Punchinello’s Chronicles

December 31, 2009

2010 Forecasting From the Bottom

Everybody seems to like making predictions for the coming year. Some people even make money doing so, even if their predictions don’t turn out to be accurate. And predictions seem to fall into two basic categories. There’s the rosy glasses predictions coming from the mainstream journalists, news wires and political administrations. Then there’s the gloom-and-doom predictions coming from rational and thinking people.

A lot of arguments seem to focus on the problem that “ideology” is getting in the way. We hear that the polarization between liberals and conservatives is clouding the entire field of vision. The problem is that “conservative” actually has two very different contextual meanings. On a political and pundit-type level, we say someone is a conservative based on certain social or financial principles. Likewise, we say someone is liberal for the same reasons.

But where liberalism is almost entirely a political philosophy, conservative thinking has another, deeper context founded on basic reality. In other words, many people look at the way the real world and history work, then examine the trends and patterns. They look at what’s happening currently, apply that trend comparison, and make decisions. So if you know that a car runs out of gas when the tank is empty, you can predict that your own car will run out of gas when the gauge needle reaches “E.”

Conservatives are really only people who look at reality. They look at politics as another set of real events, and because reality is uniform and…real…that group of people all seem to fall into a like-minded group. Political analysts and news pundits like to then say that the group is a political ideology.

From my perspective, reality and history offer the predictions of what will likely happen in 2010. And it’s gloom-and-doom because we’ve spent nearly 80 years as a culture and society, doing very well at wrecking the underlying principles of business, daily life, morality and so forth. It takes time, and there’s an outside chance that 2010 may not be the tipping point, but the fact is that reality eventually comes crashing in on even the most precious delusions.

Regardless of what the media and various retailers associations are saying, we’ll probably find out in the first few weeks of January that the 2009 holiday shopping season was abysmal. Many people chose to give some sort of gift card, while other shopped online. But overall, I think we’re going to find out the numbers were bad.

For decades now, major corporate retailers have been borrowing huge sums of money each month to meet basic operating expenses. They’re using borrowed money to meet payrolls, and to expand the number of stores in their chains. They’ve rarely paid attention to earning money, creating new products, and increasing their revenues and market share. Borrow, borrow and borrow.

As a result, they’re broke. And they’ve been biting their nails, hoping against hope that 2009 Christmas shopping would help them scrape through by the skin of their teeth. They didn’t want to declare bankruptcy until at least that last vestige of salvation completed. Who runs a business that way? What kind of idiot runs in the red for 10 months out of a year, then barely makes a profit in the last 2 months?

Commercial real estate (CRE) is already in deep, deep doo-doo! We’ve not been hearing about it much, nor have we seen the facts much because the Federal Reserve has been buying up so many bad loans and risky credit derivatives. The banks are getting free money, all of which they’re hoarding because they know those CRE loans and leases are going to collapse.

Why aren’t banks lending money to you or me or the small business owner? Because they don’t have any money! The banks are on the line for billions and billions of commercial loans (hotels, malls, office buildings, industrial parks, resorts, and so forth). With the wave of bankruptcies we’ll start hearing about in the first half of 2010, that tidal wave will start to roll in.

Then there’s the entire derivative market. It’s so complicated it takes huge amounts of time and research just to understand a fraction of what the hell that’s all about! But it’s absolutely stunning how badly we’ve been robbed! Current guess-timates are that there may be somewhere in the neighborhood of half a QUADRILLION dollars!!!…in Ponzi-scheme-type financial securities. That’s $500-TRILLION dollars outstanding in debt obligations!

If anything at all lights the fuse behind those debt securities, there’s no question at all that the world financial system will collapse. With much of the new European Community about to go broke, led by Greece, Italy, Ireland and a couple of others, that might be the fuse. Then there’s the UK and Japan, both of whom are living in debt. And, of course the good old USA, now standing with debt at 75% of our entire gross-domestic-product (GDP).

Imagine if you’re living on credit cards, you have a car loan and a home mortgage. Your minimum monthly payments and other loan payments reach 75% of your Total Gross Income! That’s before taxes! Then you add on your tax withholding, and take a look at how much money you have left each month after you pay the loans. Then you have to pay your utilities and things like gas for the car. What’s left for food?

The debt load is going to collapse. It won’t matter how much the Federal Reserve buys US Treasuries. Oh, you thought other nations are buying our debt? You thought mom and pop are buying our debt? No, that’s not happening anymore. There isn’t enough money. The US currently will have to sell more than $700-BILLION in Treasuries and securities just to meet our basic loan payments! Just to meet our minimum monthly payments!

The entire amount in tax receipts from the legal (i.e., actually declared) economy, comes to around $2-3 trillion dollars per year. Out of that, America has to pay for everything. That includes military, government, entitlements, social security, infrastructure, schools, and everything else. Nearly one third of our annual income is going to our minimum monthly payment in debt!

We’re left with about 2/3 of our annual revenues in taxes to pay for EVERYthing! Now think about our massive programs, all of which are running in debt. Then think about new programs congress wants to start. Then think about the above-board $12-TRILLION in debts we have currently listed according to government figures (which are total hogwash). We’ve only got $2-trillion in tax revenues.

And, of course, taxes are going down…not up. People are losing jobs, sales taxes are slowing down as people buy less. Prices are going up, nobody’s making much of anything, and lots of people are simply walking away from their tax bill entirely. So what if that’s illegal? They don’t have the money. So 2008 tax revenues can only point to what might be the revenues for 2009. But in 2008, we had half a year before the Lehman collapse. This year, we’ve had since March for things to stop making money.

When commercial real estate begins to fall apart, the banks holding those loans will also fall apart. Although “only” 140 banks were taken over by the FDIC in 2009, there are more than 800 banks in danger of gong broke. Already the FDIC is technically broke, but they have unlimited funding from the Treasury. Where will the Treasury come up with the money to continue buying up banks and paying depositors their $250,000 limits? Why, by selling Treasury securities.

Who buys those securities? The Federal Reserve. And because of other accounting shenanigans, the Fed also happens to have bought up well over $1.4 TRILLION in bad loans, bad paper, bad bank securities, and other “toxic assets” as they’re called. Forget China being the debt holder for the United States! It’s the Federal Reserve!

We also have a dramatic loss in world shipping, both in cargo freight and oil. As the economy continues to shrink, much of what we import from…oh…say…China will come to a halt. That means we’ll start seeing more and more empty space on shelves in all sorts of corporate stores. Prices may go up, or we’ll just stop having the products entirely. Who knows what will suddenly vanish, but that’ll be part of the 2010 theme.

With vanishing goods, disappearing “everyday items,” and prices going up on what’s available, hopefully the American people will begin to get a clue that our lifestyle has been dropping and dropping, getting worse and worse instead of better. Not only are candy bars getting smaller, so too is everything else. Have you checked the price of prime rib on a non-holiday week? What about halibut, swordfish and other foods that aren’t cheap crap?

With a world glut of oil and nobody having any money, we probably won’t see gas prices go up all that much. Instead, we’ll just see more corporations go belly up, more jobs being cut, more hours being cut, and more of that jobless recovery we hear about. We still don’t see much about tent cities, mostly because it wouldn’t look pretty in the news. But they’re there, and they’re growing.

Meanwhile, we have thousands and thousands of people who have a great idea for a business! They have energy, and they’re out of work. They’re hungry, and just aching to start a small business! Every large enterprise corporation began from a small business idea, but we’re clamping down on all of that. Nobody’s lending any money to those new business entrepreneurs. They have no tools to open that business.

So we’ll just have to wait until the big players in the world-level financial arenas all go broke. Then, finally, we’ll see the other tidal wave unleashed. That’s the tidal wave of mom-and-pop stores, college-kid entrepreneurs, micro-business owners and family-owned farms. It may take longer and longer due to the interference from the Fed and the government, but that means more and more pent-up energy for business.

What’s it gonna be? Should we keep the illusion going, pretending that we’re just in a “glitch” and happy times will come back? Should we prolong the pain, like Franklin Roosevelt did in the 1930s? That’s apparently the plan, and that’s what we’ll see through 2010. Pain, misery, depression and no money. But keep in mind that billions of dollars in new businesses could be starting now. They’re not being started because they’re not under the government’s control.

The longer we pretend that the “stock markets” actually have any basis in reality, the longer it’ll appear that America’s in fairly decent shape. The more we believe that GDP is growing at ANY rate at all, the more we’ll prolong the illusion. Everyone’s busy, they’re trying to keep their job, working harder and harder just to stay even. They don’t have time to read and learn and find out what’s actually happening.

The so-called Powers that Be the conspiracy theorists always talk about, they’re in just as bad shape. They stand to lose countless billions of personal wealth as the end results of their greed, gambling, addiction to money and their addiction to power comes home to roost. But…too bad. Reality is real, after all. You can’t live forever on debt. You can’t live as a consumer and never produce anything.

This year will be the year of consequences. They may not all hit at the same time, and we may not see the entire fantasy turn to dust, but we’ll certainly see the major components begin to collapse. Commercial real estate, fake money, imported goods, and international enterprise corporations are those basic pillars holding up the casinos. Despite all that, congress is proposing (and passing) new spending bills beyond comprehension. So we’ll just continue using more and more credit cards, hoping that “somehow” we’ll be able to pay the minimum monthly payments. Or perhaps we’ll refinance.

That would be a “devaluation.” You go to bed Friday night with $1,000 in your bank account, and over the weekend there’s a devaluation. You wake up Monday morning and…PRESTO!…you now have $10 in your bank account. If you live in North Korea, you also discover that it’s illegal to own more than $750 in personal money, no matter what bank accounts you might have.

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