Those same old economists that couldn't hit the broadside of a barn (and get PAID to do this) are now coming out with their current predictions.
Enter Paul Krugman -
Yeah, its a reasonably high chance - its less than 50/50 odds - but we have now a recovery that ... is being driven by fiscal stimulus which is going to fade out in the 2nd half of next year, and by inventory bounce ...Wow 50/50 eh? Sounds real certain of a direction. Say it, 'You don't know.'
Part of the problem is we keep looking for the Armageddon-esqe economic scenario where sappy music is playing as the hero's truck explodes in a stunning tragic death. Except instead of a truck, it's the economy as we wake up one morning and everyone is broke. These sectors have so much depth and things are worked so tight, that it is going to take time for everything to unwind. (Save a game changing event like cities getting nuked.)
Vox Day says the following about the "recovery" -
1. The BLS will report U-3 unemployment to be in excess of 11 percent. The actual number of unemployed workers will be much higher.I am going to go out a limb here and state that Vox is being generous here. While I don't believe the Mad Max WTSHTF scenario will play out in 2010 fully, barring a game changing terror attack, at a bare minimum people are going to start noticing this huge white elephant in the middle of the room.
2. The BEA will report at least one quarter of negative GDP growth. The GDP figures for Q309 and Q409 will be revised downward. Again.
3. The Federal budget deficit for 2010 will exceed the projected $1.17 trillion.
4. More than 200 banks will be seized by the FDIC. Their deposits will represent more than two percent of all U.S. bank deposits.
5. Commercial bank loans and leases (TOTLL) will fall below $6.3 trillion.
6. All sectors credit market instruments excluding corporate equities and mutual fund shares liability, which is published in the Fed's quarterly Z1 Flow of Funds Accounts, will fall below $52 trillion.
7. The national median existing-home price will not rise four percent from $172,600 to $179,500 as predicted by NAR's lead economist Lawrence Yun. It will fall instead to a level I will attempt to estimate before the next NAR release.
In general, 2010 will be the year that the situational blinders come off and everyone realizes that this is serious business here. Think of it as a game of musical chairs where there are 300 million players and only a million chairs and the leader is reaching for the volume knob and if you lose, you lose everything you own.
As if that isn't fun, 2011 will be much worse.
U3 will hit 11.5 % andcould go as high as 15%, the U6 as high as 30%, but the rates will certainly not go down very far, if they go down at all.
According to economists John Williams and Bob Chapman gold is going to explode, perhaps as high as $7,000 and ounce. This temporary dip down is nothing more than a small technical correction.
Food will probably be up 6% and we could possibly hit a scenario where we could physically run out.
Oil is currently at $78.97 and it could go somewhat higher, although I do not believe it will be as volatile as it was in years past. (Unless the Straits of Hormuz gets blocked)
All of this proves that the dollar is crashing and banks are buying up commodities, not that things are more expensive. I caution that any appearances of a so called recovery are nothing more than the twitching of an already deceased corpse. Just because it jumps, doesn't mean it's alive.
Commercial Real Estate Collapse
Is already in progress and gathering steam with the bankruptcy of CIT Group which is tied at the hip with CITI Group. In fact it has already fallen 37 percent in value in the last year and defaults are reaching 16 year highs.
From the Federal Reserve -
Commercial real estate conditions were widely characterized as weak and, in many cases, deteriorating further. Market conditions were reported to have weakened in virtually all Districts, with rising vacancy rates, downward pressure on rents, and little, if any, new development. Expectations for 2010 were also quite low. Boston characterized the commercial real estate outlook as "bleak," Dallas noted that construction was at "historically low levels," and Kansas City described the sector as "distressed."According to the Orlando Business Journal –
Commercial and multifamily mortgage lending in the U.S. fell 12 percent from the second quarter to the third quarter and is down 54 percent from year ago levels, according to the Mortgage Bankers Association.This will vaporize many small regional banks who were unable to participate in the housing market bubble.
The drop includes a year over year decrease in lending for all types of commercial properties. Loans for retail properties are down 62 percent. Loans for office properties are down 56 percent, MBA says. Now given, this is in a highly affected area, however that will spill out into other areas of the economy.
Real Estate Collapse
The second wave of the housing market collapse hits (The less risky ARM-A loans continue to default) and banks have yet to start unloading their “shadow inventory” in an attempt to stay solvent. I believe this is already underway as we see-
“residences for sale and vacation homes, rose from 18.4 million a year earlier and 18.7 million in the second quarter, the U.S. Census Bureau said in a report today. The record high was in the first quarter, when 18.95 million homes were vacant.”
An initial measure is to reduce the maximum permissible seller concession from its current 6 percent level to 3 percent,Irregardless of your position on the issue, this will decrease the pool of available buyers, lowering demand and therefore, prices.
Secondly, to protect the fund from the riskiest borrowers, we will for the time being also raise the minimum FICO score for new FHA borrowers.
Third,we have made the decision to exercise our authority to increase the up-front cash that a borrower has to bring to the table in an FHA-backed loan
Wells Fargo is now talking about converting their option ARM loans into interest only loans:401K Collapse
“NEW YORK (Dow Jones)–Wells Fargo & Co.’s (WFC) strategy for modifying its billions in troubled Pick-A-Pay mortgages looks a lot like a game of kick-the-can-down-the-road.
Wells Fargo, the fourth-largest U.S. bank by assets, holds more than $107 billion in debt tied to option-adjustable rate mortgages, a quintessential loan product from the housing boom that allowed borrowers to make small monthly payments in return for increasing their mortgage balance. Now, many Pick-A-Pay borrowers own homes worth far less than they owe in mortgage debt, even as many of them can afford a full monthly payment that pays down principal.
To solve that conundrum, Wells Fargo is taking a gamble: The bank is issuing thousands of interest-only loans that will defer borrowers’ balances for as long as six to 10 years. Wells Fargo is wagering that an eventual rise in housing prices in the country’s worst-hit regions, along with a rise in consumers’ income, will eventually combine to cover the bank’s billions in underwater Pick-A-Pay debt.
Banks will start to claim ownership of 401k and pension funds (private and public) and begin "looting" them. (Read as taking your cash and continue to "invest" as they double-double down) and the government moves to “protect” them by seizing them. I would assume they would be placed in a new 'secure conservatorship'.
Annuities will begin to default and the state insurance funds will become a backer of last resort, which will bankrupt many of them.
Many if not most insurance companies will go belly up. This will cause the rates at the surviving institutions to go through the roof.
As evidenced by New York's MTA -
The Metropolitan Transportation Authority, the nation’s largest transportation agency, is facing a $383 million budget shortfall.FDIC
“Because the MTA’s transit system matters so much to New Yorkers, when $400 million is taken from the budget practically overnight you have to make the kinds of changes that have an enormous impact on people,” said MTA Chairman and CEO Jay Walder. “We have a responsibility to assure our customers and taxpayers that every dollar they send to the MTA is used as effectively as possible. We can’t say that today, and that is why we have to fundamentally change the way that we do business.”
As companies take these blows, the FDIC will frantically try to raise capitol to cover the losses but will eventually be unable to cover and the first wave of defaults will take place.
Bond Market Collapse
Within the next 2 years, the United States will default on their debt for the first time in their history. This will cause not only domestic, but major international geopolitical issues as well.
If the institutions don't have to pay their bills, why should I? This could get very ugly.
Receipts will plummet and to cover governments will begin the implementation of new taxes, most notably a VAT AND a National Sales Tax in one name/form or another.
There will begin a reduction and repeal of some Social Programs - most notably Medicare, Social Security and reductions in food stamps.
In June, at the time of what should have been another market collapse, I wrote the following
The US dollar is going to tank (think Iceland)Note that I made my prediction shortly after the "A" point on the upside.
U.S. Dollar: Is $1.50 versus the Euro. USDX went from $81 to $74.81, To make matters worse, the trend is accelerating. And with the Dollar accounting for 85% of the entire world’s reserve currency, a collapse would be catastrophic.
Kitco has the following to say about the dollar collapse -
Look for the dollar’s final support as a minimum low sometime during the next three years ranging from 40-46.This will be the pivotal event that if it occurs, will destroy much of the wealth that the people of this nation possesses.
In conclusion, a good question to ask at this point would be ‘Why is all of this happening?’
Well, it’s elementary my dear reader. So whoever ends up with all the wealth can buy the country at a discount of course!