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...the Pension Benefit Guaranty Corp. is increasing its investments in more volatile and risky securities because it needs the higher returns from those securities to stay solvent. In other words, the government agency that insures pension funds is essentially going to the casino to gamble in order to cover its potential liabilities.
The toxic waste just keeps seeping out of the US's speculative, increasingly non-productive, and overcomsumptive economic cesspool . . .
The PBGC isn't gambling to "stay" solvent, I believe they are throwing a hail Mary into the market abyss trying to "get" solvent. Some folks I know on Wall Street think this was a move driven by the Plunge Protection Team to gain a pseudo-govt controlled $55B market player that can rush to the scene of a crash...can you say "monoline?"
The last week's news has been beyond dismal. Pretty much all forms of variable rate municipal bonds are now in the gutter, with pretty dire implications for cities also faced with the bottom dropping out on property tax revenues. The ratings agencies have affirmed AAA ratings on bond insurers...not because they warrant a near-treasury grade rating (in fact they're obviously in deep, deep trouble) but rather because the consequences of calling it as it is would force a sell-off of bonds insured by the impaired insurers by pension funds and the like. ERISA prohibits investing pension money in junk debt, so I guess the ratings agencies think it's better to label junk debt as AAA rather then force the pension funds to move their money to something actually safe? There is no sheriff in town any longer. AAA means nothing, and that fact will be the undoing of more than a few of the unwashed Motley Fools of the world--sooner rather than later, I suspect.
News of multi-$billion writedowns coming to banks all around us are so common now that their cumulative significance hardly registers. A billion is a thousand times a million. We're about to see trillions...that's millions times a million dollars...in contraction coming as a result of the known losses in leveraged banking and their consequences. A trillion here, a trillion there...pretty soon we'll be talking about some real money.
A lot of folks with shallow historical knowledge of the First Great Depression seem to think that the crash of Oct 1929 was the depression. Not so at all...the crash was a landmark event along the way, but the real damage was really done over the course of years of steady punishing declines in the early 1930s which fed upon themselves. The depression lasted over a decade until WW II got into the way. We haven't had a one-day hit like Black Friday (yet), but the Dow is down 2000 points from its peak, and a look at the markets since Aug 07 paints a cumulatively ugly picture developing that is getting uglier by the day. I have watched the dollar lose 35% of its value against the Chilean peso in the last 3 years, with similar losses to the Euro and Yen.
I'm waiting to see the PMI numbers this week...I expect we're going to see the next leg down developing there with ISM PMI in the mid 40s. The hammer should soon really start to fall in employment. Commercial real estate is now in an accelerating decline, as I suspected it would be, and I see consumer credit as the next big anvil hanging over our heads. We're already seeing pullbacks in MEW through HELOCs and increasing impacts on extension of credit card lines...but the main effort there is still in front of us. When consumers realize they can no longer borrow at will...that extension of credit is not a Constitutional right, they will panic and slash spending, and the down-leveraged effects of that loss in spending will be magnified and significant.
And then there's price inflation. Wheat futures are repeatedly hitting the daily up-side stops in commodity market trading...we've seen something like a 400% increase in less than six months. Oil is trading at $102 a barrel. What will the impacts of a $7 loaf of bread and $6/gallon gas be upon main street?
We're crabs in a pot, and the heat has already been turned up.
The PBGC isn't gambling to "stay" solvent, I believe they are throwing a hail Mary into the market abyss trying to "get" solvent. Some folks I know on Wall Street think this was a move driven by the Plunge Protection Team to gain a pseudo-govt controlled $55B market player that can rush to the scene of a crash...can you say "monoline?"
The last week's news has been beyond dismal. Pretty much all forms of variable rate municipal bonds are now in the gutter, with pretty dire implications for cities also faced with the bottom dropping out on property tax revenues. The ratings agencies have affirmed AAA ratings on bond insurers...not because they warrant a near-treasury grade rating (in fact they're obviously in deep, deep trouble) but rather because the consequences of calling it as it is would force a sell-off of bonds insured by the impaired insurers by pension funds and the like. ERISA prohibits investing pension money in junk debt, so I guess the ratings agencies think it's better to label junk debt as AAA rather then force the pension funds to move their money to something actually safe? There is no sheriff in town any longer. AAA means nothing, and that fact will be the undoing of more than a few of the unwashed Motley Fools of the world--sooner rather than later, I suspect.
News of multi-$billion writedowns coming to banks all around us are so common now that their cumulative significance hardly registers. A billion is a thousand times a million. We're about to see trillions...that's millions times a million dollars...in contraction coming as a result of the known losses in leveraged banking and their consequences. A trillion here, a trillion there...pretty soon we'll be talking about some real money.
A lot of folks with shallow historical knowledge of the First Great Depression seem to think that the crash of Oct 1929 was the depression. Not so at all...the crash was a landmark event along the way, but the real damage was really done over the course of years of steady punishing declines in the early 1930s which fed upon themselves. The depression lasted over a decade until WW II got into the way. We haven't had a one-day hit like Black Friday (yet), but the Dow is down 2000 points from its peak, and a look at the markets since Aug 07 paints a cumulatively ugly picture developing that is getting uglier by the day. I have watched the dollar lose 35% of its value against the Chilean peso in the last 3 years, with similar losses to the Euro and Yen.
I'm waiting to see the PMI numbers this week...I expect we're going to see the next leg down developing there with ISM PMI in the mid 40s. The hammer should soon really start to fall in employment. Commercial real estate is now in an accelerating decline, as I suspected it would be, and I see consumer credit as the next big anvil hanging over our heads. We're already seeing pullbacks in MEW through HELOCs and increasing impacts on extension of credit card lines...but the main effort there is still in front of us. When consumers realize they can no longer borrow at will...that extension of credit is not a Constitutional right, they will panic and slash spending, and the down-leveraged effects of that loss in spending will be magnified and significant.
And then there's price inflation. Wheat futures are repeatedly hitting the daily up-side stops in commodity market trading...we've seen something like a 400% increase in less than six months. Oil is trading at $102 a barrel. What will the impacts of a $7 loaf of bread and $6/gallon gas be upon main street?
We're crabs in a pot, and the heat has already been turned up.
Bob, you have summed it up quite well. A couple of more bricks for the wall: Americans have glazed over the fact that oil prices are near their all-time inflation-adjusted high--that when refineries have been operating at what is considered near full production and there have not been significant impairments to crude production or oil imports to the US for some time now. I consider the odds of such "good luck" continuing for very long at about zero. So, if oil is at a record price when things are actually going about as well as can be hoped for in that area, what will they do when things aren't going so well? $150/barrel? $200? More? What if some country, or freelance terrorists, decide to attack some of the oil production or refining facilities upon which the US depends in this current tight supply situation? I cringe to think about it. A likely event? I'd say yes.
You are absolutely right, Bob, about the last Great Depression. The stock market crash may have started it (and many will argue that other factors actually started it and the crash just was investor recognition of that), but the Depression was a long-term disintegration of the US economy. Many would argue that its culmination was the widespread run on the banks in 1933, but there was also another leg down in 1937. World War II effectively ended the Depression, but it also signaled the start of the US amassing a huge national debt that now threatens to crash the economy once more. Worst of all, fundamental problems in the US economy and living arrangement are much more serious this time around. James Kunstler hit that nail right on the head with this quote (pardon me for repeating this, but it bears repeating, both for emphasis, and for its lucidity):
Quote:
We're not heading into a recession but a major depression, worse than the fabled trauma of the 1930s. That one occurred against the background of a society that had plenty of everything except money. Back then, we had plenty of mineral resources, lots of trained-and-regimented manpower, millions of productive family farms, factories that were practically new, and more than 90 percent left of the greatest petroleum reserve anywhere in the world. It took a world war to get all that stuff humming cooperatively again, and once it did, we devoted its productive capacity to building an empire of happy motoring leisure. (Tragic choice there.)
This new depression, which I call The Long Emergency, will play out against the background of a society that has pissed away its oil endowment, bulldozed its factories, arbitraged its productive labor, destroyed both family farms and the commercial infrastructure of main street, and trained its population to become overfed diabetic TV zombie "consumers" of other peoples' productivity, paid for by "money" they haven't earned.
To read these various forums, one gets the sense of people pining to live someplace other than where they are--looking for the relatively superficial material comforts of a "nice place to live," with beautiful scenery, plentiful jobs, good schools, low crime, and a cheap cost of living. All laudable goals--except that far too many of those desires have been financed with debt that the borrowers have no real hope of repaying. Unfortunately, the coming reality is going being to be something quite different. Millions, if not most Americans--especially most Americans under 50, who have never truly experienced a rough economic period in their adult lives--are going to have to learn a new term: "hunker down." That means survival, keeping some food on the table, keeping the heat bill paid, keeping a roof (even an old leaky one) over one's head. It means "austerity"-- a term lost on most of today's Americans. And it very well may mean staying where you are, or possibly not even living where you want to. The story of a depression isn't about not getting everything you want--it's about managing to get even the bare necessities of what you need for survival. I don't think we Americans are emotionally prepared for that, but we'd better get to be--it's coming, and way faster than people may think. And, yes, I am not optimistic about how well Colorado is going to weather this--far too much of its economy is invested in the very speculative excesses (real estate, recreation, etc.) that will be the first to crash and will be the deepest to decline.
Sobering meditations indeed. Let's pray it doesn't go that far. The Americans of the 1930s were very different in character from today's. In the 1930s it was understood that if you didn't work you didn't eat. People had more respect for authority, religion, tradition and each other. Slackers, hucksters, criminals and deviants were not well tolerated. It was a nation that rolled up it's sleeves, got it's hands dirty, and did what had to be done to survive hard times. Most people had real skills. Many were farmers; almost everyone had at least a small vegetable garden. This generation of Americans will most likely whine like stuck pigs and try to sue somebody for taking away their meaningless self-indulgent live styles. It won't be pretty. They don't have basic survival skills anymore, and many of them haven't done an honest day's work in their entire life. Some are paid, in effect, to surf the internet all day. Good luck with their law suits, and since the've declared God illegal they won't even have Him to turn to...
I do remember from history that the 1930s were also a time where women and minorities were under the thumb, black people were being lynched and not allowed to vote, Jews not accepted in educational and work and medical facilities...
But yes, people often had real abilities related to real production. When I think of some of the Internet/white-collar work that there is, I think, "We're a long way from hunting and gathering."
As pessimistic as some of the above posts are, I do think they're accurate.
. . . Slackers, hucksters, criminals and deviants were not well tolerated. . .
Should we romanticize the depression as the best of times?
The likes of Al Capone, Bugsy Segal, Two Gun Alterie, Bonnie and Clyde, Lucky Luciano, John Dillinger, the Barker Gang, Baby Face Nelson, Pretty Boy Floyd were almost folk heroes.
The FBI came into existence as a response to criminal activity in the 30's.
Should we romanticize the depression as the best of times?
The likes of Al Capone, Bugsy Segal, Two Gun Alterie, Bonnie and Clyde, Lucky Luciano, John Dillinger, the Barker Gang, Baby Face Nelson, Pretty Boy Floyd were almost folk heroes.
The FBI came into existence as a response to criminal activity in the 30's.
The Depression also brought Hitler to power in Germany (yep, he was initially elected), and Mussolini in Italy--not to mention strengthening the grip another ruthless dictator had on his country--Stalin in the Soviet Union. Also, when a certain country found itself cut off from the raw materials (oil, steel, etc.) to run its economy, it decided that its national security demanded that it go to war to get those materials. That, of course, was Japan.
World War II effectively ended the Depression in the US--but before it was done, approximately 48 MILLION civilians and military personnel died worldwide in that war. There were 2.3 billion people living on earth in 1940. The WWII death toll computes to 2.1% of the 1940 world population. If a similar percentage death toll were to be experienced in a war today (the percentage would likely be much higher because our weapons can be much more efficient at killing), that would amount to approximately 139 MILLION dead. Do I think a catastrophic war could be the result of a deep depression? Yes, especially since such a war would be fought in large part over diminishing and depleting resources. Are Americans even remotely prepared for such hardship and sacrifice? Nope--not even close.
I wouldn't count out the American spirit just yet. We're a resilient and creative bunch!
I don't count it out, but I do note that we haven't seen it tested in a serious way in many, many years. The percentage of Americans that has ever put the interests of others first and served their country or community grows smaller by the day. OTOH, the American people are still the most generous donors in the world by far, even if we don't often get credit for it.
It may well be that the next big test of that spirit is already rising in front of us.
I don't count it out, but I do note that we haven't seen it tested in a serious way in many, many years. The percentage of Americans that has ever put the interests of others first and served their country or community grows smaller by the day. OTOH, the American people are still the most generous donors in the world by far, even if we don't often get credit for it.
It may well be that the next big test of that spirit is already rising in front of us.
I agree with you, Bob. I think a second Great Depression in this country will test that spirit severely. The big question will be whether the majority of Americans abandon the "me first, I want mine, I'm entitled, it's not my problem, let somebody else do it, it's not my fault, it's not my responsibility" attitudes that have been so prevalent for the last 30 years or so and adopt a more cooperative "we're all in this together" frame of mind. The suburban living arrangement we have so enthusiastically embraced in the last half century is much more a material manifestation of the former attitude, rather than the latter. What has been lost in modern day America was the balance that had previously existed (including through the first Great Depression) between individual freedoms, personal responsibility, self-preservation and self-determination; and that of community well-being, self-sacrifice for others, and dedication to achievement of communal goals. That communal spirit was strongest during World War II, when anything less might not have allowed the Republic to survive. It was also a period of great personal sacrifice by Americans--many making the ultimate sacrifice for their country. Whether that community spirit can be rekindled or if our selfishness, hedonism, and obsession with consumption has extinguished it remains to be seen.
When consumers realize they can no longer borrow at will...that extension of credit is not a Constitutional right, they will panic and slash spending, and the down-leveraged effects of that loss in spending will be magnified and significant.
or maybe they will borrow more using their super duper 401(k) debit card...never underestimate the power of human stupidity or the sleaziness of banks...
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just when ya thought it couldn't get any crazier
