Although the stock market crashed in 1929, Great Depression 1.0 didn’t get fully underway until the early 1930’s, when the cumulative damage from massive unemployment, farm foreclosures, dead businesses, and overall national malaise joined up with an increasingly hostile Mother Nature to make American lives even more miserable than they already were.
Now that America has weathered the first round of Big Business and institutional failures of this recession, and emptied what’s left of our pockets on sly “giveaways” like Cash for Clunkers and an $8K inducement to take on massive mortgage debt, the cold winds of December reckoning loom large. How long will it take before GD 2.0 hits its stride and we all admit that the well-orchestrated booster-ism our media has been feeding us hasn’t worked out so well this time? As any reader here can testify, just because something is trumpeted over and over by those in “authority” doesn’t necessarily make it so.
Last week we saw a lot of rah-rahing from the real estate industry. All that pent up demand from realtors searching for something, anything to crow about has finally spewed forth like the petard we know it to be.
It seems that existing home sales rose 9.4% over August. True, and auto sales jumped in July! Seduce the naïve and the desperate with a meaningless tax credit and watch as a million of them jump into the shark tank. As always we’re assaulted by the NAR with anecdotal evidence of higher-than-asking-price bidding wars, helped along by the federal tax credits, state forgiveness grants, and local incentive programs. No one wants to talk about how many of those winning bids fell through because no one would finance them. Or the fact that even with all the grants and give-aways, a significant percentage of these aspiring homoaners will be financially unqualified and/or found to have fraudulently represented themselves on the applications.
It’s been hard for some of us to hold fast and wait for the real downturn in housing prices to hit when Alt A and CRE loans begin to reset next year. And in the back of our minds the old adage, “don’t bet against the fed” (or an administration under the gun,) has never been truer. But a lot of us have chosen to hang in there anyway and wait for the inevitable. Either housing prices fall significantly, or wage inflation rises. Under the current system of debt economics there is just no way that wages can reach parity with housing prices without some major adjustment to the equation—gimmicks and greenspanery to the contrary.
It’s not necessarily because we’re pessimistic by nature, or because we have some vested emotional interest in seeing our government and institutions all come tumbling down; it’s just reality. At some point, government price supports will run out of funding and the subsidies will stop.
As an unabashed supporter of the Obaman ideal, (if not their methodology,) I am in a personal quandary….my own ethical hedge fund if you will. While I want the guy to succeed in addressing the myriad calamities besetting our nation, I also want a lot of our markets and entrenched systems to fail and be reformed into something more closely resembling a level playing field. It’s hard to know which one to root for. What we have now is so skewered in favor of the few—and so badly administered– that there is no real sense of national cohesion or purpose anymore. Even support for the military, traditionally the last bastion of patriotic fervor, is badly eroded. So while I’m not certain I want an economic catastrophe, I’m also not entirely certain it might not be cleansing.
We may be about to find out.
When end-of-fiscal earnings reports have all been filed, and the press leaks begin in earnest, we’ll see just what sort of accounting scaffold has been propping up the Potemkin Village of our nation’s banking system. We’re old hands at this by now, having watched the pattern emerge over the last two years, and I’m sure no one on this board will be all that surprised when WF, BofA and Citi (and maybe a pension fund or two,) go down in a hail of weasely media releases.
But how will Wall Street, already roiling with the heat from an enraged and increasingly bankrupt citizenry, wrestle this latest round of bailouts onto the back of the American taxpayer? In addition to providing life support to our failing auto unions and housing industry, we’ve already been forced to save China’s state investment fund (CIC) with the AIG bailout. Then essentially compensate Israel for Bernie Madoff’s fund-funneling-gone-awry by anointing Goldman Sachs (this administration’s Haliburton,) as the de facto arm of the US Treasury.
And now we’re supposed to rectify the massive losses of the Saudi royals’ CitiGroup? Yikes. How are we going to do that? By giving it back in the form of $300/barrel oil prices? The dollar is dropping, China is divesting, and the Brazilian real is ascendant. That giant sucking sound we’re hearing isn’t just our jobs going abroad anymore, it’s the whoosh of the emergency stash flying out of our collective mattresses.
It’s Beginning to Look a Lot Like (a cruddy,) Christmas.
With American consumers defaulting on their debts, maxed out on their credit, and cutting discretionary spending to the bone in attempts to get solvent, one expects that retail sales figures for the so-called holiday shopping season will be even more dismal than they were last year. Are we really expected to dig deep to buy more redundant stuff so retailers can stay in business? How many wiis does one family need? How many cheap socket wrench sets? How many knock-off handbags? One suspects that a lot of the “move up” mentality in serial home buying over the last decade was motivated by a need for more closet space and empty square footage in which to store the family junk collection.
Early this summer, I noticed a precipitous drop in the amount of bulk mail reaching my big rural mailbox. Even the onslaught of glitzy holiday catalogs that normally hits in mid-August has been anemic. I generally save the things in piles out behind the woodshed and bind them into semi-geometrical bales every now and then. Then I cover them with plaster to form building blocks for my ongoing dog palace project. By this time of year, I usually have a knee-high stack of the things, but instead of the usual dozens, I’ve only received a handful so far, and of these, half have switched from glossy four-color to news stock. Even the models look bewildered. This most recent cover of “W” Magazine probably sums up the zeitgeist better than anything historians could ever write about this last year in American consumerism.
Neiman Marcus’ Christmas Book, always an abomination of consumerist excess, is notably restrained this year as well. The clothing is muted to the point of being drab. Gone are the extravagant furs and the “important” jewelry. Even the signature “his and hers” come-ons are a rehash of previous frippery. When Neimans goes spare you know the season is a lost cause.
(For those with strong stomachs, I simply must mention the one glaring exception to my above statement. Perhaps the most asinine serio-comic offering of the decade; a “tricked out” (their description,) cupcake car (!)—complete with matching hat— for $25,000. Somewhere on some exclusive shoreline or staid country klub greens-house, the uberWASP fantasia lives on…..)
In keeping with the New Austerity, I expect to see photo spreads of Michelle and the girls making recycled tree ornaments for the White House Christmas tree and clever little homemade gifts for Daddy–whose state gift of a boxed CD set to Queen Elizabeth 2 was, I suspect, only a symbolic beginning of things to come. Look for winter fashionistas to start touting black as the new black, and TV reality characters to start pointing at advertised “sales prices” while jeering into the camera. When the nightly business commentators start using the word “subdued” to describe our lack of enthusiasm for parting with our money come years’ end, we’ll know the shopping season is going to be a disaster.
The leaves are falling here on the mountain, but this year their burst of color has been muted. Long-term drought, atmospheric grunge from the LA fires, a less-than-abundant harvest in the Central Valley; everything just seems depleted somehow— as overdrawn as our beleaguered checking accounts.
But as winter approaches, there is yet cause for celebration and cheer. Though the days grow short and the shadows linger, our numbers increase and our hearts grow full.
Muggy has a new baby girl. And she is a Libra.
Let the celebrations begin!