A Perfect Storm is Brewing !

Right up until the elections of 2004, you could have pigeonholed me into the "Conservative" category and you wouldn't have been wrong. I think I even thought of myself exclusively that way until recently. That definition changed for me when I took a good hard look at what either major political party had to say and how they were saying it and I realized that I really didn't fit comfortably into either party's dogma. There are things they both say and do that just piss me off they are so stupid.

I have always been somewhat of a political junkie and have been following politics since I was old enough to read. When other kids were groaning about the President being on all three channels, I would think "Cool", and then race to the TV to listen. My youngest brother used to think I was nuts, probably still does.

A storm has been brewing for the last several years, and we are starting to see the evidence of its arrival for the last 18 months or so. Individually, many events have occurred, which if not taken as a whole , don't seem like much to think about. My view is that we are fast approaching a "perfect storm" in America and if we don't understand it and recognize it and do something different than we are doing right now, then we are in for some very rough times ahead.

Right now is rough enough, what do you think it will be like if things get worse?

We are in the eye of the hurricane, the lull before the real storm. Enough platitudes. Enough generalizations. Here is our perfect storm and its gonna be painful and won't miss many of us because of the depth and breadth of the damage that is coming.

Where to start?

Frankly, it doesn't matter because the order in which it occurs doesn't really matter all that much, because all of it is so interconnected to begin with.

Any of these trends will start the decline.

1. When interest rates begin to rise once again the shock to the economy will be as devastating as the burst of the housing bubble was. Money is very fragile right now. Sooner or later the FED will have to raise rates, because the rates being so low is allowing inflation to rise ever so slightly. Credit becomes more expensive and more unavailable than it is right now. Credit payments go up, mortgage payments go up, profits will start to fall. Once that happens...
2. You think unemployment is high right now? Put any more pressure on business to maintain profits and/or share price and see where they begin to cut back. First thing to go will be new hires, then pay freezes, then plant and business closings, then layoffs. Once that happens....
3. The price of every day commodities goes up. Milk, bread, coffee , tea, gasoline, things made with plastic, natural gas, all rise to record levels, because companies and their stock prices that make these products are judged on how much their sales increase over time FIRST without regard to the profit made from current sales. Once that happens...
4. Consumers spend less and have less to spend. Hard purchases fall off to nothing (Appliances, cars, furniture etc) Once that happens....
5. More banks fail. Liquidity goes down (available bank assets decline) . Credit gets even tighter, and most businesses will not have access to credit. Once that happens....
6. More pressure is put on employment. More people are on unemployment. Once that happens...
7. Housing takes a huge hit (5 times bigger than now). Foreclosures rise to over 20 %, Bankruptcies rise to record levels (and that is more than now as well). While this is occurring, more and more pressure is put on the stability of the dollar. The value of the dollar falls. What that means is that when the value of the dollar falls, it is worth less and less against other currencies. The reason that is important is because we are very import heavy. When our money versus other currencies is worth less, every thing costs more. Once that happens...
8. That leads to inflation. See point number One, because we are now in a viscous deadlock where inflation rises , liquidity falls, the dollar falls, more people lose their jobs and their houses which then causes ? You guessed it. Inflation. Wash, rinse, repeat. Christmas is cancelled. Cut up the credit cards. Forget about new car sales, housing starts, economic indicators, plant closings etc. It will be more common to talk about who is still in business than it will be to talk about who isn't. Once that happens...
9. Stock prices start falling again. Once that happens....
10. The government (Congress and the President) and the Federal Reserve will feel tremendous pressure to "Act", to stop the crisis and to turn the economy around. It doesn't matter that they had little to do with the cause of the crisis because being a politician means doing things that will lead to being re-elected, not doing things that should be done. It hasn't meant that for a long time.

A lot more talk will ensue about "Stimulating the Economy", which means exactly what anyway ? Giving more money to banks? It will not matter by this time because the banks will not have any of our money anyhow as we have already spent it trying to pay for our houses and food. We the People are broke and in debt up to our eyeballs with no way out. How helped do you feel by the last round of car company and bank bailouts? Shouldn't Studebaker have gotten some of that money? How will the Government propose to "Act" anyway?

Well lets see.

1. One of the first things they always do is to extend unemployment pay. Sure, It helps short term, but is nowhere near enough. 25 % of what you are used to living on doesn't cure the problem. All it does is give you enough money to know you don't have enough money.
2. Congress will start to talk about and pass another "Jobs Bill". What the heck is a jobs bill anyway? Well friends what it is (and will always be) is a tax credit given to companies who hire the unemployed worker and a denial of sorts to those companies who do not. The end affect of this is to drive wages down. It has to. It has to be worth the companies investment in order to pay for itself or get a return on the investment. It gives a company a perfectly legitimate way to cut costs that is socially and politically acceptable. Never mind the fact that it is wrong.
3. More money will be thrown at projects and various "hard targets" because every one of these so called politicians want to be thought of as the next FDR. Every one of them wants a new catchy campaign slogan something like "The New Deal", "A chicken in every pot" or some such nonsense, because they see their job as to be reelected not to serve their constituencies. Think "Stimulus Package of 2009". That helped you a lot I am sure.
4. More money will be thrown at various entitlement programs (medicaid, medicare, SS) because this shows compassion for our helpless citizens who cannot defend themselves. Looks good come re-election time too.
5. Another well intended but meaningless "Home buyers" program will be introduced. There will be lots of rules and qualifiers and only a few million people will be eligible and fewer will wade through the red tape to use it, but, it looks good on paper and looks great and sounds great in a campaign speech.

What did all of this do? What is the answer?

(And never mind that there is more , much more because Congress can be very inventive when it comes to throwing away money.)

See here is the stupid part. They want our vote but do not trust us to do the right thing and we keep re-electing these bozo's. What they should have done was send every man , woman and child some money using some formula and said "Pay some bills" with this money. It would have been just as effective as the stimulus package was I think.

Or, maybe , just maybe, somebody could have realized that being upside down and under water over a hundred K is a "big freakin deal" when you are talking about a single family home.

I think it would have been cheaper in the long run, more effective and would have been a faster impact to do just three things

1. Realize that 80 % of us screwed up when we refinanced our homes and just pay down our principle on the overvalued portion of our homes or make the banks modify the loan terms and give them tax breaks to make up the difference. Don't bother giving me a tax break I can only use in April once per year. That is the ultimate in stupidity. How does it help to give me a break on next years taxes , when I can't afford gas for my car, my house or car payment and I don't have a job right now? How much sense does that make? Can someone please explain that to me? What if my mortgage company said to me "Beginning next month your payment goes down $500." Think that would help?
2. Give the judge in a bankruptcy hearing the power to modify terms of a mortgage. Current laws almost make certain I lose my house if I am in bankruptcy because they cannot do this. Hell if I am in Bankruptcy and my house if my biggest expense per month, would I be bankrupt if my house was not as expensive as it is? Yeah yeah, whomever borrowed the money is at fault. Whatever. 100 million foreclosures will make the great depression look like a lawn party, let me tell you. Put unemployment at 30 % and see how happy you are with your "Let em eat cake" attitude.
3. Don't barely lower taxes. It doesn't help at all. Screw adjusting the tax rate. Most of us would be hard pressed to see much of a difference in teeny tiny tax numbers anyway. I know you can stand around at big fancy dinner parties and talk about the 40 billion dollar tax cut you got passed for low income workers, but that extra $4 dollars on my individual paycheck doesn't mean squat. Eliminate taxes on people who make less than 25,000 dollars per year. Eliminate loopholes on people who make more than 250,000 dollars per year. Problem solved.

Thankx for reading my rant !

bigmike

Visit my blog online at http://bigmikerant.blogspot.com/

I encourage you to leave your own comments or reactions to my rants (even if you don't agree with me) in the comments section on each post.
Join my facebook group "We are all tired of Bickering Politicians" at

http://www.facebook.com/#!/group.php?gid=292482513888.

We would love to have your voice added to the noise !!