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alstry (36.27)

What If America Stops Consuming? 9.09

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September 11, 2009 – Comments (15)

For the past year and a half, I have been documenting the shutting down of America.

Recently there are been some Fools that have gone out of the way to show this is NOT The Great Depression.  Other Fools tell us we need to reset, start over, and the process will take some time to play out....

In the above instances.....it will be clear that BOTH perspectives are not only wrong....but lull the person into a dangerous position of complacency.

America today is VERY different than America in the sixties and America during The Great Depression.  Today, we have built 23 square feet of retail space for every man, woman, and child....Sweden has about 3 and America had much less in the sixties and even less during The Great Depression.  We have built massive amounts of office buildings and businesses to support our consumer economy and almost all of the current jobs in America today support domestic consumption or services supporting domestic consumption.

The key is the dependency on DOMESTIC consumption and the current massive amount of leverage which is basically the assets of our banking system, insurance companies, and pension plans.

In the sixties and during The Great Depression, a much smaller percentage of our economy was dependent on consumption as we emphasized manufacturing and exporting to a much stronger degree.  Plus, the demands were much smaller and we had much less dependency on leverage.

Just look around you, at your friends, at your city, at your state.....how much of the world you live in simply exists to support domestic consumption....whether it be consumer, government, or health care.

Domestic consumption has become America....and we have built a massive infastructure around it with a massive amount of debt.....and without MASSIVE domestic consumption.....much of the world as we know it is over.  Plain and simple.

As consumption cuts back....business will slow.....jobs will be lost......vacancies will rise.....tax receipts will evaporate.......and due to EXCESSIVE LEVERAGE this process will continue at an accellerating rate until practically everyone and everything goes bankrupt or out of business.

The structure of America is very different today than it was in the sixties and thirties...today government consumes 50% of a LEVERAGED CONSUMPTION GDP and its obligations are growing as the GDP is contracting and government receipts are evaporating. 

Even at the early stages of a cutback in domestic consumption.......we have ALREADY seen massive economic deterioration despite government running a $2 Trillion dollar deficit.

As banks continue to cut off credit and raise interest rates to consumers and businesses....consumption will decline much further.....so will bankruptcies and job losses....so will foreclosures.......all leading to much lower tax receipts as the contraction moves forward.

As wages fall, a dramatic tension is forming between the needs of govenrment to consume and requirements of citizens to cut back.  Even though wages are shrinking, the demands of government are rising and so are property taxes, health insurance obligations, and other large expenditures.

Further, the demands on government will grow parabolically as the population ages and more and more become dependent.  At this point, OVER 100,000,000 million Americans are dependent on government spending to consume.  Soon it will be much more.

With the bankers cutting off consumers and small business....it is mathematically impossible to sustain our current system and way of life.  Shopping centers will shutter, offices vacancies will explode and defaults will grow parabolicly as the demands to service debt and sustain goernment will simply exceed income....especially since banks are tightening credit and raising interest rates on millions of Americans.

In the end, it doesn't matter if you are rich or poor....you are only rich right now because America consumes....and if America is not consuming....most of the assets you own are worthless or near worthless. 

Right now America's bankers are on a Zombulation Policy path to eliminate or substantially reduce consumption.  When you are a nation that is dependent on domestic consumption AND highly leveraged......reducing consumption has essentially the same effect of elimating consumption....when you are leveraged or have fixed expenses...when your income drops below a certain level, you can no longer meet your obligations and you are essentially broke.

A similar result occurs if government needs to tax you 100% of your income and assets to sustain itself.

Government right now is facing some very difficult choices....VERY difficult choices in trying to bridge a widening gap.  Government must consume or people starve and massive numbers of individuals lose their jobs as businesses shutter.

In time of war, we are willing to give up our children....in time of economic emergency, will we be willing to give up our wealth?

Today we have a MASSIVE infastructure supporting DOMESTIC consumption......and it is all layered on a massive pile of debt.  We are not Japan of the 90s... when the consumer cut back, they had no debt and exports still generated an income.  If we stop consuming, America doesn't have an income and we will default on our debt.

It is interesting how the bankers are raising interest rates and cutting off credit during this time making it much more likely for defaults and failures....one wonders why there are implementing a Zombulation Policy after infecting the nation recently with so much SWAP induced debt?

Those who understand the problem, see the severity very clearly.  There is nothing in history like it in scope or magnitude.....our entire economic structure of leveraged domestic consumption supporting massive government consumption supporting massive health care consumption is coming to an end.

IT IS NOT THE END OF THE WORLD...SIMPLY THE END OF THE WORLD AS YOU KNOW IT.

At the end of The Great Depression, an attack on Pearl Harbor was the catalyst that moved us forward.  At the end of the Dot Com Bust, it was 9/11.  This time, we are dealing with a much bigger and structurally difficult problem......

Whatever is coming...mathematically it will likely be BIGGER than anything we have seen before and the outcome will result in a change that few can anticipate.

You should be now prepared....9.09 is here.....let's see how it plays out as government needs everything we have and we don't have enough for government for governments needs.

 

 

15 Comments – Post Your Own

#1) On September 11, 2009 at 9:02 AM, alstry (36.27) wrote:

GM to offer money-back guarantee

Consumption has slowed so much in America that GM is being forced to basically give away cars for 60 days to improve unit volume.  How many people do you think are going to "test drive" a GM vehicle for 4000 miles and return it 60 days later?

The system is breaking down....our commerical real estate is in shambles, debt is defaulting at increasing rates, our auto industry is being forced to resort to desperate tactics, and construction has slowed to a trickle....but for government spending.....it would be practically shut down.

Architects, Lawyers, and Engineers are scrambling for work an incomes.  So are many other professions like construction workers, real estate salespeople, and finance professionals.

No work, no income, no income no spending, no spending no consumption, no consumption no economy.....AS WE KNOW IT.

And Benny B and others are telling you the recession is ending as Zombulation just begins.

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#2) On September 11, 2009 at 9:05 AM, EV38 (99.04) wrote:

I didn't read this diatribe beyond the title but my response is this - Americans won't stop consuming because Americans are fat, spoiled pigs. The much more likely scenario is infinite debt and inflation until the Zimbabwean currency is on par with the USD

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#3) On September 11, 2009 at 9:13 AM, alstry (36.27) wrote:

Americans are being FORCED to stop consuming....the banks are cutting them off and raising interest rates on individuals AND businesses.....

look around you....wages are crashing, jobs cut, businesses shutting down, government slashing, debts defaulting.....causing even more cut back in consumption and more defaults

But if you are enjoying your fantasy....please don't let me stop you....

But Zombulation continues whether you like it or not....and we have only just begun to change this Grand Illusion.

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#4) On September 11, 2009 at 9:48 AM, weg915 (< 20) wrote:

Americans are consuming less, that's a fact.  It's just they are consuming less more slowly because they are fat, spolied pigs.  As a freelance worker I have learned to slam on my spending when not working, but most do not.   

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#5) On September 11, 2009 at 9:53 AM, alstry (36.27) wrote:

weg...

If you live in America....our government is consuming massively and will likely consume a lot more....same with practically every government in Europe.....

Income is declining around the world as the need for government spending is rising.....at least from government's perspective.

In the end, we are only as solvent as government.....and whatever government needs it takes......and government is needing more and more all over the world.....regardless of what you think of Americans and how fiscally conservative you think you are.

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#6) On September 11, 2009 at 10:06 AM, alstry (36.27) wrote:

FedEx said it raised its forecast because of increased international priority packages and "strict cost management." The company has cut salaries, laid off workers and made other cuts in the face of slowing demand.

You can only shrink so much before you can't shrink anymore. 

It should not be too much longer now.....how much less in taxes do you think Fed Ex and employees are paying this year versus last year with all the wage cuts and lay offs?

You think insiders might be selling in the next few days?

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#7) On September 11, 2009 at 10:33 AM, alstry (36.27) wrote:

As the bankers cut off the consumer and business from credit....consumption slows.....as consumption slows....business fail and tax receipts to government evaporate.

It has been a terrible summer for hotels in Hawaii.

Isle hotels in July posted a sixth straight month of record low occupancy, dropping 3.8 percentage points from the same time a year ago to 70.3 percent, according to Honolulu-based Hospitality Advisors LLC.

Joseph Toy, president and CEO of the hotel consulting firm, said this is the worst summer for hotels he's seen since tracking began in 1987, despite good deals intended to draw visitors.

July's rate was 18.6 percentage points below the peak July occupancy of 88.9 percent in 2005, according to Hospitality Advisors. July's peak-season occupancy rate was lower than the rate in the offseason months during the industry boom years of 2005 and 2006.

http://finance.yahoo.com/news/Hawaiis-hotel-rooms-empty-apf-3560889626.html?x=0&sec=topStories&pos=6&asset=1a6d7a7189b09b27ece7d86f1b422b31&ccode=mp

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#8) On September 11, 2009 at 10:48 AM, alstry (36.27) wrote:

A person familiar with the matter says General Motors Co. is telling employees in an e-mail that it will restore white-collar pay cuts made earlier this year, as of Sept. 1.

You think some might get a little upset about this after the taxpayer bailout and so many bond holders get screwed???

Soon you will understand....most of the people can no longer afford to service the government and the bankers and eat at the same time.

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#9) On September 11, 2009 at 10:55 AM, weg915 (< 20) wrote:

Yes, I know and that is what scares me.  Because we run a tight ship we just hope to have enough savings and investments to ride it out (depends on luck I think).  I believe in the end (and I don't pretend to know when that is) most (certainly not all) americans will have a drastically lower standard of living.  I am trying to prepare my kids for that.      

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#10) On September 11, 2009 at 11:01 AM, Huayra (< 20) wrote:

Americans as a people along with the US government will have to start living within their means after years and years of over-consumption and over-leveraging and that's OK. The same apllies for countries like the UK and some western european countries. It's a long process that will have to include spending reduction on a consumer level and government level accompanied by gradual tax increases, but inflation will most likely dampen the debt to GDP ratio to some extent, so I quess in that sense the declining dollar will help somewhat in the end.

One thing this credit crisis and resulting recession has shown is that evidently a shift has taken place from the western developed countries to the developing regions like Asia, Australia, South-America, Eastern Europe and even Africa, which will have to account for a larger percentage of future world growth from now one. That's where tangible assets/commodities are located and where consumption will increase the most.

The western, developed countries aren't in a depression, but they are slowly shifting into a new era of slower growth. Economists have predicting this shift for years now, but you can't changes people's nature. They are and always will be eternal optimists right up until the point reality literally hits them in the face.

For investing I find it an exciting time. There are still ample opportunities, but more and more these are outside the US and EU. Which is fine as investing in non-USD means you're also dolar-hedged. As long as most commodities are merely USD-denominated they will prove to be a solid long term investment. There are some great "start-ups" like BMB Munai, Nortort Resources and Coal of Africa, which are coming into their own as we speak. It seems there are always new companies with good business plans to invest in, but you just need to find them.

I've been part of CAPS for a few days now and it helped me find these companies among others. To see what other CAPS members think of certain companies has been very helpful indeed. The blogs are great too!

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#11) On September 11, 2009 at 11:14 AM, alstry (36.27) wrote:

THE CREDIT DEFAULT SWAP PONZI SCHEME CONTINUES

IRVINE, Calif., Sept. 10, 2009 /PRNewswire-FirstCall/ -- Standard Pacific Corp. (NYSE: SPF - News) ("Standard Pacific" or the "Company") announced today that its wholly owned subsidiary, Standard Pacific Escrow LLC, priced $280 million aggregate principal amount of 10.750% senior notes due 2016 at an issue price of 91.997%. The offering is expected to close on September 17, 2009. As previously announced, the notes will be issued in a private offering that is exempt from the registration requirements of the Securities Act of 1933, as amended. The gross proceeds from the offering of the notes will initially be held in escrow. If the conditions to the release of the funds from escrow are satisfied, the Company will use the net proceeds from the offering to finance the repurchase of certain outstanding notes of the Company through tender offers, and to the extent there are any remaining proceeds from the offering after the completion of the tender offers, for the redemption or repurchase of other outstanding debt of the Company.

BORROWING MONEY AT 12%(W/DISCOUNT) TO PAY OFF DEBT AT 6%.-7%........IT IS HAPPENING ALL THE TIME THESE DAYS......

IF THE DEBT WAS DISTRESSED AT 6%.....HOW DISTRESSED DO YOU THINK IT WILL BE AT 12%???

IT MUST BE NICE WHEN YOU CAN MAKE SO MUCH MONEY SELLING AND BUYING THE INSURANCE ON THE DEBT THAT IT NO LONGER MATTER IS THE DEBT ACTUALLY CAN BE SERVICED....

UNLESS OF COURSE YOU ARE A LEGITIMATE BUSINESS COMPETING WITH THIS SWAP INDUCED MONEY LOSING ZOMBIE BUSINESS.....YOU ARE DEAD AND SO ARE YOUR EMPLOYEES.

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#12) On September 11, 2009 at 11:41 AM, AvianFlu (20.96) wrote:

Alstry:

As a former college math teacher I would like to offer a suggestion. You often refer to things growing "parabolically". This is driving me nutz. You should really be saying they are growing exponentially or in a natural logarithmic pattern. Take a look at a graph of a parabola and you'll see what I mean.

Past that, you offer many important and informative insights.

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#13) On September 11, 2009 at 11:50 AM, alstry (36.27) wrote:

You are right....and I will take note of it.....for some reason I once looked at a chart of our national debt and the term stuck and became generic.

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#14) On September 11, 2009 at 11:51 AM, ButterflyOne (38.36) wrote:

Right now America's bankers are on a Zombulation Policy path to eliminate or substantially reduce consumption.  When you are a nation that is dependent on domestic consumption AND highly leveraged......   I'm sorry, I guess I'm not up on everything that is going on in our country today, but why would the bankers want to do this?  It goes against every logical economic principle.  I know a lot of people think that we are spoiled and I guess we have seen 70-75 years of good times, but I know that my grandparents and my parents worked hard for what they had and I have worked hard too.   It’s not like everything has been handed to us on a silver plate.  I believe most wealth, other than old money that has been passed from generation to generation, has been earned.  Most of the Americans that I know are innovative, disciplined, generous individuals.  Just let something happen and they are the first one on the scene to aid and assist.   

It is inconceivable to me that our financial institutions are working against us, but something is going on and in my heart of hearts I know it is being done to bring us on par with the rest of the world.  Even our government doesn’t want us to be a super power.  I believe it is the beginning of the end for the middle class as we know it and there is going to be a separation of classes in our country like we have never seen before. But even after saying that, I still don't understand the reasoning behind it....

 

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#15) On September 11, 2009 at 12:03 PM, jason2713 (< 20) wrote:

And the market keeps chug, chug, chugging along.

It's red now, but how much ya wanna bet it goes green again.  It just won't be stopped.  The Market's engines are being fueled by something, I have my speculations of what that "something" is but I'll keep it to myself.

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