Watching fiscal realities crash into people

[CanadaSue]

I don't know if I should feel sorry for some people or bitch slap them across the head.

Times are getting tight here too. Every time I walk downtown, it seems another storefront or two is shuttered. Invista is shuttering a plastics plants as soon as raw materials run out - a matter of a few weeks. Most are spending less as easily seen looking at the lineup for the local coffee shop drivethrough & the parking lots at the bingo halls I live near & work at.

But I swear, some are clueless. They seem to think they can continue to spend their way into oblivion with no consequences for poor decision making. And when those consequences hit, they're stunned... then angry. It might be useful if they were angry at themselves & used that anger to review their spending habits & cut out the fat. Instead, they rail at 'life' & 'them' - 'them' usually being people they owe money to & who in turn have bills of their own to pay.

We have neighbours who make exactly the same as we do - same disability program as my SO. Since I've lived here - not quite 6 months - I've been watching spend money hand over fist. A huge, big screen TV, takeout, having booze delivered, party, party, party. I couldn't fathom how they figured to afford any of that, never mind all of it. Now, they've been forced into bankruptcy & are freaked. They thought bankruptcy was a 'simple' matter of erasing al your debts, then starting again. They didn't realize it meant no credit at all - a cash only life. They don't know how to do that.

An increasing number of tenants are late with their rent & are angry the super 'doesn't understand' they have to buy cigarettes, gifts, junk food. THEY don't understand the owners run a tight margin & need their rent money in.

Quite a few older couples, as well as widowers & widows are looking for apartments here. Save for the problematic welfare mommies, most tenants here are older, quiet & like it that way. These folks are looking to sell homes & move into some place cheaper & easier but the building has a good reputation & there are simply no vacancies forecast for at least the next several months.

SO checks out a few pawn shops every week or 2 just to see what's happening there & he tells me that most are no longer accepting jewelry, electronics or most items. They have more than they can handle & few buyers.

Gift cards at local grocery stores are selling well this holiday season & they're a sensible purchase. People always need to eat. Luckily my main discount grocery store is running some damned good prices on basic items, labelling them inflation fighters. Works for me. We're starting to see a lot of deep discounting around here & an increasing air of desperation in some stores.

I suspect a lot are going to go under within 8-10 weeks of the post Christmas sales & many won't last that long.

We are simply grateful that we're used to 'living poor'. In these worrisome economic times, it's a lot easier, far less stress inducing if you already know where to cut corners. For too many around us, some very hard lessons are still to come.

The crisis phone lines are going to be busy this Christmas.

[jason]

I'm interviewing people who have dozens of years in IT for entry level jobs now.

Kind of a good thing for me since the low end guys straight out of college seem to have the mindset that everything is owed to them and barely show up, nevermind do any work.

[Misty]

It hasn't hit home with a lot of people yet, including some in my own family. Low end service jobs, no savings, debt for house and car and credit cards -- and they're planning on getting a flat screen television this month because "we deserve it". No matter that then they'll have to pay a much higher monthly cable bill to watch the new tv. No matter that their jobs are hanging by a thread. No matter that they have little kids to take care of. If we try to tell them to budget their money, tighten their belts and prepare for hard times, we're considered worry warts.

I read this and thought it said a lot:

'Gone, Over, Toast.'

It's interesting how short-sighted many so-called experts are when it comes to understanding the pace and path of forces swirling through the economy.

Even when it was apparent to everyone that the bubble had burst in housing, for example, some forecasters were predicting that municipal finances would not be seriously affected.

Aside from wishful thinking, one reason for the cognitive dissonance appeared to stem from the fact that people were not getting immediate reports from state and local officials that budgets were being wracked by falling revenues and rising costs.

Yet that should not have been a surprise to anyone. There are in-built delays, such as the time it takes to build a house or the grace period allowed for tax receipts to be remitted to authorities, that would postpone the moment of reckoning for months -- or longer.

The same holds true in terms of the state of the overall economy. The optimists seem to be saying that since today's data are not so bad, fears about a serious downturn are overblown.

As it happens, Charles Hugh Smith, publisher of the Of Two Minds blog, has taken the time to take such reassurances to task in "The Coming Great Depression: Leaving Fantasyland."

Wall Street Journal commentator Peggy Noonan is undoubtedly not alone is seeing no evidence of Depression in America--yet: Turbulence Ahead:

"One of the weirdest, most perceptually jarring things about the economic crisis is that everything looks the same. We are told every day and in every news venue that we are in Great Depression II, that we are in a crisis, a cataclysm, a meltdown, the credit crunch from hell, that we will lose millions of jobs, and that the great abundance is over and may never return. Three great investment banks have fallen while a fourth totters, and the Dow Jones Industrial Average has fallen 31% in six months. And yet when you free yourself from media and go outside for a walk, everything looks . . . the same.

Everyone is dressed the same. Everyone looks as comfortable as they did three years ago, at the height of prosperity. The mall is still there, and people are still walking into the stores and daydreaming with half-full carts in aisle 3. Everyone's still overweight.

But the point is: Nothing looks different.

In the Depression people sold apples on the street. They sold pencils. Angels with dirty faces wore coats too thin and short and shivered in line at the government surplus warehouse."

Peg would be well-served by reading up a bit on the Depression's timeline. As noted here last week, (The Coming Great Depression: Scapegoats and Exploitation) the Dow Jones Industrial Average actually recovered in early 1930 to early-1929 levels. (Look for the same this time around, too--DJIA 12,600 is in the cards a few months out, despite all the structural damage to the market and economy.)

Breadlines didn't form in November 1929--the structural damage took years to play out then, and it will take years to play out now. So don't rush things, Peggy--we'll get to a visible Depression soon enough.

Great Depression: (Wikipedia)

The Great Depression was not a sudden, total collapse. The stock market turned upward in early 1930, returning to early 1929 levels by April, though still almost 30 percent below the peak of September 1929. Together, government and business actually spent more in the first half of 1930 than in the corresponding period of the previous year. But consumers, many of whom had suffered severe losses in the stock market the previous year, cut back their expenditures by ten percent, and a severe drought ravaged the agricultural heartland of the USA beginning in the summer of 1930.

In early 1930, credit was ample and available at low rates, but people were reluctant to add new debt by borrowing. By May 1930, auto sales had declined to below the levels of 1928. Prices in general began to decline, but wages held steady in 1930, then began to drop in 1931. We can already anticipate "ample credit at low rates" in 2009, just as we can also anticipate wages holding steady for awhile even as sales fall. The wheels will fall off later in 2009 and deteriorate further in 2010, 2011 and 2012.

Here are the structural realities which have yet to play out:

1. You can't force households or businesses to borrow more money and spend it. Japan's central bank has flooded that nation with liquidity and low interest money for 19 years to little effect.
2. U.S. consumers and corporations are already burdened with staggering debt. Not only can't you force people to borrow more, you also can't force lenders to loan more money to insolvent households and businesses.
3. Whatever money people get their hands on is going to paying down debt and savings. Studies of the first "stimulus package" checks which went out to taxpayers in 2008 revealed that 2/3 of the money was not spent but used to service debt or saved. Future "stimulus checks" will also fail to boost spending; people already have more stuff than they know what to do with.
4. The FIRE economy is dead. Finance, insurance and real estate (FIRE) all prospered for one reason: the velocity of transactions and debt instruments. With the volume of transactions off by 2/3 (real estate) or 99% (home equity loans), the FIRE economy is shrinking fast, with no barriers to further declines. With lending standards rising even as real estate values plummet, there is nothing to stop transaction and debt velocity from falling much further.
5. Governments and corporations alike are living with Fantasyland expectations of revenue. I recently pored over the 2009 fiscal year budget of my town of 120,000 people (general fund spending is $135 million, which doesn't include capital projects or bond-funded spending) and was dumbstruck by the insanely unrealistic revenue expectations.

The city expects to reap the same amount of easy money from real estate transfer taxes (1% of any real estate transaction goes to the city) in 2009 as it did in 2007 and 2008: about $11 million.

Huh? As transaction volumes decline by 2/3 and the sales prices plummet, then how can you possibly expect to rake in the same transfer tax revenues?

The downtown shopping district was eerily quiet on Black Friday; empty storefronts are everywhere, and sales are falling even at the town's sales-tax heavyweights, the Toyota and Honda auto dealerships. Yet the city expects to haul in the same sales tax revenue as in 2008. Based on what?

The entire nation is in the grip of massive, total denial that revenues will drop in a recession. Companies are trimming travel costs, as are consumers; San Francisco International Airport was virtually empty on Wednesday, once one of the busiest travel days of the year. Airports almost empty day before Thanksgiving.

"The dreaded Day before Thanksgiving was not so dreadful after all. Bay Area airports were eerily empty for much of what traditionally has been among the busiest travel days of the year.
"There's nobody here," said Deborah Vainieri, who was waiting at San Francisco International Airport with her husband, Humberto, for a flight to Portland. In a plot to beat the crowds, the Vainieris had arrived at the airport four hours early. They walked right up to the check-in machine and were done in less than a minute."

6. If lenders make risky loans, they will go under--and most U.S. households and businesses are no longer creditworthy risks. So there you have it: This conflict cannot be resolved. Lenders who foolishly extend credit to over-indebted, risk-laden borrowers will be paid back with losses and insolvency, yet as lending standards tighten and assets plummet in value, the number of creditworthy borrowers in the U.S. has shrunk.

As noted here many times: many of those who qualify for loans are deadset against debt. That's why they're creditworthy--they've refused to take on huge debt for cultural or fiscal-prudence reasons. They have zero interest in taking on debt, even at zero interest.

You can't force people to borrow money, especially when they're already overloaded with debt, and you can't force prudent people to borrow when they have no need for more property, nor can you force people to buy real estate even as the values continue falling.

7. The U.S. already has too much of everything: too many hotels, malls, office towers, homes, condos, strip-malls, lamps, furniture, CDs, TVs, clothing, etc. As 50 million storage lockers filled to capacity with consumer crap are emptied in a desperate move to reduce expenses and raise cash, the value of literally everything ever manufactured will fall to near-zero.

As noted here many times before, the entire U.S. housing market was held aloft by two anomalies: speculators hoping to "flip" for huge profits, and a "one dwelling for every person" mentality that confused rising population with a rising number of households.

We are already seeing how population can continue rising slowly even as the number of households declines. It's called moving back home, doubling up, renting out a room, etc. There are at least 20 million surplus dwellings in the U.S. right now; there is no need for 700,000 more a year to be built, or even 70,000 more.

The FIRE economy based on transaction and debt volume/velocity: gone, over, toast. Housing market based on speculative flipping and one-person households: over, gone, toast. Loose lending by delusional lenders to risky, over-indebted borrowers: gone, over, toast. Borrowing based on rising real estate values: gone, over, toast.

The notion that we "need" more of anything: gone, over, toast. The idea that you can force lenders to lend to uncreditworthy borrowers: gone, over, toast. The idea you can force people drowning in debt to borrow more: gone, over, toast.

http://www.financialarmageddon.com/ November 30, 2008

[Ought Six]

j:"I'm interviewing people who have dozens of years in IT for entry level jobs now."That happens in every recession. I was out of work for four years, from 2001 through 2004. I do not have a degree, and people with masters and doctorates were taking software tester positions. I could not compete with that. A lot of companies learned the hard way that software developers frequently make piss-poor testers, but that did not stop them from hiring them.

[BirdGuano]

The VELOCITY of change is whats causing part of the cognitive dissonance.

People went from going 100 mph in the FIRE economy to ZERO in the NEW economy.

The brains haven't had a chance to catch up to the new reality yet.

It's not just service workers/low end either.

I had a knock-down-drag-out with a COO a couple of month's ago on what was going to happen. Now they are in deep kimchee because they didn't anticipate the RAPID velocity change in their business. They had ZERO sales in the last 45 days. ZERO.

I liken it to the Wiley Coyote cartoon where the Coyote is 10 ft. past the ledge and looks down, and it's a 500ft drop.

Too late.

[jason]

j:That happens in every recession. I was out of work for four years, from 2001 through 2004. I do not have a degree, and people with masters and doctorates were taking software tester positions. I could not compete with that. A lot of companies learned the hard way that software developers frequently make piss-poor testers, but that did not stop them from hiring them.

Same position as you - I was out of work for about 14 months from 2001.

[Misty]

The VELOCITY of change is whats causing part of the cognitive dissonance.

People went from going 100 mph in the FIRE economy to ZERO in the NEW economy.

The brains haven't had a chance to catch up to the new reality yet.


I think you're right about that. Hadn't thought of it before, but it makes sense. What do you think has to happen, or how much time do people need, before they're able to adjust and make a new financial map for themselves?

[BirdGuano]

What do you think has to happen, or how much time do people need, before they're able to adjust and make a new financial map for themselves?

For some it can happen the day after a layoff or traumatic life event.

For others it happens some time later, from within the tent at the homeless encampment.

[Teal]

I liken it to the Wiley Coyote cartoon where the Coyote is 10 ft. past the ledge and looks down, and it's a 500ft drop.

Too late.

I feel like embroidering this and putting it on a doily.

[CanadaSue]

I think the lack of visibility for most is one factor making it harder for people to accept that the economy is genuinely in a major tailspin. Walk out your door & even if you go out with the idea that 'things have changed for the worse' & look hard, it may not seem visible.

Look at how much stuff most of us own. I read somewhere in the last few weeks - wish I could remember where - that the average woman has 6 pairs of jeans alone. THEN & only then do you add on the slacks, skirts, dresses, blouses, sweaters, tank tops, blazers, accessories, shoes, jewelery... I suspect many women today could get by quite nicely on nothing more than what they currently have in their wardrobes & not look badly dressed, (disallowing for fashion), for years.

How old is/are you TV(s)? How about your vehicle, your house... think most know what I'm getting at.

We could all easily turn off our personal fiscal taps save for utility bills, rent or mortgage, taxes & food & do just fine. Every day that passes, I think more people do just that & in the short term, if you;re simply walking around & looking, nothing looks very different.

But go to a mall, outside the holiday shopping season & look at the displays. Look at the cash registers - anybody buying? Anyone look like they're seriously shopping? The stores locally holding their own are the deep discount, off retail stores. Giant Tiger, S&R, (a local department store) & other small, localized discount retailers. Heck, for many WalMart even, is used as little as possible. More & more of us are checking off retail & second hand shops first. If you've got a bit of time & patience, you can find almost anything you ened, new or almost new & pay surprisingly little.

Now with all the stuff we have, most of us could probably go quite a while without any significant consumer purchases. I know I could & out of both choice & necessity, I own very little. I'm of the mindset that doesn't buy new just to have new. I buy when something used up or so worn out it's pretty much useless. If too many people do that, the economy straggers to a halt.

Yet, an increasing number of people really only CAN afford to do that. They need to get their own financial lives in order, pay off bills, pay down debt & many may now start thinking of actually saving some cash, 'just in case' or wanting to have more cash to put down on major purchases. This is all sound, fiscal practice but when a world of interconnected economies is forced into this - you're lucky if you end up with stagnation & even if you do, a lot of jobs disappear.

And I for one, sure don't want to come out of this one via an an encompassing war. This one wouldn't be the drawn outnightmares that were WW1 & 2, I'm afraid. I think I'd almost prefer bread lines to the spectre of a nuclear of biological haulocaust.

[Potemkin]

I noticed a application for bankruptcy form on the sink in the restroom yesterday.

It stayed there all day. I guess someone left it and was too embarrassed to go get it.

The Potemkin House is OK but we are running it like possum times. Cash conservation. If some basics are on a sale (they are) buy a LOT and put them back.

[dyrt]

The velocity comment is right on but there is something else too. Some people just have a different mindset about living. Instead of worrying every day about the next disaster around the corner, they are wired to live all out whenever and however they can. I think that we need both mindsets in society.

In fact, we have seen similar patterns to almost all forms of life including bacteria. Some cells take big risks colonizing new areas and eating new things. This innovative and careless activity increases when things get tough.

Seems to me that had economic times is exactly when we need more risk taking and more partying.

[rb.]

We've cut all extra-curricular activities for the kids, that haven't already been paid in advance. We've cut their allowances to $5 a week, and they've only had them for two years. Before that we couldn't do it. Cable is being pared down tomorrow, newspaper is being cancelled. Groceries are being bought almost completely via sale items, except for some meat, produce and dairy. Fortunately gas has gone down, but without driving the kids all over for martial arts, soccer, etc., it takes me about 2 or 3 months to go through a tank. Christmas presents for all kids but our own are being made (aching back from sewing two days straight), by agreement, not buying for our brothers/sister. Very small gifts for my parents, grandparents, etc.

Sue, I know those people you're talking about. Seems every time they pull in their driveways, they unload shopping bags. Thank gawd I'm not a shopper. And SIL has given me enough clothes, since we've both changed sizes, that I'm good for at least five years. DH, too. But the kids...they're still growing, and in that department I'm screwed. I can make a lot of things, but jeans ain't one of them. And they won't be getting skates this year, either, for the two times the school takes them skating. Not worth it.

Sigh. Very thankful that I have a good sewing machine, serger, and that I can knit and crochet. Time to teach the kids since they won't have activities outside the house they have to be at.

And I never, ever thought I'd do this, but my kids are going to finally get socks and underwear at Christmas.

[Ross]

rb : :hugs:

[rb.]

Thanks, Ross.

I think this is a good year to start hope chests for our girls. Whip them up some placemats, napkins, and pillow cases with fabric I already have. Buy a few packs of dish cloths and tea towels. I think that's what I'll stuff their stockings, along with some candy and a book. I used to spend $40-50 stuffing their stockings, but that's just not possible this year. Our 10 yr old may not be most thrilled with it, but our 13 yr old will.

[rryan]

After the last few years we are finally starting to see things heading south--

We have been really isolated as our business is still thriving but we work really hard to keep our customer base happy, adapt to changes quickly and pick up as many new customers as we can even when we are overwhelmed.

Add that to the fact we live in an area with a major labor shortage and still increasing or stable property values and all this doom and gloom seemed a continent away.

However over the weekend i spoke with a lot of people and a few here are startign to see a tiny decline in business but the ones friends/family I spoke to in other areas of the country are near panic. Business for them is slowing down and layoffs coming which were known as possible but unlikely are coming a reality now.

What pisses me off more than anythign are the friends and distant relations calling to "borrow" $ from us constantly---and when i say no they get indignant as hell.

It boggles my mind---these people "need" money for xmas, car broke, tv broke--whatever but they did take a vacation this summer and bought a new car--excuse me but despite the fact we make 10x what you guys do we didn't take vacation this year and when I needed another vehicle I bought a 30 year old truck for cheap.

I figured this would all pass and things would keep rolling along a few more years at least but now I really think things might be about to get quite ugly.

[booger]

The Potemkin House is OK but we are running it like possum times. Cash conservation. If some basics are on a sale (they are) buy a LOT and put them back.

x 2

We are going ahead with Christmas but we have had the money set aside for that for a while now -- although it is cut back from what we had planned. We've never been ones to go completely crazy on gifts anyway. And we did opt to go ahead with the annual trek to see the family over Thanksgiving which cost a nice chunk of change but we did it with eyes wide open and forewarning all that we would not be doing it next year.

Other than those two splurges, we're down to a notch above necessities. We've set aside enough supplies and $$ to get us through a bit of unemployment, thankfully. (Hubby's layoff will begin mid-to-late January, we've been informed.) If enough odd jobs keep coming in, we'll keep it at this level. If the odd jobs dry up completely, we'll take it down to bare necessities (lose the satellite for TV/internet, occasional used book buying, etc). We're pretty resourceful so I doubt it will come to that but we've done it before and are prepared to do it again. (I will say that internet and cell service have become near-necessities these days. That's where 95% of the odd jobs come from. Heck, even his big jobs came from those.)

[Fattail]

Wife lost her job last week, although we expected it would end by June when the contract ended that was a bit unexpected. I'll be changing jobs too so we have already cut back.

We 're using our cash back bonus from discover to pay for Christmas.

[Susie]

I think it's like prepping...there are many people who don't see the need for it because 'they' will never let anything really bad happen. 'They' will never really let life be changed into what it has always been.

[BirdGuano]

I figured this would all pass and things would keep rolling along a few more years at least but now I really think things might be about to get quite ugly.

+1

[rb.]

At this point, we're doing everything we can, so I've moved on to worry about family. I spoke with my brother the other day, and I know they're ok, if he loses his job, they still foster kids as a treatment home. They may have the dollar amount cut by the government if it goes way bad, but they'll still likely cover their bills. But I know what my Mom is leaving them, land and cash wise, without it being in a will. I know they can make it on that alone for many years. My dad, well, he's being left enough cash that if his pensions fail, one which is government, he could live on the cash frugally for about 3 years. However, he's an alcoholic, and as soon as my Mom passes, he'll go through money like water. She knows that, I know that, and my brother knows that. But at least they'll all have a damned good shot at making it through this. Us, not so much. And it's killing my mother (no pun intended) to know she's going to be leaving us at a time when she feels she needs to protect her kids and grandkids the most. Nothing like two bombs going off at once.