Possibly four million homes will be lost this year to foreclosure. A lot of those people will have also lost their jobs. The banks get more paper to hang in the executive bathrooms. Of course those who defaulted on their home loans will also be barred from the new car market. It looks pretty gloomy for the car manufactures and the airlines. Gas prices should drop, less consumption; unemployment eliminates the daily commute to work.
With people cutting back on consumption there is the paradox of decreasing consumption resulting in rising prices. Many companies are face with fixed costs that have to be passed on to the consumer; airlines, car manufacturers, gas, electricity, water, cable and phone to mention a few. Those costs are passed on to the decreasing consumer consumption base.
Two spirals are in play here. A foreclosed homeowner, out of a job, is selling assets to feed a family and provide shelter. Converting assets to cash starts a deflationary spiral as more people join in. A person could end up losing everything they ever earned. A byproduct of this, government gets less tax revenues; no income tax, reduced property taxes and reduced sales taxes.
The second spiral is the increasing growth of government entitlements while tax receipts are declining drastically. Government services need to increase to provide for unemployment insurance, food stamps and welfare. There are the addition outlays for Social Security, Medicare and Supplemental Security income. Add to that the government funding of the banks and our bankrupt retirement funds.
Pay no attention to this, it was added for its pretty colors. Double click for a more troubling view.Congress is going to pass a massive bailout spending package using borrowed money. Who could they possibly borrow it from and at the present interest rates? It seems like just last week, the politicians were bitching about the 40 billion spent on the Iraq war. It was too much money. Then, they gave AGI 80 billion in bailout money and no one even got shot. Now we are talking trillions of dollars. They need to check the water supply for Washington DC. At least if it’s lead poisoning, they have an excuse for this madness.
Here are the Federal Governments projected future revenues. Pay no attention to this either. It's not relevant anymore. The guesstimates for 2008 and 2009 have to be off a tad. What's a trillion or two among friends?