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.

We are not out of the woods yet.  Read my other postings regarding our current situation and where we are heading.  It is going to take many years for our economy to rise out of the ashes and dust and start moving forward in the right direction.  When it does, it will not be business as usual for Corporate America.  Corporations and businesses of every type will have undergone through a massive reinvention resulting from this crisis.   The credit markets, including Wall-Street, as we know them today will seize their current free-spirited business practices, turning back the clock somewhat.  Accountability will become the order of the day, with tightened lending requirements for individuals and more government regulations to preclude manipulators from intentionally or maliciously manipulating the stocks of company for their own personal gains.  Home prices, the engine that contributed greatly to influencing spending by home owners (by taking out home equity loans), thereby helping to keep the economy afloat during the past 6-7 years, will become relatively stabled and predictable, but we will not see home prices go through the roof as we did until 2006.  People will no longer be able to borrow for up to 125% of home value or get home loans without actually putting down 20-25 of appraised value.  To protect their investments, companies will have to get used to the idea of selling less and selling to people that can afford to pay.  The expansion by companies (glutting) with stores in many parts of the country within a few miles from one another will be reversed with many closures, in order to shrink their existing business models to meet the smaller demands of the future.

Some in the government are still talking about the possibility of a recession.  They just don’t get it.  Forget about recession, they need to start talking and preparing about how to combat the depression.  The $750 billion bailout is nothing but a drop in the bucket and small pocket change compared to the trillions it will eventually take to get us out of this mess.

I don’t know how much more evidence they need to figure this out.  Every day we read about records breaking declines such as those reported today:

"Mid-Atlantic regional factory activity crashed to an 18-year low in October, a survey showed on Thursday, adding to the grim toll the last month of credit turmoil has taken on the economy."

"The Philadelphia Federal Reserve Bank said its business activity index slumped unexpectedly hard to -37.5 in October from 3.8 in September. That was its lowest since October 1990."

"Big industry production plunged in September by the most since late 1974, largely reflecting fallout from hurricanes Gustav and Ike."  

"The Federal Reserve reported Thursday that production at the nation's factories, mines and utilities plunged 2.8 percent last month, on top of a 1 percent drop in August."

 The above is a reflection of what we can expect long into 2009, 2010 and possibly well beyond with more contraction and misery for everyone.

Please read the rest of the story: http://chaosinamerica.blogtownhall.com

Through all the financial turmoil, Wall Street failures and political turbulence coming out of Washington, no one is paying any attention to the terminal tumor spreading across the land like the plague.  Seems people in Washington and in the private sector are still in denial about the downward spiraling condition our country is facing.  A $700 billion bail-out or rescue is only but a tiny amount of what will eventually take to get this country back on track.  People are attaching a great deal of hope on this small sum of money.  Some think this will be the cure all medicine, while others are under the misguided believes the illness will cure by itself and the country should not spend any money to fix the problem.  A problem that will hit each and every American very hard if left unattended.

The financial survival and military strength of this country are both completely dependent on finding the right cure to the financial crisis.  Everyone is talking about a recovery.  I am sorry to say, there is none coming anytime soon.  The damage done this time around is by far more severe than people are willing to recognize.  The pain that we will all experience will be very much similar to the pain of the great depression.  The pain will be felt in every state, cities and towns across America.

Companies doing business in every segment of our economy will find it more difficult to sell their products with every passing day, leading to bankruptcies unlike anything we have ever witnessed.  I see factories shutting down, stores closing their doors, local governments reducing their level of service and workweek to save money in order to be able to pay their remaining employees.  Federal Government employees will also see massive Reduction in Force (RIF) and while unfortunate, rightly so, because as we all know the Federal Government has grown drastically during this decade.  The answer to everything in the Federal Government is always, we need more people and we need more money.  Instead of working with available resources to become more productive and efficient they resort to empire building.  But why should they be more productive or efficient when they don’t have to answer to shareholders and there is very little accountability to speak of?

The Federal Government is going to be faced with a situation of having to bail out other large companies and State Governments.  The overwhelming amount of money the treasury will have to print to cope with this crisis, will, further erode our buying power at home and abroad.  The outcome heading our way will be super-hyper inflation.  The price of everything from a cup of coffee to all of our daily essentials will skyrocket, thereby, adding more insult to injury to the great deal of financial distress and misery most Americans are already experiencing.  There is no escaping, everyone will be permanently impacted and will feel the pain.

When was the last time the government asked for our permission to use tax payer's money in Iraq or Afghanistan or any place else for that matter? Why does the government considers the use our money in those places to be appropriate but not appropriate to be used in the United States? 

Complicating our problems is greed.  The housing bubble was created by such greed.  Every bubble created during the past 20 years was the results of greed, either by a few individuals in the right place and job position (WorldCom & Enron), by individuals looking to make a quick dollar at the expense of others.  People or I should say greedy people who bought houses, not necessarily to live in them; some of them never did, with the hope of turning a quick profit created the current financial situation, along with many of those that took out home equity loans.  While on the other side of the equation, the bankers and mortgage lenders (with their own greed) fueled the appetite of the greedy people by providing them with no money down mortgages and not doing the necessary due diligence to make sure that borrowers could actually pay the money back.   Of course mortgage lenders and bankers made a ton of money as well in the process, due to their own greed.

Yet, on the other side of all the turbulence, there are people, intentionally instigating panic and fear, driving companies into bankruptcy, by spreading rumors and lies so they can make a quick profit from their downfall.  The government did take some action by stopping the shorting of hundreds of companies stocks, but only after the extensive un-reversible damage done to many companies.   However, this action is only temporary in nature and once it ends, the bad guys will be back at their game again.

Several weeks ago we experienced a few examples of this panic and fear impact.  The attack started with Lehman Brothers and the bad guys then set their eyes on Merrill Lynch to go after, forcing Merrill to hook- up with Bank of America.  Of course, the same bad guys have a list of companies to go after each time one fails.  Unfortunately for the average investor, we all ultimately pay the price for the greed of a few.  Some people have lost their entire life savings during the past 20 years while others have lost a great deal of money due to the action of those who instill panic and fear into the market place and our society.   Yes, the situation is not pretty, but our banking and financial system is not going to stop functioning tomorrow unless we allow the bad guys to continue negatively influencing the daily outcome of the stock market or of individually selected companies, through their manipulation of  financial instruments that are designed to offset losses when markets are heading down during the normal process.  Instead, they are using those instruments to pressure the market into the direction they want to assure them of a winning outcome in either direction.  

Put all of the above problems together, along with the lack of a compressive, for all medical healthcare system, and the problems the Social Security systems will be facing in a few years and what do you get? You get a country made up of homeless people, where the sick and poor will not be able to afford medical care, food or even a roof over their heads.  Unless something drastic is done to stop the ongoing downward spiral and decaying of our social/economic structure, I foresee a future where we will have to depend on the goodwill and handouts from other countries.  That's really a shame.  I hate seeing us like this.

The escalation of home prices made it possible for people to take second mortgages (home equity loans) and use the money to pay for vacations and make purchases that in many cases were non-essential.  When the consumer spends money, revenues of companies go up and so do their stock prices.  However, there will come a time relatively soon, when the average person/consumer is going to have to quit spending.  The equity money is all gone, people are loosing their jobs and wages are not keeping up with inflation.  In the meantime, the price of gasoline rose by over 100%.  Eventually, this is all going to bring the country to its knees and we will experience financial disaster to companies and individuals more sever than during the period of the great depression. 

Many people have several credit cards, all accumulating debts they will never be able to pay off.  In addition to those attractive car loans that drove and still drives many people to purchase new cars and trade-in cars for cars they also could not and can not afford.  I see a situation where people will be driving one or both their vehicles to the nearest dealerships and parking them, because they are unable to make the monthly payments or because they are so far upside down (owing more than the vehicle is worth) and they are therefore unable to trade their vehicles in for a more affordable one.  The outcome of this scenario is another bail out or rescue (as a person who is totally not in touch with reality calls it-rescue) of an even greater magnitude than $700 billion.

Just as the mortgage companies/banks/greedy speculators and builders-with outrageously priced houses created a disaster that has now caused companies and individuals to lose more money than the profits that were made during the happy years, the automobile companies and credit card companies are to blame for their easy lending practices.  Practices that were designed to sell automobiles at any cause without taking into consideration that all good things eventually comes to an end, and here again the consumer would be left holding bag.  Practices were banks were/are extending credit and constantly raising credit lines.  It is just not possible for someone with a family, a mortgage and car payments, making $100,000 in annual salary to ever be able to pay off a $30,000 credit card debt (not too many people making that kind of money).  There are countless people out there owing much more than $30,000.  Still, even with the crisis at hand, credit card companies continue to send out offerings for credit cards with high credit limits; car companies are back to their game offering employee's incentives (you pay what we pay), - 0 - interest loans and no down payment. 

The housing industry made their money during this inflated housing boom by building more houses/more expensive houses than were really needed under normal conditions and that people could actually afford.  They satisfied the hunger of the speculators who were buying houses, not necessarily to live in, but to turn them around and make a quick buck.  Some of those speculators found out the hard way that what goes up at some point and time will eventually come down.  When the price of houses started to come down, the speculators were the first to foreclose and consequently home builders now and for many years into the future will be building houses to satisfy the normal demand for housing, pre-dating back to the greedy years.  Some of the home builders will go out of business and others will shrink their business and the price of the housing they build, in order to survive and stay in business.  It is no longer business as usual for the housing industry.    

When are they going to learn? What's going to take to change the way American Companies do business? 

The government is just at fault here as are the perpetrators of this financial crisis and the one coming right behind.  The economy is strong and the consumer is resilient.  Until the very last minute, those were the words coming from our government.  Then suddenly they woke up one morning to find out what every one else knew already, that they were dead wrong.  The failure of the government/politicians to protect the consumer and the American people from economic disaster is unquestionably the reason we are in this mess today.  When everything is perceived to be going wonderfully, the stock market up and companies reporting record revenues and earnings, the government fall asleep behind the wheel each and every time and they don’t bother to question anything until it is too late.  At the same time they are quick to take a great deal of credit for the falsely obtained good economic conditions of the country brought about by the shortsighted vision of American Businesses and the mostly unregulated financial creativity of Wall Street.  

We have a government that is reactive.  We have seen this time and time again, with each crisis, particularly during the past eight years.  In today’s environment and open markets, we need a government that is proactive and not one that reacts to events or tries to find the life jackets when the titanic is half way to the bottom of the ocean floor.  We need politicians that actually care about the people and not their own pockets; politicians with a sense of duty and service to country.  We need forward thinkers in office and not the outdated mentality of people who are out of touch with the lives of the average American worker and with society in general.  We need politicians who are able to stand up and fight for what’s right and fix what’s wrong.  The good of the country must come first and not the fear of losing an election or reelection or a “job” as some politicians put it before the bailout vote on 09/29/2008.  This is a date that will be remembered for many years to come.