United States Heading towards a Depression?

A lot of dollars are going into commodities as a hedge against the weakening dollar

There is a world wide wheat shortage and prices are expected to hit $15 a bushel. A few years back the price was around $3. World wide wheat reserves are now only 50 days down from 116 days in the 1991. In 5 of the last 6 years the world has consumed more wheat than it has produced.

In China inflation is over 10% and food inflation is hitting 30%. The Chinese will soon have to revalue the Yuan. Once the happens US inflation will be out of control.

 

More home foreclosures are coming. 10% of all mortgages are in negative equity.

``The first quarter will be ugly,'' said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York. ``

The Labor Department said initial claims for unemployment insurance climbed 19,000 last week to 373,000, higher than forecast.

 

In my own selfish way I see this as a good thing
Celiac disease sucks but I've noticed in the last two years that manufacturers are using less wheat in everything from soups to bbq sauce.

 

Where is North when you need some stats defined...? I'd really think it would be interesting to find out what various factors have contributed to the rise in unemployment insurance being collected on that are not directly related to economic factors.

For instance, how many weather related or partial/seasonal unemployment numbers are in those numbers?

My neighbor has been unemployed (and typically is this time of year) longer than usual this year... While he works in an industry that should be affected by a decline in new construction, this is not what is lengthening unemployment status... An unusually long, cold, and snowy winter is!

It would be nice to see a break down of these numbers in terms of what portion are normal for this time of year, what portion are seasonal and what portion are weather related.

 

In NE Florida construction jobs have completely collapsed - and we're usually not effected much by seasonality.

The only construction jobs left are in city-sponsored projects like new roads and overpasses... To try to save the rest of the jobs, they're rushing an expansion at the port that would accommodate most of the construction labor force in generally lower-paying work.

 

The unemployment rare is seasonally adjusted.

First time claims at 373,000 isn't bad. The labor market is considered weak when the 10 week moving average is over 400,000 initial claims.

The problem now is the the democratic controlled Congress is trying to play 'Santa Claus' They want to give a 1 year extension of unemployment benifits and push forward a second stimilus package of money given directly to the states.

So now what is going to happen when we actually go into a recession and there is no money left?

Does the FED keep printing money until inflation is out of control and the dollar collapses?

The Euro pushed to to a record $1.5206 today. The British pound rose to $1.9914 from $1.9842. The dollar dipped to 105.36 Japanese yen from 106.45 yen, and 1.0503 Swiss francs from 1.0622.

http://news.yahoo.com/s/ap/20080228/ap_on_bi_ge/dollar;_ylt=Am2kOv9e2eTh2Ftg2a6MraWs0NUE

 

Need some optimistic, colorful, charts:

 

Treasury Secretary Henry Paulson said Thursday that many proposals being put by the Democrats to deal with the housing slump would do more harm than good.

Both Senate Banking Committee Chairman Christopher Dodd, D-Conn., and House Financial Services Committee Chairman Barney Frank, D-Mass., are leading congressional efforts to bolster the government's response to unfolding mortgage crisis

Among the items being considered are proposals to have the government buy $15 billion in troubled mortgages, change bankruptcy laws to allow judges to modify home mortgage loans to more favorable terms and provide assistance to state and local governments to help buy foreclosed properties.

http://news.yahoo.com/s/ap/20080228/ap_on_bi_ge/paulson_housing;_ylt=AvMXX6gMqPdNmj7Kk7UHrFRv24cA

 

The government buy homes? Maybe they should let FEMA handle that... They have a nice surplus of mobile homes no one can even live in... And they are still buying them back...

Let the market take care of itself.. It always does.

 

Oh geez, this stuff is so wrong on so many levels.

$15 billion of other people's money to bailout the banks and homeowners.

Change bankruptcy law so that Judges and can re-write contracts (anyone see the massive potential for abuse here?)

ARGH!

 

http://www.youwalkaway.com/

 

There's going to be a lot walk aways. People talk about losing their homes but the banks own them. I didn't know that they could live 8 months free.

15 billion is a starting point with the Democrats. By the time they finish adding onto the Bill, it will be 500 billion.

The FED is fast approaching two choices: the dollar or the housing bubble. The longer the FED waits to raise interest rates to support the dollar and foght inflation, the harder housing will fall.

 

The short term solution:

Leave taxes alone.. Leave the BUSH TAX CUTS in place
Raise interest rates
FREEZE variable/flexible rates
Set a limit of no more than 10 over prime on CC interest (make it law)
Eliminate Corporate Income Taxes 100%
Require unions to provide health care coverage, not employers or at least match it
Require unions to match 401k and pay into unemployment insurance
Eliminate ALL SIN TAXES... when you tax booze, cigarettes, and other items, you are only hurting some of the poorest people out there. If the shit is bad, make it illegal.. Stop taxing the shit out of it.
Institute a FAT TAX... if you are going to have a sin tax... People who are overweight pose just as much of a health risk and financial burden as those that smoke or drink too much!


Those that have, will buy... Those that do not, will recover, but they are still not taking a huge hit. It's not fair to those of us that have braved the storm already... Very few remember the hit many of us took under clinton, especially when he raised taxes and made taxed retroactive. We lost somewhere around 1.6 million as a result in combined business and personal income because of that.

I'm sick and tired of getting fucked for simply earning! We don't need any more feel good gestures motivated by guilt, else we will end up like we were in the past.

 

When the commercial real estate market hit depression in the late 1980's/early 1990's there was a period of time when buildings had $0 value.

Nobody would buy a building. Prices essentially fell until a market for repurchase started occurring. In the metro market in which I worked (one of the larger one's in the nation) I think buyer's started reapearing at about $0.25 on the dollar of previous value.

The industry collapse was not as severe nor did it directly hit consumer's like this one.

Clearly the construction of buildings ended. In fact some buildings stood semi finished with no money for further construction. Unemployment spread directly through industries that were directly tied to this business. I was friendly with an architect/designer that became a taxi driver.

The illiquid period lasted about 2 years or so, I seem to recall.

Meanwhile banks tightened credit across the board on all loans because of huge losses. That issue spread the impact of the industry depression into a recession around the country as many businesses were strapped for operating cash.

It took several years to pull out of that financial crisis. The cause was simple over construction of properties that far far exceeded demand. There were no "wierd" or deceptive" loans. The lending institutions went hog wild making loans and collecting fees. btw, Jeremy, I took an enormous personal financial loss on one of those deals. It sucked. Nothing I could do about it...and frankly I didn't expect then nor did I see then or now that someone (ie the govt) should have stepped in and made me whole. I made the investment. I was aware of market conditions. The docments, risks, etc. were clear to me. I took a big hit because of market conditions.

This crisis hits consumers far more directly via home loans going sour, home values dropping while occupied, big mortgage increases from ARM's that can't be paid, etc. The size of this crisis is larger than the crisis of the early 90's and its impact has spread around the world.

One wierd offshoot is this new type of auction loan. Large amts of debt were picked up by essentially low risk institutional borrowers that are consistently in debt markets (ie municipalities, etc.). The debt was essentially low cost, the debt borrowers were implicitely promised that the debt instruments were totally liquid--essentially sold as a virtual cash alternative, and penalty clauses (at least in some cases) were extraordinary high if the auction market failed.

In one case the Port Authority of New York saw its auction market closed. The debt holders were denied liquidity and access to their funds. The penalty debt was increased from 5% to 20%. The Port Authority Debt in question was $100 million.

When debt on $100 million goes from 5 to 20% it absolutely impacts the institution in a serious operational basis.

Employees get fired. Possibly operating elements or repair on bridges and tunnels gets cut back. The entire metro region of NY/NJ/Conn gets negatively impacted. That is almost 20 million people or about 6-7% of the US population.

Multiply that impact many times, should this middle sized market of new fangled financial instruments be impacted across the board, and you have many operating entities fooked for operating funds. Impact municipalities, hospitals, etc. and its impact is far reaching.

More to the point the impact can directly hit millions of people who had no direct influence on these financial instruments.

Would I step in and rip up the contracts and start over. Absolutely. Would you let some narrow contracts written by private institutions negatively impact wide swaths of the population.

What kind of a government would allow this to happen without intervention. If a consequence of potentially enormous impact across the board be allowed and protected from reworking because it was written without any oversight or consideration for its wide and potentially devasting impact on society then society or the nation has simply failed to take care of its people and failed to hold those accountable that can cause enormous damage.

The vast array of financial problems facing the US is enormous and wide ranging. It is new in its character. While some elements are similar to financial crises of the past, this situation is accompanied by a severe reduction in US production capability. Much of production has moved to other nations.

The choices of action or non action are difficult, I admit. The steps to take all come with some risk. Cut interest rates to spur business activity and you run the risk of increasing underlying causes for inflation. Try and control inflation and you tend to depress the economy. Help some and not others and you will create an uproar from those that aren't helped.

Nevertheless the govt should look closely at all sorts of alternatives. I'd say when many many are impacted negatively,and the causes of the impact are well out of their control then the govt should take steps to correct conditions that drastically impact citizens.

 

There are going to be a lot of graves this year for hedge funds.

 

I'm not sure what you are getting at, but with how illiquid the market is these hedge funds are having a hard time staying afloat.

 

Because bonuses are typically evaluated quarterly, there is an incentive for Managers to heavily leverage a fund, if it wins, he makes money, if he loses, he makes nothing. But if he makes little or nothing anyways, he won't last, so many recklessly gamble with their investors' money.

Gold and silver are rocketing up. I still think there is time to get in on Silver, I'm not 100% sure that Gold will match the Dow at a 1:1 ratio again, but if it does, not buying Gold will be one of my biggest regrets.