On Thursday, November 6th The New York Times published the four articles which, in sum, offer a snapshot of where our economy is, and where it’s heading. Excerpts from those articles and my comments follow:
“Bleak Reports Keep Markets in Free Fall”
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Despite stabilization in the credit markets and lower interest rates around the globe, the last two days were the worst in the American stock market since 1987. In 48 hours, the Dow Jones industrial average dropped nearly 1,000 points, and the Standard & Poor’s 500-stock index, a broader measure of stocks, lost nearly 10 percent of its value.
I’ve preached since last July that our total American debt is so great that at least 80% of it can never be repaid. If I’m right, 80% of the value of all paper debt instruments (stocks, bonds, futures, retirement funds, etc.) must be repudiated. A two-day, 10% fall in the value of stocks is consistent with my 80% prediction.
“Investors appear to be betting that the worst is yet to come. . . . Shares of bank stocks fell on Thursday by 7 to 10 percent, single-day swings that would have been unthinkable a short time ago. These days, fleeting headlines can move the market just as much as interest rate cuts and major economic data.
Interest rates once meant a great deal—when we had real money (gold and silver coin) and two wide oceans to prevent American capital from fleeing to foreign countries that paid higher interest rates. So long as the physical money was physically “trapped” in the USA, if the Federal Reserve lowered interest rates, private capital had little choice but to accept those rates.
Today, however—thanks to the internet and a fiat/digital monetary system—funds can circle the globe at the speed of light and capital can flee instantly from countries that lower interest rates to countries that provide higher interest rates.
Result? When today’s Federal Reserve lowers interest rates to supposedly stimulate the economy, lenders instantly move their money out of the U.S. and into foreign countries paying higher interest rates. Fleeing capital decreases the domestic supply of money; the value of the increasingly scarce remaining dollar rises; prices fall; and we enter a period of deflation which guarantees a recession or even a depression. Thus, insofar as digitized capital is now free to flee lower domestic interest rates, lowering interest rates now tends to slow rather than stimulate domestic economic activity.
This may explain why several central banks and nations recently agreed to lower their interest rates in concert—to inhibit the flight of domestic capital to more profitable markets.
“Retailers Report a Sales Collapse”
“Sales at the nation’s largest retailers fell off a cliff in October, casting fresh doubt on the survival of some chains and signaling that this will probably be the weakest Christmas shopping season in decades. Analysts said the striking sales declines at retailers almost certainly portended an extended, severe recession. John D. Morris, a retailing analyst with Wachovia, said, ‘October was every bit as bad we feared—maybe worse.’
“Kimberly Greenberger, a retail analyst at Citigroup said, ‘What we’re hearing anecdotally from different retailers is that when they’re putting something on sale at 30 or 40 percent discount it is no longer having an effect on consumers. They’re having to cut prices 50 to 60 percent to get consumers interested.’
“Consumers are simply shell-shocked by all the grim financial news. Analysts said they expected a new wave of bankruptcies after the first of the year.”
“In Washington, Automakers Plead for Aid”
“Detroit’s Big Three automakers pressed their case for more financial aid from the federal government because of the bleak prospects for their industry. Analysts expect GM and Ford to each report losses of more than $2 billion in the third quarter.
“Detroit’s Big Three” are not so “big” anymore, are they? Perhaps they should change their name to “Detroit’s Remaining Three”.
“The meeting with Capitol Hill’s top Democrats . . . centered on a request by GM, Ford and Chrysler for up to $25 billion in loans to help the companies . . . during the worst sales market in 15 [some say 50] years. After the meeting, Representative John D. Dingell, Democrat of Michigan, called the discussions “extremely productive” but offered no details on when, or if, an aid package might be forthcoming.
Ohh, goody! The “discussions” weren’t merely “productive,” they were “extremely productive”. I am soooo relieved. My confidence in the economy, Detroit and Democrats soars with each passing day.
If only “Detroit’s Remaining Three” (and America in general) were as “extremely productive” at making cars (and other products) as we’ve become at having “discussions” and arranging finances, then “Detroit’s Remaining Three” (and the U.S., itself) might not be on the verge of bankruptcy.
“Ms. Pelosi issued a statement saying the group discussed ‘how to protect hundreds of thousands of workers and retirees, safeguard the interests of American taxpayers, and use cutting-edge technology to transform blue-collar jobs to green-collar jobs for generations to come.’
“Generations to come,” hmm?
Well, when it comes producing actual products, the U.S. may have lost its edge, but when it comes to producing more mirrors, pumping sunshine and blowing smoke, our federales have no rival.
“Asked if Congress would take up the [auto lending] proposal when it returns to Washington on Nov. 17, a spokesman for Ms. Pelosi said, ‘I wouldn’t go that far.
In other words, the really, really, really “extremely productive” discussions will probably produce no additional loans for “Detroit’s Remaining Three”. We can therefore expect either GM or Ford (or maybe both) to file for bankruptcy in the next 180 days.
“Senator Reid was also not specific about what aid Congress might provide. The Detroit executives slipped out of meetings with Ms. Pelosi and Mr. Reid, avoiding reporters in both places.
Isn’t that encouraging, hmm? If the “discussions” had truly been “extremely productive,” why wouldn’t the auto execs brag to the media? Since the execs avoided the reporters, could it be that the “extremely productive” discussions produced “extreme” quantities of hot, political air—but no substantive hope?
“A spokesman for G.M. said the executives had a ‘frank and constructive discussion’ about Detroit’s ‘deteriorating liquidity situation’ and, ‘We are committed to working closely with Speaker Pelosi and Senate Majority Leader Reid to ensure immediate and necessary funding to keep the auto industry viable . . . during this critical time.’
Oooh, dear! I thought they had an “extremely productive” discussion (Yaaay!) but now it appears they only had a “frank and constructive” discussion (Booo!).
I wonder how much “immediate and necessary funding” auto industry executives delivered to Democrats in the last two or three elections to “keep the Democratic Party viable”. Do you suppose the auto execs bet on the wrong political horse (Republicans) and the Democrats held a grudge? I.e., if the auto industry didn’t fund the Democrats, could the Democrats refuse to fund the auto industry out of spite?
“The expected third-quarter losses from G.M. and Ford . . . will come on top of dismal financial results for the first six months of the year, during which G.M. lost $18.8 billion and Ford lost $8.6 billion. October industry sales dropped 31.9 percent from the period a year earlier. David Healy, most recently with Burnham Securities, said, ‘I’ve never seen anything like this. But if they can get the federal money, I think there’s a decent chance they can survive.’
“A decent chance!” “A decent chance!”
Yippeeee! “Detroit’s Remaining Three” have a “decent chance to survive”!
Happy days are truly here again since any fool can tell you that a “decent chance” is far better than a mere “snowball’s chance in Hell.”
O’ course, this “decent chance to survive” is conditioned on getting $25 billion from the Democrats. But judging from Speaker Pelosi’s “statement” and the auto execs avoiding reporters, it’s doubtful that any loan will be soon forthcoming.
Soooo—it looks like “Detroit’s Remaining Three” may actually have a “snowball’s chance” (rather than a “decent chance”) to survive.
Well, look at the bright side: They’ve still got a chance. (And if your retirement fund is invested in Ford or GM, you might also still have “a decent chance” to bail out.)
In fact, it looks like “Detroit’s Remaining Three” may soon be reduced to “Detroit’s Remaining Two” or maybe even “One”. (Kinda reminds me of the old Agatha Christie novel: “And Then There Were None”.)
“Of the three Detroit companies, G.M. appears to be in the most perilous condition. G.M. had been burning through an estimated $1 billion a month this year . . . . As a result, G.M. could run out of the necessary cash to pay its bills and finance operations by next year.
Technically, the sentence, “G.M. could run out of the necessary cash to pay its bills and finance operations by next year” is a drawn-out and understated way of saying “G.M. could be bankrupt before January 1st, A.D. 2009.” That’s less than 60 days from today.
“In making pleas for government aid, G.M. outlined in detail how the failure of Detroit’s auto companies would have a ripple effect on the economy that could cost hundreds of thousands, perhaps even millions, of jobs in the United States.”
Why is it that the primary problem with America is that the industries and companies that are “too big to be allowed to fail” are failing? Is it possible that America made a fundamental error in allowing the majority of capital, credit and power to be concentrated in only a few hands? Would America have been better off with ten relatively small domestic automobile manufacturers than it was with the “Big Three”?
When Fannie Mae and Freddie Mac were empowered and encouraged by gov-co to insure 80% or more of all subprime mortgages, did that concentration of credit and power ultimately guarantee a systemic failure?
I believe the answer is Yes. I believe that as power and wealth concentrate into fewer and fewer hands, our nation approaches catastrophe ever more quickly.
What did the Republicans achieve in the past 8 years?
A: Increased concentration of wealth and power in the hands of the elite.
Result? Not yet absolutely clear, but we are at least on the verge of a “serious” recession if not a “systemic” collapse.
When Obama’s Democrats take office, they’ll probably concentrate more wealth and power in the hands of the federal government (as opposed to the “elite”). I doubt that the switch to the Democrats will make much difference to our economic prospects. Power and wealth will probably continue to concentrate—only into a different set of hands.
Inevitable solution? Return to smaller enterprises and smaller governmental institutions (like States, counties and cities) where independence, individual talent and personal initiative are less easily suppressed by entrenched bureaucracies.
No doubt that’s where we’re headed: towards a rebirth of freedom in this country. Unfortunately, we may have to fight our way through a decade or more of economic and political catastrophe before we get there.
Nevertheless, it appears true that the only way to avoid a systemic collapse is to avoid systemic concentrations of wealth and power. When it comes to national and economic power, less is more.
“Hospitals See Drop in Paying Patients”
“Some hospitals say they are seeing fewer paying patients — even as greater numbers of people are showing up at emergency rooms unable to pay their bills. Some patients with insurance are deferring treatments like knee replacements, hernia repairs and weight-loss surgeries—the kind of procedures that are among the most lucrative to hospitals. Many people are going to the hospital only when they absolutely need to. ‘The only way they are going to tap the health care system is through the emergency room.’ Making matters worse for some hospitals has been a slowdown in bill payments, particularly by state Medicaid programs. Many hospital executives also expect outright reductions in payments by [federal] Medicaid and Medicare.
What can’t be paid, won’t be paid. The fact that state governments are delaying payments (and the Feds are expected to soon do so) indicates that even state (and federal) governments are short on funds. That’s no cause for optimism.
“Robert Shapiro, the chief financial officer at North Shore-Long Island Jewish Health System, said, ‘There’s a lot of C.F.O. doom and gloom. The sky may be really falling this time.’
“Rapid moves by hospitals to cut costs — by laying off workers, consolidating facilities and freezing construction and other capital spending — are an abrupt change for an industry traditionally seen as insulated from economic woes. David A. Rock, a health care consultant in New York, said, ‘It’s safe to say hospitals are no longer recession-proof’.”
Why are hospitals no longer “recession-proof”?
Maybe it’s because we aren’t in a recession.
Maybe—whether we know it yet or not—we’re already in a depression.
The possibility that we might be in a depression without yet knowing it is not fantastic or unprecedented. Looking back, historians agree that the Great Depression started by A.D. 1929. But at the time, as late as A.D. 1933, lots of Americans still doubted that we were in a Depression.
In truth, if we go into another depression, our politicians won’t admit that fact until forced to do so and the American people as a whole won’t recognize a new depression until after it’s at least a year or two old.
So what do these New York Times “snapshots” really tell us? Not so much. Nothing we didn’t already know or suspect. The stock markets, retail sales, car sales and even hospitals are in trouble (and we didn’t even talk about housing). Credit is tight. Unemployment and bankruptcies are increasing. These “snapshots” merely confirm our suspicions: The economy is in deep trouble; the trouble is going to get deeper; the end is not in sight; another “great depression” is possible.
Buckle up.
