Friday, October 23, 2009

Predicting the Economy

First, a couple of quotes to set the tone:

From Paul Farrell at Marketwatch:

America has lost its soul and collapse is inevitable.

Get it? The engine driving the great "American Economic Empire" for 233 years will collapse, a total disaster, a destiny we created.

"Wall Street America" went over to the dark side, got mega-greedy and took control of "Washington America." Their spoils of war included bailouts, bankruptcies, stimulus, nationalizations and $23.7 trillion new debt off-loaded to the Treasury, Fed and American people. Who's in power? Irrelevant. The "happy conspiracy" controls both parties, writes the laws to suit its needs, with absolute control of America's fiscal and monetary policies.

From Ilargi at Automatic Earth:

The free market system has failed America miserably.

And it's not all that hard either to see why that is. If you let market participants free to pursue what is in their best interests, without forcing them to give priority to society's best interests, they will eventually figure out that the best single investment they can possible make is to buy the government. That allows them to make the laws. Which is detrimental to the rest of society, and leads to the sort of mess we're in right now.

The economic system we have is broken beyond repair. For those still in doubt, imagine another $50-$100 trillion in debt that needs to be serviced. The system can't do it, it can't even handle what's there now without fraudulent accounting and robbing the taxpayers of their future revenues.

If you can't keep corporations out of the government, disaster is assured for everyone but the corporations. No return comes close to buying political power. In the present American situation, there is no party that benefits from a larger government as much as corporations do. After all, they control the government.

Our economic, financial, capital, and credit system is done and gone. What you're looking at today is a corpse propped-up by the promise of future tax revenues from millions upon rapidly increasing millions of homeless and jobless Americans.

Unfortunately, that's just the beginning. Because the financial system has been allowed to infiltrate the political system to the degree in which it has (a full-scale take-over), America's political system is as bankrupt as its financial system is. It will take a long and hard time to replace.

James Howard Kunstler says much the same thing.

I'm amazed that the whole house of cards is still standing, but then again, the mass delusion hasn’t been punctured yet. My own prediction is: sooner or later, in God's own good time, the entire global economy will collapse to the point that money as we now know it will no longer have any value. The entire global economic system will have to be redefined from scratch, and this will be a slow and painful process. “Slow and painful” means, among other things, that the monthly check will no longer be coming in the mail. I’m really sorry about the pension you worked so hard for.

Stuff, however, will still have value, and barter will become very popular. This is why I always say, "Stuff is more valuable then money." But it's got to be the right stuff. Stuff you can really use -- food, tools, building materials, guns and ammunition, fruit and nut trees, livestock, irrigation systems, a good house that keeps out the wind and keeps you dry when it rains. Digital doodads and cars will lose most if not all of their value.

One intangible factor is: How fast will this happen? If it happens too fast for people to adapt to, then chaos will reign supreme, and all bets are off. If it happens over a period of at least a year or two (and ideally more), people will have a chance to transition to the new reality, and chaos would be less than it would be otherwise.

We're always fighting the last war. It's difficult to anticipate an unknown future, no matter how much we think we know. In this case, the “last war” is the Great Depression of the 1930s. But back then the population was much less, people still had a work ethic and farming skills, and most of the oil was still in the ground. The coming crash will be much more profound because the entire global economy will have to be redefined from the bottom up. People will have to figure out the value of everything all over again. How much is a pound of honey worth? How much is an hour of your labor worth? There will be some hard bargains to be made.

Like everybody else, all I can do is fight the last war. I’m still not quite there yet, but I’m doing the best I can to prepare for the worst 30s-type Depression I can conceive of, even though I know that whatever I do will never be enough.

I’m not surprised by the paralysis I see out there. In fact, it’s exactly what one would expect from a civilization going down the tubes. Americans, from Obama on down, have no Plan B. “Surely the Happyland Express will start running again? Maybe they had a minor breakdown and will be back on schedule soon?” I think not. But I’m just a blogger sitting here in my bathrobe and nothing else. Like every other writer, I write because I like the sound of my own voice. Who’s to say who’s right? Only time will tell. And by the time time has told its tale, nobody will particularly care what we’re saying back here in 2009. They’ll have their own problems to think about.