Thursday, October 09, 2008

Call It a Disaster

The Pundits suggest that there is still a chance of avoiding a recession. Institutions are dropping dead everywhere. Our government is spending 700 billion that it doesn't have. Banks are not lending money. Home owners are walking away from their homes. The Governor of Kalifornia is begging for an 8 billion dollar loan to keep the State operating. Maybe it's my imagination, but aren't we a little past the word recession?

If you don't like the word recession or depression, how about the word DISASTER. That way, we don't have to worry about whether or not we are "Politically Correct."

Common sense suggests that this whole ball of wax is in meltdown mode. There is a very good possibility that several European banks may fail in the near future (like this weekend). The Euro cannot survive unless it can be inflated. That isn't going to happening. Do you give the "Spend thrift Italians" 100 billion Euros and the "Frugal Germans" nothing --I think not. Nationalism will kill the Euro. The Euro is based on principles that don't allow for politicians to inflate the currency. No Paulson type bailout for them, look for a collapse.

Has the world ever experienced a financial crisis of this magnitude anywhere in history? Not to my knowledge. The real certainty is that no one knows what will happen next. It's not hard to figure, what ever is next, won't be something pleasant that will leave you with a warm and fuzzy feeling.

Asian markets are taking a beating. It looks like the Dow is about ready for a blindfold and a cigarette. It's a little like Christmas in reverse. What you wanted, you didn't get. What you got, you didn't want.

Copyright 2008 All rights reserved

16 comments:

Anonymous said...

Di·sas·ter
Pronunciation: Di-ˈzas-tər
Function: noun

A sudden calamitous event bringing great damage, loss, or destruction; broadly : a sudden or great misfortune or failure /the party was a disaster/

Jim,

Based on the definition, the word definitely describes the current economic situation. I vote that you change your Blog to The Great Economic Disaster of 2006.

I wonder what 'New Deal' the next president will grace us with.

Tom

Onslow P. Squishington said...

"I wonder what 'New Deal' the next president will grace us with."

Fascism?
Nationalizing the entire housing market?
$1 petadollar bail-out?
85% Tax rate?
Absolutely nothing?
10 year tax abatement on your shack in your local Bushville?

Anonymous said...

I don't like being politically correct. This has not been sudden by any means. You don't go from a turbocharged economy to a depression in a single step. You have to blow through A LOT of red lights.

Yes, we have gone past the word recession into the word depression. Of course, the powers that be are going to say otherwise, but we are there now. When states and cities can't get loans at decent rates (or at all), you know that is not recessionary behavior.

At least we know early. We can position ourselves to survive. Only a few will make money during the next depression. Unfortunately, fascism seems to be the direction things are taking as we seem to like blaming the "outsider" and "the other party" when lots of hands are in this mess.

Anonymous said...

Jim,

If the president were to "void" all credit default swaps, wouldn't that fix a lot of problems? I mean, just because some speculator can't claim one trillion dollars on an insurance contract doesn't mean much.... right?

John in Texas

Anonymous said...

kalifornia I love it-
My dgt is in Europe this semester
And I dont know what to tell her
Should she hoard euros or dollars
She is already struggling with the
Current exchange rate
Right now I just want to get her home
I am a little worried about the europeans
Rioting or something
Cnbc calling today a poss bottom wow
I dont think anyone knows where this is
Going. Historic times
Catholic girl

Anonymous said...

Hi Jim.

Jim don't you think it would make a good deal of sense if the countries would coordinate a cut to 1% for short term rates, and any money being injected would go straight to the banks. I don't like the thought of bailing out institutions, but to me, this would make sense because

1. Inflation wouldn't be much of an issue. Every country would be in the same ballpark.

2. Banks would be receiving this money directly, in every country, meaning people won't be moving their money bank to bank, country to country. Giving $ directly to bank, while taking an interest in these banks, will ease up credit. Remember, it's a very small % of people who are hurting the rest of us. Most of the people alte on student loans, credit cards, are the people who bought a house they couldn't afford, and things started snowballing.

To me, this would ease some of the major problems we currently have globally. Naturally, it doesn't solve ALL the problems. However, it may be a good start to pulling the emergency brake.

Anonymous said...

Hey this was a watershed event. A coordinated act to cut rates. Sounds like a one world government to me. That is why they put the Euro in place and soon the Amero for USA/Canada/Mexico and one for Asia (once that is done, next step... merge them all into one global electronic currency). European countries are going to start rebelling and wanting to go back to their own currencies and be unilaterally minded to solve their own problems. Let's see how the one-worlders put a stop to that so their forward moving plan isn't thwarted.

Anonymous said...

Here is my formula:

1) be very frugal, keep costs down
2) make as much money as possible
now
3) keep putting all money back into
business/investment actions to
generate and amass more cash
4) wait until the deflation phase
has reached its bottom (which is
which is just before the govt
starts printing $ like crazy and
going into hyperinflation in a
last ditch attempt to stop the
dwindling spiral)
5) Take all your money and now buy
apartment buildings and boarding
houses (as foreclosures and REOs
in order to get even lower than
low deals)
6) now you are a landlord offering
homes to people (a commodity that
is needed no matter what shape
the economy is in) and you own
the buildings free and clear and
can thus lower the rents as
needed to maintain full occupancy
without every having to worry
about making your mortgage.

You'll do well in a depression and will always have food on your table (and a place to live for free... one of your apartment units).

That's my latest plan. I'm liquidating my assets now so that I have cash for foreclosure auctions to buy, fix up and sell homes. That is how I'm going to make my cash.

Anyone see any flaws in this plan?

Jim in San Marcos said...

Hi Tom

Thank you for the suggestion.

Who ever gets elected, there will be no "New Deal," just a lot of broken promises. Reduced SS and Health Care.

Retirement is going to be "fun."

Jim in San Marcos said...

Hi John in Texas

The credit defualt swaps are a problem that is not very clear.

It's a little like your first day on the bomb squad. You want to make sure your first day isn't your last day.

It is hard to say where the collateral damage will fall.

Jim in San Marcos said...

Hi Catholic Girl

I don't see a bottom either. I agree that probably no one knows where this is going.

Europe should be pretty secure, Kids find a way to have fun while us adults try to figure out how to save our butts.

Jim in San Marcos said...

Hi Anon 10:08

I think that the first thing we need is interest rates that are realistic, 10 to 12% would foot the bill. It doesn't seem like it will happen.

These present interest rates will attract very little capital. Why give it to a bank when inflation is 12% and they only offer 2%?

I don't think that there is a simple solution to this mess.

Thankyou for your comments

Jim in San Marcos said...

HiAnon 3:31

A currency meld will never occur. The Euro could collapse as early as this weekend.

You need to be able to inflate your currency to keep up with the rest of the world. The Euro can't do that. It is pretty much toast.

Your right in suggesting that everyone will want to go back to their own currency.

Jim in San Marcos said...

Hi Anon 3:48

Real estate is not for everyone. Especially as rentals.

You may have one problem, no renters. Housing has been overbuilt by 25% so renters could be hard to find.

I do agree if hyperinflation takes over, the best place to be would be in assets like real estate.

Good luck on your venture. With luck, it could work out OK.

Anonymous said...

Hi Jim in San Marcos...
Thanks for your response.
I'm not sure about no renters. Guess I need to think that through. As the economy dwindles down (and with people unable to afford their mortgages, people retiring and selling their homes and going into apartments; people having to sell off their vacation/retirement homes; etc.) I'd think apartments and boarding houses would be the desireable commodity (especially if the rents are below the competition).
I believe we'll have hyper-inflation. Within the next 2-3 years it will really begin. I agree that multi-unit housing would be the place to have put your dollars before they became worthless. Food and units to live in will always rule as the two items one can exchange with the public for revenue (revenue being dollars, commodities, bartering, etc.).
During rough economic times or depressions is there any better business or source of income than shelter or food? Anyone have any suggestions or better ideas?

Jim in San Marcos said...

Hi Anon 1:47

I think that a lot of it could be timing. A lot of people have moved back in with mom and dad.

Remember in a normal world, you pay more to rent than you do to own. The reason for this is that you have the freedom to pick up and move when you want to. You don't have to sell the house.

In the present climate, renters are hard to find at present prices, which means that rents have to drop somewhat.

The hyperinflation scenario does suggest that you should do very well if you guess right. I tend to have the feeling that in the future, the government might impose rent control regulations that could really put a nail in the coffin as far as rentals go.

My advice, is Tread Carefully!

Thank you for your comments.