Stagflationary Abyssal Part II - More Evidence and Suggestions for What to Do

[stevenleser]

http://www.bitsofnews.com/content/view/7937/

April 6, 2008

Stagflationary Abyssal Part II - More Evidence and Suggestions for What to Do

By Steven Leser

Little in journalism evokes more critical or sarcastic responses than dire economic predictions. I expected no less when I wrote my article “It's not a Recession or even a Depression that is coming, it is a Stagflationary Abyssal” http://www.opednews.com/articles/opedne_steven_l_080402_it_s_not_a_recession.htm. I was surprised that I received almost no dismissive or pedantic responses. While I was pondering the mystery of this, the New York Times/CBS poll came out that showed that “81% of Americans believe that the US is on the wrong track” <1>, mystery solved.

More Evidence


While I don’t want to overdo citations that support my viewpoint, I think my readers should know and probably want to know that even more evidence has come out that supports my conclusions that we are heading for dire economic times. Just to review from my last article, when I look at past economic downturns, I look at five key components to determine how bad they were and what the capabilities and challenges were in terms of getting the country out of the negative cycle. Those five key components are:


1. Consumer savings and spending/ability to spend


2. Corporate income, health and spending/ability to spend


3. Government financial health and ability to spend


4. The lending and banking system and its ability to extend credit


5. Inflation & scarcity of resources


My general contention was/is that at any point in history since the Industrial revolution, you can look at those five areas and determine the health of the American economy and what its challenges are. I gave evidence that all five are now problematic for the first time in the history of our country.


Literally minutes after the article, more evidence came in supporting me. My previous article was released at 7:37am Eastern time on Wednesday April 2nd. Federal Reserve Chairman Bernanke testified to congress at 9:30am that morning about the strong possibility that a recession was coming. <2>. Over the next two days information came in about jobs and employment. Thursday April 3rd, figures were released <3> that showed a sharp rise in new unemployment claims. On Friday, the New York Times and others reported on a third straight month of rising unemployment rates and the loss of 80,000 jobs in March. The unemployment rate had risen from 4.8% to 5.1%, the highest level since the month after Hurricane Katrina <4>.


Businesses do not cut jobs when they are doing well. That might be obvious but I think it needs to be pointed out. Rising unemployment is a strong indicator about my component #2, corporate health. Obviously, if they are losing their jobs, consumers aren’t doing well either but there was more evidence coming out on that score too. I pointed out in my original Stagflationary Abyssal article that consumers had negative savings over the last 6-8 years and ballooning credit card debt. On April 3rd, Reuters reported on a study by the American Bankers Association showing “More Americans have fallen behind on consumer loans than at any time in nearly 16 years” the report showed that the problems went beyond mortgages to sharply increasing delinquencies on auto loans and credit card debt as well <5>.


I think I have proved my point that the consumer is in big trouble right now and has no ability left to spend. The economy isn’t going to be lifted out of its negative trajectory by the consumer. Businesses are hurting too and laying people off. We know about the enormous deficits the government is running and we know about the problems of the Banking and Lending industry and we know that inflation is on the rise.


This economy is in big trouble. So why aren’t we seeing more catastrophic looking indicators right now? Why hasn’t the market crashed? Unemployment and inflation are worsening but they don’t look particularly bad yet. As I responded to someone on one of the forums in which I participate, those things are coming. Right now, we are in what I would call a death spiral. If you have ever seen a model of an object that has just been caught in a black hole’s gravity, you know what I mean. At first, the object orbits the black hole slowly and at a great distance. The object is then sucked into orbits of smaller and smaller radii and the object moves around that radius faster and faster. The speed at which the radius decreases accelerates quickly. The five components all being bad at the same time exerts a tremendous negative pull on the economy and on each other. Corporations doing badly causes other corporations that depend on them as customers to lose money and causes layoffs which causes consumers to do badly which hurts retail corporations and causes the consumers to default on loans which causes the banks to suffer, when those three together have lower earnings it reduces tax revenues to the government and around and around it goes.


Suggestions


Whether it is at my day job or about the things I write, I don’t like to throw out negative predictions without offering suggestions about how to fix or at least improve the situation. Here is what I think each of the groups should do:


1. Suggestions for Individual Consumers and Families

During the recession of 2001-2002, President Bush exhorted consumers to go out and spend, and they did. They spent the economy out of one crisis and helped spend it into another. My first suggestion is, above all else, deal with your debt. 95% of consumers should be focused on paying down their debts. Get your credit card balances down to zero, followed by your auto loans, followed by your home equity loans followed by your student loans. If you want to see some horrific statistics about consumer debt, here they are <6>


• Total US consumer debt (which includes installment debt, but not mortgage debt) reached $2.46 Trillion in June 2007, up from $2.398 Trillion at the end of 2006 (Source: Federal Reserve)

• Total US consumer revolving debt reached $904 Billion in June 2007, up from $879 billion at the end of 2006 (Source: Federal Reserve)

• The median U.S. household income is currently $43,200 and the typical family's credit card balance is now almost 5 percent of their annual income. (Source: Federal Reserve)

• Of the households that do owe money on credit cards, the median balance was $2,200 -- meaning half owe more, half less. (Source: MSN Money)

• 8.3 percent of households owe $9,000 or more on their cards (Source: MSN Money)


Go without things in order to get out of debt, cut up your credit cards, etc. The great thing about this is, if consumers help themselves by doing this, they will help the banking industry too. It would flood the banking industry with liquidity at a time when banking liquidity is sorely needed.


I hesitate to make a lot more suggestions for consumers because given the evidence of how much debt most people have accumulated, I believe that paying down debts is going to take most people a long time. Making the assumption that at least your credit card debts are paid and your auto loans (if any) and any other debts are manageable (manageable to me means that your monthly housing expenses + debt payments are at or less than 50% of your income), start putting away money for a rainy day fund. When complete, this fund should contain two to three months net income and should be put into a savings account that can be drawn from in the event of job loss or some other catastrophic event only. It isn’t for a new car or big screen TV. After that is complete, you should make sure that your retirement accounts are adequately funded. That requires the help of a financial advisor.


If you need help with your debts, cannot make the payments, etc., seek the advice of credit counselors.


If your debts are paid, and your rainy day fund is intact and your retirement accounts are properly funded to give you the retirement that you want, then you can consider buying more stuff, big ticket items, etc., if and only if you don’t have to use credit to do it.


This reduced buying and concentration on paying down debts will not only help consumers and banks, it will serve to reduce inflation as well. Moreover, when recovery eventually comes, people will be in the position to participate in it.


One of the things that happens to people when the economy turns negative and their own personal finances suffer is that they tend to have more problems with their physical and mental health, so, on a completely non-financial note, I recommend that everyone who is not already doing so to start taking better care of themselves and exercise. Cut down on fatty and sugary foods and alcohol. Join a community sports league, they are usually not expensive, they last a long time, forge relationships and help you get in shape, not to mention that they are fun.


Someone suggested to me that as a result of rising prices of food, I should tell people to keep a several month supply of food (canned goods and the like) to ensure that they and their families have food in the event of shortages or price increases. I hesitate to advocate hoarding food. I think that would only serve to create panic. What I do recommend is that people start looking at trying to make sure they are getting the most for their money. Look to add more low cost, healthy fruits and vegetables to your diet. Increase your awareness of lower cost foods that you can substitute into your diet if prices start to increase.


Finally, try to use mass transit for at least your commutes to work/school. Explore walking or biking to work. If you cannot do these things everyday, maybe you can bike or walk or take the bus/train once or twice a week. Will your boss let you work from home once or twice a week? All of these things will help cut a significant percentage of costly fuel and other transportation costs from your budget.


2. Suggestions for Businesses and Corporations

CEOs, CFOs and board members should perform a realistic assessment of their businesses right now. Who are your customers? Are your customers consumers who are hurting? Other businesses that are hurting? Are they businesses that are somewhat recession proof? If your business is in the red or on the brink of having a negative cash flow and it is dependant on businesses or consumers that will also be hit hard in this upcoming negative economy it is probably not going to survive the economic bad times ahead. Pursue a merger/acquisition before your company’s worth deteriorates any further or sell off assets or divisions or do whatever it is that is necessary to put your business on a strong footing.


Can you afford to keep your current full time staff? Can you put staff on reduced hours to avoid layoffs? If you lay off significant amounts of your staff will you be in a position to take advantage of the economy when it does turn positive again? I happen to see the revolving door of employment at many firms as very wasteful and inefficient. You hire a ton of people when the economy is strong, it costs a lot of money to recruit and train them, then you usher a similar amount out the door when times get bad and it costs a lot of money to do that too, then you start the cycle over again. Businesses need to find a way to flatten out that cycle. Perhaps offer a significant amount of people half time or furloughs instead? Obviously, businesses are hurting the retail sector if they lay people off which in turn affects other businesses and it eventually affects all firms. If we can find a way to deal with decreases in business income without laying people off it will be better off for everyone.


3. Suggestions for the Government

I’ll break my government suggestions up into two categories, Congress/President & State Governments and The Federal Reserve even though technically the Federal Reserve is not part of the government.


A. Congress & the President & State Governments

The best thing that could be done right now is to bring an emergency end to the Iraq war. The Iraq war is costing us over $2 Billion dollars a week and over $110 Billion dollars a year by conservative estimates. We cannot afford those expenditures while the economy sinks into a chasm. That money needs to be used for other things as I will explain below.


The government has to encourage people to pay off their debts and be debt free. There are several ways to do this. Provide tax relief to people who pay their credit card debts by making the money paid to those debts tax deductible for the duration of the crisis if consumers reduce their accounts to zero and close them even for those filing with a short form. This tax deductible paying of credit card debt should be extended to anyone or any family earning less than $150,000 per year. To make up for the shortfall, institute a temporary wealth tax. For the duration of the Abyssal, tax the wealthiest 5 percent of Americans one percent of their gross wealth per year. The wealthiest 5 percent are worth more than the rest of all of the 95% combined. In fact, they account for almost 60% of all wealth in the country. According to Forbes magazine, just the wealthiest 400 Americans were worth a combined $1.54 Trillion Dollars in 2007 <7> . A 1% wealth tax on just those 400 would net $15.4 Billion dollars in Tax revenue. A 1% tax on the rest of the richest 5% would almost certainly yield conservatively to another $85 Billion dollars. If we add that to pulling out of Iraq, we would ad $200 Billion dollars to the Federal budget.


Some of that money should be spent in ways that gets the economy going and helps the unemployed. The federal government should provide money to the states to build up the nation’s infrastructure. We heard after recent bridge collapses that we have a crumbling road and bridge infrastructure. These roads and bridges should be repaired. After Katrina, we learned that FEMA had a list of ten worst possible catastrophes and how they could be mitigated. We should take care of that too. We should implement high speed rail between all metropolitan areas and have mass transit rail systems available in all of the top 50 cities in the country. To make financing all of this easier and help out those who are hurting the most, the government should use unemployed workers to perform most of the labor for these efforts, a kind of revival of the New Deal’s WPA (Works Progress Administration) and CCC (Civilian Conservation Corps). These workers should be paid a premium over their normal unemployment compensation for performing this work.


The Federal Government should offer to guarantee debtor loans like they now offer to guarantee student loans. If a person or family reaches a point of crisis with debt, they could opt for this loan. It would consolidate all their non mortgage debt into a single loan with a reduced interest rate paid over a long period of time just like a student loan. The person or family would have this loan noted on their credit report (it would not be a negative listing) and during the time this loan had an outstanding balance, the family would not be allowed total debt (including mortgage/rent) to go beyond 60% of net income after taxes (the law would read that if any firm or agency issued them a loan or credit exceeding this amount, the individual or family would bear no obligation to pay it back. That would take care of enforcement). In other words, if a family’s net income was $2000 per month and their rent or mortgage PITI was $700 per month and their Guaranteed Debtor Loan was $300 per month, the maximum other loan or debt they could incur would be $200 per month. That is the maximum for an auto loan for instance. If they wanted to get a credit card, the card would have to have a maximum available balance and interest rate that would conform to this or less. If they wanted to have both an auto loan and a credit card, they would have to total a maximum potential of $200 per month of payments.


Finally, the government has to get involved to create a new and broader set of financial and banking regulations to protect the economic health of the country. Risky practices by a small segment of the financial or banking industry has the ability to severely affect everyone. The avoidable crises brought about wholly or in part by these industries are coming at a frequency of every 8-10 years. We had the Savings and Loan and Junk Bond Crises of 1986-1991 brought about by Brokered Deposits and risky loan practices. We had the tech bubble that burst in 2001 and now in 2008 we have the sub-prime mortgage disaster. All of these issues could have been avoided and each threw the entire economy into crisis. There should be firm guidelines as to how risk is determined by analysts and communicated to investors. There should be criminal liabilities for analysts, financial advisors and brokers who knowingly misstate risk to their clients or who do not do the necessary due diligence to understand the risks of financial instruments they are recommending to their clients. There should be particularly strong guidelines and regulations about any new class of financial offerings or stocks from new industries that are being promoted or sold. In the 90’s investors were sold tech stocks at a premium that had poor P/E (Price/Earning) ratios because it was assumed that the internet created a new earnings or valuation paradigm. That turned out to be a false assumption. In this decade, sub prime mortgages which carry a moderate degree of risk were bundled into bonds and other securities that were touted as having the lowest risk rating. The financial and banking sector have proven that they cannot regulate themselves and that a Laissez-Faire approach to them is not working. They need more and better regulation.


B. The Federal Reserve

Stop lowering interest rates! When inflation starts to pick up, the Fed should put an immediate stop to lowering rates as a counter cyclical measure. Inflation, at 4.1% is already at its highest point in 19 years. True, it is not 13.5% like it was in the early 1980s but I would argue it is already a problem, just ask anyone on a fixed income, like seniors. If we start acting like it is a non issue, it could get out of hand very quickly. We are in the midst of an energy and food shortage and our currency is collapsing relative to most of the other major currencies out there and we need to have a serious approach to those issues.


In fact, the correct approach might be to raise the interest rate by several basis points. If, as I suspect, we see inflation inch up another percent or two in the next few months, the Fed may need to consider raising rates.


4. Suggestions for the Banking and Lending industry

I don’t think the Banking and Lending industry needs a lot of suggestions from me. In the wake of the sub prime catastrophe, most have already taken steps to prevent this kind of problem from happening again. I have a few suggestions about issues that persist and have needed addressing for some time.


Credit card & Lending policies

Am I the only one who sees a lot of these policies and practices as counter-intuitive? Double-digit interest rates on credit cards, forcing those with less than stellar credit to pay higher rates on auto loans and other accounts resulting in much higher monthly payments. Those things work when times are good, but when they go bad, as they are now, they are going to come close to destroying the banking system.


People who have weaker credit shouldn’t have to pay higher payments. If the economy starts having problems, people with weaker credit are probably not going to be able to pay the higher payments and that is exactly what we are seeing now. Instead, whether it is a revolving credit account or an auto loan, the monthly payments should be structured so that they are the same no matter the credit rating and either a larger down payment is required to be paid, or the loan should go on for a few more months.


What’s in a Name?


One of the more interesting responses to “Stagflationary Abyssal” was the debate on the grammatical correctness of the term. Part of that was my fault. The definition I provided from Dictionary.com was only of the adjective portion of its definition. Abyssal is also used as a quasi-noun in nautical geography as in “Laurentian Abyssal” to define deep areas of the ocean floor. That is what gave me the inspiration for the use of the word in the way that I did. To my way of thinking, the ocean floor is already a low point, so an Abyssal is a low point of low points, a perfect analogy to the economic period I believe is coming. It’s the Capo di tutti Capi of economic bad times. OK, sure, its geeky/wonky/wonkish whatever you want to call it, but, hey, that’s me!


----------------------------------------------


I am interested in hearing from people who, in the face of all of the evidence I have cited in these two articles, still disagree with me and the idea that the economy is facing a downturn of historic proportions. I’ve read through a number of articles that suggest that the second half of this year will feature a recovery, but they all fall short in answering one basic question. Who is going to purchase the goods and services needed to fuel any kind of turnaround? We know that banks, the US Government, and US consumers can’t do it. If you were the CEO or on the board of a corporation and saw this economic landscape before you, would you try to make the argument that now was the time to increase the discretionary spending of your firm or to try to expand? Who has the wherewithal to buy your products or services? There will be some firms that do well in the bad economy that is coming, just like some firms survived and flourished in past down turns and even the great depression, but the majority will be lucky to get by. We know from the increasing layoffs that most board of directors and CEOs see it like I do. So, if you disagree with me, from where is this recovery that you predict coming?


---------------------------------------------


<1> New York Times, “81% in Poll Say Nation Is Headed on Wrong Track” http://www.nytimes.com/2008/04/04/us/04poll.html


<2> AP (via Yahoo), “Bernanke says recession possible” http://news.yahoo.com/s/ap/20080402/ap_on_bi_ge/bernanke_congress


<3> AP (via Yahoo), “Jobless claims highest since Sept. 2005” http://news.yahoo.com/s/ap/20080403/ap_on_bi_go_ec_fi/economy


<4> New York Times, “Unemployment Rate Rises After 80,000 Jobs Cut“ http://www.nytimes.com/2008/04/04/business/04cnd-econ.html


<5> Reuters (via Yahoo), “Late payments on consumer loans at 16-year high” http://news.yahoo.com/s/nm/20080403/us_nm/consumers_debt_study_dc

<6> CreditCard.com, “Credit card industry facts and personal debt statistics (2006-2007)” http://www.creditcards.com/statistics/credit-card-industry-facts-and-personal-debt-statistics.php <7> Forbes , “The Forbes 400” http://www.forbes.com/2007/09/19/richest-americans-forbes-lists-richlist07-cx_mm_0920rich_land.html

[stevenleser]

1. Shameless self kick ;-)

[roguevalley]

2. thank you for this post. it validated everything i was thinking of doing.

you financial wizards are more valuable than our posts could ever tell you. thank you so much. God help us all.

[stevenleser]

5. My pleasure!

And yes, God help us all!

[Karenina]

7. More thanks, a rec and another kick!

:kick:

[tbyg52]

3. Unsolicited advice - If you go to a credit counselor

check them out carefully.

And even the fairly legitimate ones such as CCC (which, I believe, is funded by the credit card industry....) can mess you up. Ours put a card in our plan that didn't participate, and that card company proceeded to say they weren't getting their fair share and raised our interest rate to about 30%. We got it back down and did a separate agreement with them, but it took time and mental upset.

They also told us to leave one card out for our use. Well, what good would *that* do when we were supposed to be trying to pay them off??!!

Frankly, if I knew then what I know now, I'd have just done the renegotiating of interest rates and belt tightening myself.

Caveat - our situation was that we had a huge amount of debt (main lesson - don't trust anyone regarding money, even your spouse) but it was not such that we could not pay it off - I got it done in 2 1/2 years. My advice might not apply if your debt/income is such that you cannot pay it off at all.

[prairierose]

4. Thanks...

I think this is all very good information.

[stevenleser]

6. A retail industry account from a DUer who works mid management at a major retailer

VERY scary stuff and a MUST read---> http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389x3111866

[stevenleser]

8. Hemmingway bar in Venice offers "discount to poor Americans"

http://news.yahoo.com/s/nm/20080407/lf_nm_life/italy_tourism_hemingway_dc

By Philip Pullella
Mon Apr 7, 9:42 AM ET


ROME (Reuters) - Harry's Bar, the famed Venice watering hole where Ernest Hemingway held court over hearty food and stiff martinis, is offering a discount to "poor" Americans suffering from a weak dollar and subprime blues.



The decision by the owner of the restaurant, one of the most expensive even when the U.S. currency is strong, underscores the growing concern about the weak dollar among tourism operators in Italy and elsewhere in Europe.

A sign posted outside the restaurant at the weekend reads:

"Harry's Bar of Venice, in an effort to make the American victims of subprime loans happier, has decided to give them a special 20 percent discount on all items of the menu during the short term of their recovery."

[Tansy_Gold]

9. survival techniques vs revolutionary strategies

Most of what you've suggested are tips for preparing for or surviving the inevitable collapse. And as at least one of those who commented on the use of the adjectival "abyssal," I'd like to add that I personally think "collapse" is a more appropriate term for what I believe is very likely to happen. Indeed, unless drastic measures are taken to head off that collapse, I do see it as inevitable. And as you illustrated with the black hole example, I think it will come up on us much more quickly than we expect.

In the absence of drastic measures, I think we will see not just a depression or a more severe form of depression -- your "abyssal" -- but a true collapse of macro-institutions. And mere cleaning up of personal debt and cutting back on gasoline consumption, though certainly laudable in and of themselves, aren't enough to prevent that.

1. End the war. I agree with you on this. It is an enormous drain on our national cash flow. But it has also affected our global prestige, which is an intangible asset that should not be ignored.

2. Federal tax policies: Income taxes on the very wealthy (top 1-5%) should be immediately raised. If not to the historic highs of 75-90%, at least into the 50% range. Categories of unearned income (capital gains especially, but also dividends, royalties, etc.) should not have lower tax rates than earned income. Corporate income taxes should also be increased; if corporations want to continue to be treated as "persons," they should pay the same tax rates as real people. Whether Congress would ever pass any kind of "tax increase" legislation is questionable, but I do believe that with effective leadership, such a proposal would gain wide popular support that would guarantee passage of the Tax Reform and Equity Act of 2009.

3. Executive pay: I had to chuckle at your suggestion of asking corporate executives if they can afford their full-time staff without asking them if they can afford THEMSELVES. How many times have we read about industries -- the airlines seem to be the most notorious, but now banking is getting the spotlight -- where workers are given the choice of huge pay cuts or seeing the company go bankrupt, only to see the CEO get a huge bonus when bankruptcy is avoided. We've watched Enron employees lose life savings while the executives keep theirs. Laws prohibiting payment to executives in the form of stock options could be enacted, since that kind of compensation creates a "moral hazard" that the executive would inflate the stock's value for personal gain. Or income on the exercise of options while in the employ of the corporation could be taxed at a substantially higher rate. There are a variety of ways to improve the ratio between executive compensation and workers' wages, but something has to be done to put more of the fruits of labor into the hands of the laborers. Income inequality also contributes to economic disaster.

4. Campaign finance reform, with teeth: Get the moneymen out of politics. If elected officials are to be expected to serve those who have elected them rather than those who have contributed to the campaign, then we have to make the voters more important than the donors.

5. Financial markets regulation. Much of what's out there now, especially the $516 trillion in "derivatives," is imaginary money. Worse, it's part of a gigantic Ponzi scheme, a pyramid investment that requires more and more and more "investors" to provide the cash that is paying off those at the top. But what happens when there's no one left to buy the stuff? Isn't that the point we're starting to reach now? No one wanted to buy whatever it was Bear Stearns was selling. The banks are writing down billions in assets because, well, because they paid high prices for them in expectations of selling them to the next sucker for an even higher price ---- but there was no next sucker! And since no one wants to buy them and they have no "investment" value -- as being ownership in an actual company that makes things -- they are, quite literally, worthless. The book value, once in the billions, is now zero.

While the notion that the collapse of an investment bank, like Bear Stearns, would bring about the collapse of the entire economy seems to be the prevailing rationale behind the Fed bailout and the subsequent auctions of $200bn cash, we ought to be asking Bernanke and Greenspan and Paulson and all the others -- WHAT WOULD HAPPEN IF WE LET A FEW OF THESE BANKS FAIL? Really, what would happen? Would they just write off their $516tr in imaginary derivative values, and they then would have just real assets on their balance sheets? Would they have to liquidate some real assets to pay back the institutional investors -- pension funds, etc. -- who should never have been allowed to buy into those risky, fraudulently rated "secure" vehicles? Maybe. But remember that much of the value tied up in those derivatives is speculative, not invested. It's a casino bet writ large; someone's going to win and someone's going to lose, and all parties should know when they walk up to the table and place their bets that they could be on the losing end -- and there's not going to be a bailout. If they can't afford to lose, they shouldn't bet. And if they lose, they shouldn't whine.

6. Speaking of bailouts -- Bail out the homeowners facing foreclosure. Forget the banks and the mortgage brokers who KNEW what they were doing and were doing it to get as much money out of the buyers as possible. The banks and the mortgage brokers and the developers and real estate agents made out like bandits and there is no legitimate reason to offer them tax breaks or rebates or any other kind of bail out. Again, they took what should have been informed risks. It's the homeowners who need to be bailed out. And yes, that means all those who got loans based on no proof of income, on fraudulent statements of income, no matter what. The homeowners are the consumers who are the backbone of the economy, and they need to be protected first. Otherwise, ALL THEIR INVESTMENT is lost and ends up right in the hands of the people who need it least and will do the least with it. Could congress pass legislation that would freeze all ARMs at some arbitrarily level, say, as of 31 December 2006? or at X number of months into the ARM? We had price freezes and wage freezes back in Nixon's day -- we still see evidence of it in the practice of giving rebates, which is a mitigation of various industries' policies of setting suggested prices high as a hedge against potential price freezing -- so why not mortgage rate freezes?

There are others, some small, some major. Is it likely the next Congress will pass the necessary legislation, to raise taxes, freeze mortgage rates, alter executive compensation packages? Well, maybe, maybe not. It **can** be done; the question is **will** it be done.

No matter what happens, most of us will have to learn to live a more austere lifestyle. Less debt, less spending, not to help out with the economy but because the economy can't support that level of consumption. We've borrowed against our future earnings, as individuals and as a nation, but there comes a time when the bills have to be paid and no more debt run up. We'll buy fewer fancy shoes made in China; we may buy better ones made locally. We'll throw less in the landfills. We'll become more conscious of the environment and less conscious of impressing our shallow friends with how stylish our feet look. yes, it's going to be painful, and more painful for those who will remain in denial the longest.

The U.S. pulled itself out of the 1930s Great Depression because it hadn't reached the catastrophic level of having all five of your elements in play. It still had some strengths, some assets to fall back on. We don't have those assets any more, and we're going to have to start almost from scratch in building a new economy, and maybe even a new paradigm for the United States of America. For that reason, I'd refer to the coming economic downturn as a true collapse. What emerges is not going to be a return to what things were like before the "downturn"; what we see on the other side is likely to be something very, very, very different, and perhaps totally unexpected.

But what do I know?

I am, as always, just


Tansy Gold