alstry (35.45)

Depressions Everywhere....Alstry could use some help

May 21, 2009 – Comments (5)

From the WSJ: 

Steep declines in the economies of three of the U.S.'s biggest trading partners -- Mexico, Japan and Germany -- underscored the severity of the global recession and put pressure on major industrialized nations to revive moribund global trade talks.

On Wednesday, Mexico became the latest country to report a plunge in output. The country's gross domestic product fell at an annualized rate of 21.5% in the first quarter, the worst performance since the 1995 peso crisis led to an International Monetary Fund and U.S. Treasury financial rescue. This time, Mexico has insulated itself somewhat by arranging a $47 billion IMF credit line in advance.

Mexico's decline followed by a day Japan's report that its economy contracted in the first quarter at a 15.2% clip, its worst performance since 1955. Last week, Germany said its first quarter decline in GDP, an annualized 14.4%, was the worst since 1970.

MarketWatch reports tonight that Singapore came in at a decline of 10.1%.

We are now seeing economies contracting at rates exceeding depressionary rates (10%) all over the world.  Much of the commentary blames lack of US consumption as the culprit.

The problem is that US consumption is down because the US consumer is tapped out....and much of the spending in recent years was based on excessive borrowing.  As the consumer is 2/3 of the American economy, and the accumulated debt is a significant percentage of American assets, how the heck do economists think our economy can ever improve if the consumer is unwilling or unable to borrow.

Since there is very little productivity left in America to generate foreign sales, we can't produce our way out of this one....and since most of us are tapped out and levered up against assets that are only worth a fraction of what they were a few years ago, we can't nor are we willing to borrow our way out like post dot.com crash.

So here we are....few will lend so we can't spend.  Even fewer desire to borrow so we are spending even less.  Since we are not producing much to sell overseas, we can't generate revenues through trade.  And since we are spending less we are importing less so world economies dependant on the American consumer is suffering.

Explain this...if we are not spending and buying stuff...and we are not producing much and selling overseas.....and banks are making it tougher for consumers to borrow by curtailing credit card limits and making it much more  difficult to get home equity loans..........how the heck does any competent individual expect any sort of economic recovery anytime soon......until the American consumer is delveraged or we start producing stuff and selling it overseas?????

If our government simply started printing money as some suggest....what would be the mechanism to get the money to the consumer so they could spend....most consumers are tapped out so they can't really borrow any more.....I guess they could just hand us bags of money.....is that what many of you Fools think is going to happen??....we are going to get bags of money so we can pay off our debt and start spending again?

An interesting problem indeed.....we were spending because the banks were lending.....stupidly.  Now  we  have  levered up to the gills against assets that are crashing in value and loans are defaulting all over the place preventing the banks from lending.

A big part of the problem now is that a huge segment of the economy simply existed due to stupid lending practices by the banks....now that the bank's have cut back on their foolishness, much of our economy is evaporating.

It is my estimate that 30-50% of the jobs that existed in America over the last ten years were directly or indirectly related to stupid lending practices of banks.  Now that things are returning to normal.....much of our debt based and debt benefitted businesses are fading fast.

If you think we are anywhere close  to the bottom.....it would be great to hear your reason why.