The government and the experts are still denying the real mess we are in. They are saying this is nothing like the depression of the 1920s/30s because at that time unemployment went up to 25% and we are not experiencing anything of this magnitude now. They expect unemployment to go up only to about 7% and maybe 8% percent. Wrong again. While I hate to be a pessimist, when looking at everything taking place around us, all indications point to massive unemployment. All you have to do is read the news every day. Companies, even healthy companies, have begun layoffs due to lower revenues. The bulk of those jobs will not be returning.

The economy can’t and will not work itself out of this mess this time around. Another stimulus check will not change the outcome. Unlike in the past, there are just too many moving parts negatively impacting the financial health of our nation. Factories and businesses are going to be shrinking down to the level of business they will be conducting in the future. This level of business will be far less than what it was yesterday and today. In the process of carrying their restructuring, businesses will hand out countless pink-slips, sending a sizeable number of people from every segment of our society to the unemployment lines. As a consequence of this, unemployment will surpass all previously recorded rates of unemployment including those of the great depression.   

However, not every region of the country will experience the same pain. Some regions of the country will do better than others. Some regions will experience moments of chaos and diminishing/reduced services provided by local/state governments. The homeless population will become highly visible everywhere, with people begging for handouts at major intersections and highway exit points, and setting up portable shelters anywhere they can find overhead coverage. Crimes, particularly breaking and entering, and robberies will become uncontrollable, with the Police unable to bring the situation under control due to the high volume of reported incidents.

While businesses undergo deleveraging and shrinkage, commodities prices will hit new lows as demand for everything from oil to coffee  declines drastically in concert with the reduced level of production for things like automobiles, appliances, clothing  and food items.  For a period of time, this will result in lower prices, something we are already seeing at the gas pumps, the price of gold and the discounting of big ticket items to reduce inventories and begin restructuring in preparation for the new economy.    

Through this ordeal, we will experience a period of recession, (already deeply occurring in some parts of the country) deflation (already happening with some of the things we buy), and depression, followed by hyper-inflation that will eventually lead to stabilization of prices and markets. This entire process may take as little as five years to work through and as many as ten years. How long it ultimately takes depends on how fast the government institute new regulations and puts in place trip wires to warn of any possible over exuberance building up in the financial markets in the future. In addition the government will have to pump huge sums of money into rebuilding the decaying infrastructure of the country, in order to create jobs. It also depends on how quickly businesses learn to fully realize the consumer will not be returning to buy everything put in front of them anymore and that reduced business activities are here to stay.

When we come out of this at the other end, expect to pay a lot more for everything. Five to ten years from now our economy will closely resemble that of Europe and Japan today. We will be paying $7.00 to $8.00 for a gallon of gasoline and $1.50 to $2.00 for a regular postage stamp.

The home building industry will no longer be. Instead, they will switch to building houses, on demand. Meaning, construction of new houses will start once there is a ready buyer and once that buyer has gone through the rigorous process of obtaining the necessary loan, requiring some 25% to 30% down. Consequently, only a few of today’s home builders will remain in business. The majority of people will no longer afford to own a house.