It's Income Fools
Does anyone really get it?
The problem our economy faces has relatively little to do with subprime loans....it has more to do with the fact that income is falling and costs are skyrocketing. When income is not high enough to meet obligations, you have defaults...subprime defaults, prime defaults, even USDA choice defaults.
Costs are going through the roof. Gas is well over $4.00 in CA. Diesel is $4.00 all around America. Airline capacity is shrinking driving up fares. Food prices go up weekly. Insurance rates seem to following the same path. Collectively our purchasing power is going down day after day.
Loans are defaulting at increasing rates. Businesses and individuals are going bankrupt at increasing rates. Municipalities are cutting back on services. More and more people are seeking refuge at food shelters....even in the suburbs. Animal shelters are overflowing with abandoned pets as people must make a decision between feeding Fido or baby Jane.
A signicant part of our income was a direct result of free flowing credit over the past seven years. Now that credit is being cut off and people's spending is cutting way back.
"I'm going to change my spending behavior because I lost access to $180,000," he said. "We're going to be deferring other expenditures to build a pot of money to replace what Bank of America took away."
This blog makes no value judgments about peoples behavior. Simply cause and effect. If people don't have money to spend, they can't spend. Without spending revenues to business and government will shrink causing contraction and incomes to decline further.
The government's bailout of the banks does nothing to drive income, it simply keeps the banks solvent so they can stay open. If the banks are not lending, and we continue to ship jobs overseas, then the economy will continue to contract and more and more distress will result.
You rarely hear CNBCrapola talk about this issue, or much of the mainstream press discuss the income deficiency. But maybe that is because they are afraid because their ad revenues are evaporating faster than beer at a Frat party. CBS released a bunch of their high profile high paid anchors and reporters all around the country on Friday.
Its income folks, and it is going down everyday. You think a $7.00 minimum wage is going to help when gas is up to $4.00 per gallon, milk is $5.00 per gallon, and bread is right around there as well.
Revenues are shrinking everywhere. Health Care. Government. Restaurants. Retailers. Auto Manufacturers. Real Estate. We could go on and on.
But no one wants to smell the roses because they are afraid of the thorns. How bad will this get. My guess is at least 10% unemployment by mid to late summer. Depending on how honest the labor department wants to be with its birth/death rate adjustments. CPI, at least a 10% inflationary rate as even hedonic revisions will not be able to stem rapidly increasing fuel, food, and insurance increases.
Could it happen here...an inflationary depression. Something like what happend to Germany after World War I? Falling incomes and rapidly rising prices. Everyone gets destroyed in that environment. Everyone!!!!!!!!!!!!!!!!!!
Foreigners dumping dollars because of a slowing economy and rising defaults in America. Opec wants to reprice oil into a different currency. As the dollar get sold, it will take higher interest rates to keep people interested in holding our currency. As interest rates go up, our economy will slow further. As the Fed lowers rates, foreigners will dump dollars faster forcing the market to raise rates. With a falling dollar, the price of goods will rise.
Until our incomes start risng, or prices start falling, obligations and debt will continue to default. If the government only bails out the banks, pretty soon, the banks will be the only ones with money and the people will be begging for food in the streets.
You think I am joking, volunteer at a suburban food shelf or call your local animal shelther and ask them how conditions are now. Then ask yourself, what will conditions be like at election time if we don't start to address this problem now.
Expect news to get sequentially worse. SEQUENTIALLY WORSE. Defaults cause more defaults. Bankruptcies cause defaults forcing more bankrupcticies. Incomes fall as people get fired or businesses are forced to ask for wage concessions to make ends meet.
In the mean time, banks get over $600 Billion and people are still waiting for their $600 dollar check. Six hundred dollars is less than one intertest payment to the bank for many people. Now who is that $600 dollar check going to help?
If you havn't figured out that the problem is falling incomes and rising prices, than you are the Fool. In Florida, the gap has become so wide that many elderly are being forced to sell homes they own free and clear because they can't make ends meet. HOMES THAT THEY OWN FREE AND CLEAR!!!!!!!!
Charles Morris calls this a Trillion Dollar problem.....he may have forgotten a zero after the one. They are talking about a second half recovery? The problem took 30 years to create, seven years to mushroom, and pundits think that income and expenses will reach equilibrium in just a few months. In a few months we could be looking off the ledge of a depression as business keep shutting down everyday.
Which will happen in a few months...will incomes rise or prices fall? Now who is the Fool my friends..............