racymind

I think I am beginning to hear descriptions of the economic mess that are hitting appropriately pessimistic notes.

It is now, or soon will be, a depression.

The news will most certainly get worse, then much worse, then truly horrible, and then we’ll see where we are. And like a consumer whose credit cards slowly get turned off one by one, we will, together, realize, there is no way to charge our way out of this mess, there simply is the need to go back to the basics, a more cash-driven society and attempt to work our way out of it.

How far will housing prices fall? To the historical mean, which is another 20-40% down, depending on where you live.

….

The housing bubble will deflate slowly, unfortunately for our recovery because now people are just pulling their houses instead of selling at a loss. “I’ll wait till the market comes back” you here but it’s not coming back, any more than lightbulbs.com stock is going to be worth $100 a share anytime again ever.

In real dollar terms, in our lifetime, housing prices will never be what they were in 2005 and 2006. They may never even get within 25% of that false peak. In the next 100 years.

Of course, it’s not just a housing bubble, it’s an asset bubble. Everything was inflated not for its value but as part of a bubble. Everything. Now, housing prices will come down, government revenues will come down and businesses will function again, on principals, not mass-mingled derivatives of derivatives.

In the process, there will be economic pain such as we have never seen.

It will, in the long run, be worse than the 1920s and 1930s because that economic hardship was not entered into with tens of millions of consumers sinking in credit card debt. That credit card debt was not packaged and resold as interest bearing investments to businesses and governments.

As we move through the next three to five years, we will see companies fold and disappear, as it should be. While Nissan, Toyota and Honda make cars here and do it well, the big three will disappear now or later. A further shrink of the economy means that like our parents, we will drive fewer cars longer. Each consumer will make his own informed decision when, and if, they buy a new car and that decision clearly will not include a car from the big three.

But this is symbolic of what will define this depression, the low-rate credit has allowed many weak businesses and institutions to hold on long beyond their normal economic life cycle.

Newspapers, who should have folded a decade ago, but held on and in some cases were bought and sold and are for sale again, will shutter. The Tribune Company is just the first, the question is: in 24 months, will any major metropolitan area still have a daily newspaper printed and delivered? Odds are, no.

The 6:00 pm Evening News, a legacy of two decades ago, will fold under the pressures are fallout.

Department stores, who are a generation past their expiration dates, will fold.

And it will go on. And on. Colleges, vacation destinations, golf courses, sports leagues, small and large businesses, 20% go away now. 20% more before it’s over. 60% survive.

What will the future look like? What will we see next holiday season? And the one after that?

Who knows to be honest? Clearly, next December, things will be much worse than they are now.
But after that, in 2010 and 2011, as we approach the bottom, how will Americans, bloated and weak, after a generation of low standards and lower credit card rates, be able to rally?

Or will we fold, and go the way of past empires? And wallow in neo-nationalism as shown perhaps most recently and most clearly by Sarah Palin’s campaign. Hate often rises from the ashes of collapse. It could happen here.

There is one unspoken truth lingering. In 1991/1992, normal business cycles would have pushed the economy down. But in the lingering madness of 9/11, George Bush feasted on the insecurities of Americans, cutting taxes, cutting rates, creating the boom.

I have to wonder if somewhere in a cave, the man who said that 9/11’s goal was economic collapse of America is wondering if he didn’t succeed. The reaction to the attack was a bubble. A bubble that let us buy more and more. A bubble that let us feel better when underneath, there wasn’t anything that good to see.

I have a pessimistic little voice in the back of my head I really need to smother with a little pillow.  The voice yammers on about the financial gloom and doom facing our country just as so many other possibilities are coming alive.  This economy is so. fucked. up.  I will probably be fine, personally.  Unlike an entire town in Ohio…