I was really surprised when my consigliore called this week to point out something which was so obvious I hadn’t thought to mention it. Bad move on my part.
“First of all, my model was built in 1979,” he began, explaining that his model of where the economy is was not created in 1976 commenting recently on it. OK…9′s and 6′s mare easy to get upside down.
“But the main this is this: Do you know the significance of the report Tishman Speyer is giving up on the Stuyvesant Town and Peter Cooper Village apartments in NYC?“
I thought for a second: “Banks are getting serious commercial property back and this is just another marker on that slippery slope?”
“No. This is about the clearest example out there of how people’s savings are being destroyed in this economic environment (*he doesn’t say Depression as readily as me-G). But here are the numbers: The deal was done in 2006 for $5.4 billion and the properties are now worth about $1.8 billion.
That’s a $3.6 billion collapse of debt and that’s the point no one is writing about: This is how people’s life savings are going on the bonfire. You saw where one of the investment groups in this was CALPERS (the California Public Employee Retirement System – G)?
Now scale this up with more to come: Imagine what it’s going to be like when regular people figure out how much of their life savings and retirements are going to become worthless as we work through the unwinding of all this debt. That’s my point.”
Sadly, a good one it is. As I’ve written before, the Great Depression was as bad as it was because the recognition point was immediate, intense, and personal in the 1930′s event. Money that people had in the bank one day was simply gone the next.
But in Depression 2.0 what happens is that instead of being obviously gone we see maneuvering that covers up the losses and pushes them into the future through bail-outs and loans (think TARP and other government backed rescues).
The net effect is that on a constant dollar basis, the Great Depression saw a personal loss per capita in the area of $475 per perso9n, but the bank failures and bailouts in our modern event are over $650 per capita – and that’s before adding interest on the loaned money.
Because this money will be p[aid back over time through future taxes the immediate impact of Great Depressions slides out over some unspecified period, although by my consigliore’s model, a 10-year, or longer, workout is still ahead, depending on how deep the deflation digs in before hyperinflation as the “only way out” becomes possible.
This brings us around to present-day events that then fall into an easy-to-understand pattern.
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Tonight, president Obama will try to get the nation to focus on something other than Depression 2.0 as he delivers a State of the Union message designed to revive hope.
Based on how the previous Depression’s hope revival efforts under Roosevelt went, we’re about due for “Good times are just ahead…” so over the coming weeks we should expect something like “Green Shoots 2″ to get us looking to the future.
Even as Roosevelt was able to pump the economy using the Civilian Conservation Corp (CCC) and the Works Progress Administration (WPA) to create government spending employment, the present-day rhyming with the last Depression is obvious, as well.
Not to pick on electricity, the the modern times rhyme off the Rural Electrification Act (of 1936) will be the Smart Grid and the first steps toward this were embodied in the Energy Independence and Security Act of 2007.
The problem not answered in the SmartGrid plans is that the 1930′s and 1940′s work of the REA laid the groundwork in the second half of Depression 1.0 for an explosion is lifestyle improvements. Everything from radio, to television, and a myriad of home appliances became possible and widely available as American companies like Maytag, Kelvinator, and others quickly spawned and grew in places like Ohio, only to find that before we got into Depression 2.0, many had been globalized such that finding an American-made refrigerator or stove now takes serious research and effort.
Similarly, one of the functions of World War II was to pull a lot of young men into the military so not only wasd the unemployed manpower level reduced, but there was a fair bit of economic stimulus that followed from supporting the war industries. Recylcing and repurposing the civilian population was handily done.
The modern counterpoint is a little more hazy: nebulous wars for nebulous objectives but the primary function is being partly met. Any time the public support for warring and spending drops a ‘terrorist attempt’ shows up conveniently timed or we see a headline like this one from Tuesday: “Al Qaeda seeks WMD, US unprepared: reports.”
Lest skeptics think that al Qaeda is just a little too conveniently timed in its activities, we look back to the period prior to World War II and notice that “Oscar-winning US filmmaker Oliver Stone says Adolf Hitler was ‘enabled by Western bankers‘.” Only a truly paranoid person would wonder privately if there’s not more of a rhyme than meets the eye in present times.
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Paradoxically, “Obama to propose freeze on government spending” in the SOU speech tonight. Not that he’ll actually be able to deliver on this one any more than on “shutting down Guantanamo” or any number of other campaign pledges; America’s caught in a replay of history that holds leaders captives to the libretto of history.
Government will be getting smaller, to be sure. The reason? Regular folks this spring will be getting property tax revaluation notices. Most counties are likely to try and continue with last year’s assessment levels – however unsupportable they are on a comparable sales basis this year.
Living within a budget is something politicians love to talk about. But seldom are they able to deliver the goods.
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At some juncture, we will get to the social-upheaval part of the replay (this summer, perhaps) but almost certainly, someone in the Obama administration should be worried when “Indonesia mulls teraring down Obama statue” and here “American disapproval of Obama is on the rise.”
You ain’t seen nothing yet. Wait till the next leg down in the Second Depression gets going in earnest…
Of course it already is out here in “Reality Outside the Beltway”. Channel 2 in Cedar Rapids, Iowa has a very revealing poll: Shows less than one percent of their poll respondents think we should “Keep congress. Our lawmakers are doing a good job.” 98.19% says toss them all out and start all over. Wonder what the 0.9% don’t understand?
Wither Housing
Although the Case-Shiller/S&P Housing numbers were headlined as “Mixed Message in Data” the chart doesn’t make me want to run out and buy anything until it gets past the zero axis:
Not all bad, though: “Data through November 2009, released today by Standard & Poor’s for its S&P/Case-Shiller1 Home Price Indices, the leading measure of U.S. home prices, show that the annual rates of decline of the 10-City and 20-City Composites continue to improve, in spite of price declines being measured across many markets during November. This marks approximately 10 months of improved readings in the annual statistics, beginning in early 2009, and is the third consecutive month these statistics have registered single digit declines, after 20 consecutive months of double digit declines.”
George’s Rule of Ten
…says that the price of gold is down almost six bucks which means the Dow should drop 50-60 today at some point. Yesterday’s rally in the Dow let me place the last of my long term put options – thank you. turned down 10-minutes after my order was filled.
If it sounds like I’m gloating – I am. not often I can get things like up this well.
Fed Rate Decision comes out this afternoon. I’ll post it as soon as it comes in. 99% confident that no change will be there, but some talk about improving conditions have not…..whatever.
Worth Reading
Bill Gross of PIMCO is out with his latest look-see at the financial conditions of earth. Called “The Ring of Fire” it’s a pretty good assessment on two out of three points. First, he comments on the Reinhart/Rogoff book “This Time is Different: Eight Centuries of Financial Folly
The only part I wonder about is where he asserts “Now that a semblance of stability has been imparted to the economy and its markets, the attempted detoxification and deleveraging of the private sector is underway.”
Pretty darned optimistic. The continue the analog he was using (to detox) I’d have to mention that we haven’t gotten to the ‘debtleriums tremors” part of withdrawal yet. Withdrawal from the excess consumption-driven model has a lot more pain to come, the way I figure. But, Gross may have it right as least so long as sgtories like “Consumer Confidence Hits new Recovery Highs” keep crossing the wires.
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My son who worked as an EMT for a while in a County detox center described the process of getting sober pretty vividly. Won’t go into all the treatment options, but a single drink while tissue alcohol levels come down is sometimes useful. But if America needs a single drink on the bottle od debt to get past the ‘debtlerium tremors’ stage, we’ll have a problem: The bottle of public debt is pretty much empty and given the public’s mood, refills aren’t coming any time soon.
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Thankfully there’s someone to take the other side of my options trade in long-term put (downside) options. Without bulls, bears like me would be poor.
Factions At Work?
We occasionally will refer to “The Factions” within the PowersThatBe entity in Cliff’s predictive linguistics modelspace. Fascinating to watch them as they go this way and that. I suspect the ‘leak’ of the IPCC climate emails right ahead of the Copenhagen Climate love-in was a display of factional discord.
Now fast forward to the World Economic Forum opening this week in Davos and the reported death of the WEF’s security chief and tell me if this is tit-for-tat or simply suicide as reported?
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I don’t like the term “being suicided” but a recent nuclear worker case a few months back and now this one just stick in my craw. The old newsman in me just knows there’s a whole ‘rest of the story’ that hasn’t come out yet. Wonder if it ever will?
Permanent War For Permanent Peace Department
As “Afghanistan, allies to launch new effort to return Taliban to society” and we read how the “Shadow Taliban government rules Afghan’s lives.”
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I keep wondering “What exactly are we doing there? I mean besides getting control of the opium crop?” Stories like this one tell me it’s another example of how officialdom doesn’t know either and since people are asking, they’re having to cobble up how to extract themselves while painting something as a “Win!” Gonna take a fair bit of paint.
Global Rollover
I don’t expect too much in the market here in the US until after the Fed meeting today announces no change in rates and comes out with a craftily-worded explanation that will satisfy the Street and say nothing other than “While conditions showed marginal improvement, the potential for a robust recovery have been delayed and so yada, yada, yada…”
Then the market can go down. Because of how interlinked markets work, the Fed may cite some reduction of inflation fears, which could push gold down and the dollar up a bit. But it’s all part of the global/systemic dance which has seen the Seoul (South Korea) market just hit a 7-week low overnight.
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Not helping things in Korea was the little bit of gunfire along the disputed border area. No casualties, but gunfire there is always worrisome since the war never officially ended.
Iron Fists Department
The NK version of the worker’s paradise apparently come complete with ‘shoot to kill” orders for people trying to escape.
I try to keep in mind that US residents who opt out of America are still on the tax hook to IRS for 10-years, so we have something similar. It’s just we use a lower velocity bullet.