemic collapse is off the table. But banks remain in a Zombie state, the walking dead that are insolvent and unable to lend.
In addition to bank data on credit cards we also received word today from Kroger, one of the nation’s largest grocery chains, that deflation has entered the food business. I doubt President Obama and Fed Chairman Bernanke are heeding the message that deflation is rampant in the U.S. Instead they are relying on the econometric forecasting models of blue chip economists who expect economic growth in the second half of 2009 and in 2010. These are the same econometric forecasters who failed to forecast the current economic downturn. The failure is due to a reliance on post World War II trend data and a severe lack of common sense. We need a third stimulus plan pronto and we need massive quantitative easing. How can the economy receive the kind of support that takes political courage when our leaders are taking a premature victory lap?
Posted by Michael A. Kamperman on September 11, 2009
Treasury Secretary Timothy Geithner was on T.V. twice yesterday. First he testified before the TARP Commission headed by Elizabeth Warren. Then last night he held a Town Hall meeting hosted by CNBC. He is a very good politician and should consider running for public office. But he is not the person we need to lead us out of the economic crisis. When asked by Dr. Warren if we could re-run the stress tests on the banks since unemployment is now higher than the worst case assumptions used in the test, he said banks losses were better than the worst case estimates used in the tests. When asked if we could run the stress tests on the 9,000 banks that weren’t tested, he said it was unnecessary since they only represented one third of total bank assets. When asked if we had Zombie banks that don’t go insolvent but are too weak to lend, he said he didn’t believe any of the largest banks are Zombies. I guess he has been too busy appearing on T.V. to notice that consumer credit dropped by a record $21.6 billion in July. I guess his view is the banks have plenty of money to lend; they just don’t have enough credit worthy borrowers to lend it too. In front of the commission he bobbed and weaved and got out of there relatively unscathed.
It was at the Town Hall meeting that we got to see some real insights into Timothy Geithner’s view point. He believes the U.S. economy and the global economies have returned to growth. He believes the banking system needs to take less risk so that another global financial crisis doesn’t emerge. He doesn’t want to end some of the support programs put in place for financial companies too soon. He believes Americans need to save more. He believes once the economic crisis is over the deficit needs to be reduced substantially with higher taxes on relatively wealthier Americans. When asked if Meredith Whitney’s call for housing prices to drop another 25% was a real possibility, he dismissed it by stating the mortgage modification program has already refinanced 350,000 mortgages over the last year. Perhaps he missed that in the month of August alone 355,000 notices of foreclosure were sent to homeowners mirroring the record pace set in July. He basically believes the federal government has done enough to solve the crisis, but will do more if necessary. He thinks we just need more time and patience to slowly crawl our economy back up the hill.
My take is Treasury Secretary Geithner is a deficit hawk at heart and doesn’t want to spend any more resources or political capital than is necessary to solve the economic crisis. But he doesn’t get it. He doesn’t understand that we are in a prolonged debt-induced deflationary depression. He doesn’t understand that we need shock and awe policies to revive the economy. He is part of the economic team advising the President that a slow recovery has started, and while the next few months will be rocky eventually the economy will heal itself. This means he is advising the President to wait and watch rather than to act. The economy has reached the point where the straw has broken the camel’s back. The weight of the debt is too much for the economy to carry. The U-6 unemployment rate is 16.8% and 1 in 8 mortgages are over 30 days past due. By this time next year the U-6 unemployment rate my pass 20% and most of those mortgages that are delinquent will wind up in foreclosure. He is a nice sharp technocrat. But he has no vision on how to lead the economy to the Promised Land. We need a person of economic vision guiding our President. Where is our modern day John Maynard Keynes?
Posted by Michael A. Kamperman on September 8, 2009
The Zombie Banks are suffocating the consumer. The latest data for July shows that consumer credit fell $21.6 billion in July. This is an all-time record low. Additionally, consumer credit for June was revised down with credit dropping $15.5 billion. Consumer credit includes almost all forms of secured and unsecured consumer credit, except for loans secured by real estate. The consumer is not being cautious with credit as many in the media report over and over. The consumer is being denied credit by the Zombie banks. The standards for consumers to receive a loan from a bank are getting tighter and tighter. There is no meaningful shadow banking system left to step in and provide alternative credit options to consumers. The consumer accounts for 70% of the nations GDP. Anyone thinking the U.S. economy is going to have inflation and a V-shaped recovery without consumer spending kicking in needs to have their head examined. Without access to credit, the consumer will continue to be forced to spend less and less. The reason the unemployment rate keeps rising is the consumer cannot access affordable credit to provide the spending that creates jobs.
This week Washington will continue to debate healthcare when they should be debating fixing the broken credit markets and finding jobs for the unemployed. The July credit numbers come after the Zombie banks either passed the vaunted Stress Test, or raised the amount of capital required by the Treasury. So why are the banks not lending in this zero interest rate environment? It is because the credit markets remain broken. The smoke and mirrors Wizard of Oz Stress Test trick to not look behind the curtain is a failure for the real economy. Unless real steps are taken by Washington to fix the broken credit markets the economy will remain mired in a deflationary depression.
The solution is to create a “bad bank” and clean up bank balance sheets once and for all. Then, the federal government needs to back the securitization market so banks have a place to sell their loans and recycle the cash into another loan. Finally, if Washington wants to see the economy move forward they need to open up credit to people with subprime credit scores. The moral high ground aversion to loaning to people who have been down on their luck in the last two years is killing the economy and causing large scale unemployment. Many people who said that people with subprime credit scores shouldn’t get loans last year have found themselves unemployed this year as business has dried up. We all know someone who is unemployed. Is our puritanical moral superiority worth seeing those people we know lose all of their savings, their homes, and their self-esteem? I think not. I think it is high time Washington got serious about saying the economic crisis is the biggest crisis facing the country. Then, I think both republicans and democrats need to sit down in good faith and negotiate solutions for the good of the country and not for the good of their own personal 2010 election prospects.
Posted by Michael A. Kamperman on August 28, 2009
Japan just reported unemployment in the country has risen to 5.7%. While this is low by our standards, it represents a post World War II high for the Japanese economy. Additionally, Japan also reported that their core CPI for the last 12 months was -2.2%, which is also a post World War II low for deflation. It is widely expected that the Japanese people will vote out the ruling Liberal Democratic Party and change leadership. The Democratic Party of Japan is led by Yukio Hatoyama, who will become the Prime Minister should his party win. Mr. Hatoyama is promising to not raise taxes, cut wasteful government spending, and reign in the bureaucracy. Basically, Mr. Hatoyama wants Japan to revitalize its consumers to generate internal demand. He envisions Japan’s economy being less dependent on exports to the U.S. This is great news for Japan and for the world economy if the Democratic Party wins and Mr. Hatoyama is successful in implementing his vision. Japan will have a much healthier economy if it strengthens internal demand and is less dependent on exports. The people of Japan are voting to make their economy function more like the economy functions in the U.S.
Ironically, the let them eat cake leadership in Washington is looking to go in the opposite direction. The Obama Administration has decided to adopt the economic strategies of the very soon to be thrown out Liberal Democratic Party. Rather than fix the broken credit markets so that consumers and business can have easier access to credit, President Obama’s economic team has chosen to have Zombie banks that make loans only to the most credit worthy borrowers while leaving most others left out in the cold. Furthermore, rather than looking to stimulate internal consumer demand as the key solution to our economic woes, the Obama team is preaching a strategy of higher savings for U.S. consumers and more of a reliance on an export driven economy. Never mind that the Obama economists have yet to answer the crucial question export to whom?
The Obama Administration needs to take their cue from the Democratic Party in Japan. Empower the consumer and focus on an economy primarily dependent on internal demand rather than exports. To do this the Obama administration will need to get serious about fixing the broken credit markets. Unemployment will keep rising and deflation will keep going lower until the average U.S. consumer can obtain a loan to buy a new car or a home. Right now if your credit score is under 700 it is very difficult to obtain a loan. Many people cannot obtain loans that still have jobs and have credit scores over 700. Over half of the country has a credit score under 690. How can we sell all of the houses we need to sell when we have a supply of single family homes for 70% of our population and only about 40% of our population can qualify for a mortgage right now? To demonstrate the fallacy of the Zombie bank policy now over 9% of prime mortgages are 30 days delinquent, which is way above the normal average of 2%. Prime mortgages are made to people with good credit scores above 700. But a bunch of these people have lost their jobs because we no longer build houses or cars for the average American. Japan has learned that the traditional U.S. economic model is the best one available. So why are we trying to abandon it to develop a production based export economy?
Posted by Michael A. Kamperman on August 23, 2009
Christina Romer, the chairperson of President Obama’s Council of Economic Advisers, says “Deficits do matter.” “No one believes that more than the president.” First we lost the Fed this week and now we lose the President. For those wondering how to interpret these comments let me translate. Ms. Romer is saying the President cares more about satisfying the bond vigilantes in China and on Wall Street than he does about whether or not the average American keeps their job or their home. First the Fed thinks keeping Zombie Banks that don’t go under, but don’t lend either, will eventually work even though it didn’t work in Japan. Now the President is assuring the balanced budget hawks the federal government is prepared to either raise taxes or slash spending in the middle of the greatest downturn since The Great Depression. Perhaps he can channel the ghosts of Herbert Hoover and FDR to find out that if they had a chance to do it all over again the last thing they would have done is worry about the deficits until the economy was strong enough to stand on its own. We are still hemorrhaging jobs and we have significant deflation. Washington needs a real stimulus plan, needs to fix the broken credit markets, and needs to print a lot more money. But it is obvious that this will not be happening anytime soon. Hence, the “Great Unraveling” will continue unabated.
The “Great Unraveling” is simply the process of the economic dominoes falling into each other one by one. A person loses their job, loses their home, and quits spending money at the local clothing store and restaurant. The local clothing store and restaurant go out of business and the owners default on their mortgages. These dominoes will continue to fall into each other until something stops them. In the Great Depression the domino stopper was World War II. In the Panic of 1873 the domino stopper was time. In the Japanese Lost Decade the dominos have not stopped falling into each other even though their crisis started 20 years ago. Do you know a family member or close friend without a job? Is there a home in your neighborhood that is vacant? Do you see local businesses closing their doors? These are the economic dominos that represent the “Great Unraveling.” That is what a debt-induced deflationary depression is all about. Those trapped in post World War II inflationary boom bust cycle thinking erroneously believe that the dominos will reverse on their on. They won’t.
Consider that we will enter September with more people unemployed than at anytime since the crisis began. Consider that we will enter September with more people delinquent on their mortgages than at time since the crisis began. Consider that those that lost their homes already and those that have been out of work for more than a year are not counted in these statistics. Consider that state and local governments enter September with lower spending levels and higher taxes than they entered last September. Consider that most for profit and non-profit institutions enter September with small budgets than they entered last September. We enter September weaker, not stronger. The consumer has shown no signs of opening their wallet, except for those with clunkers to unload. Homebuyers are scarce, except for first time homebuyers taking advantage of the $8,000 tax credit. To balance the budget the federal government has to end the few kernels of stimulus spending that have actually been working. However, I would like to suggest a budget cut that will have overwhelming bipartisan support amongst the American people. Until the unemployment rate is back under 8% as promised, let the President, every senior member of his Administration, and every member of Congress take a 50% pay-cut. We need to see an end to the “let them eat cake” policies Washington is sending us.
