Monday, October 05, 2009

The Depression Has Been Delayed

The first installment of this blog came out in May of 2006. There were no real perceived problems, just suspicions. Now we have progressed three years into this morass. Each step forward seems a little more encumbered.

With the bank failures, our government claims many banks are too big to fail (a bank with an office in every state seems to fit this profile). FDIC insurance has covered all bank losses so far. For some odd reason the FDIC now wants to collect 3 years of premiums from the banks in advance. The bookkeeping instructions for carrying this on the bank books, is what could be politely labeled “creative financing.”

With unemployment, those no longer looking for work or those working part time are not counted. And unemployment insurance has just been extended to 92 weeks. If you are lucky/ unlucky enough to have joined the unemployed, you have just won a two year vacation from Uncle Sam. Ski the winter in Colorado giving ski lessons and relax in the summer in Malibu busing tables at night (On the unemployment forms never check working out of state or mail the form back with an out of state postmark). I do recommend the season pass at Vail--great skiing, and the ski bunnies are cute.

The Federal Reserve is keeping home loan rates low by buying all T-bills presented for redemption by the market. Congress is curious how much money the Federal Reserve has on the books dealing with securities it is holding as collateral. Freddie and Fannie figure into this mess. Just how is the paper carried and on whose books? At what point does a home foreclosure become bank owned real estate? And at that point who’s books carry the asset? Hint, it’s probably not the bank.

None of these actions appear to be any sort of real solution, but rather a method to keep the game going. Each in their own way is becoming a larger problem. And then someone chimes in “Bernanke was slow to act, but his actions saved us from having a Great Depression.” That is a professional car salesman close if I ever heard one.

What we need to realize, we still haven’t arrived to our unplanned and unscheduled destination, “The Great Depression.” Government intervention has slowed down the process. It could take four years to get there not three as I had anticipated. Nobody is throwing in the towel yet, and we need millions of people doing so, not just one or two of me.

It is very easy to point to state budgets and look how much they are short this year alone. They can’t run on deficits like the Federal Government. How can state tax collections for next year exceed this year’s? When you think about it, common sense doesn’t cost anything, how come Congress can’t see the light of day?

Just ask yourself one question. If the government's crystal ball didn't see this coming, how come it has all of the answers now? I'm pretty well fed up with this government snow job.

On another note, Google has cut me off from posting pictures unless I agree to terms written back in 12/13/06. I haven't clicked to agree on it, only because it is back dated 3 years. I did have three visuals for this article, but I modified it to leave them out. I think that Google is becoming a hard ass, there is no option to deny, only the yes button if you want to upload pictures. Not sure what this means. Bear with me for now.


Tom said...

It's hard to tell whether that's an innocent mistake ("Oops, we forgot to make pre-12/13/06 bloggers sign off on the terms") or they're screwing everybody, or censoring you. That's the trouble with web services getting too big for their britches...

At least you can export your blog... there are better blog hosting services out there. It's probably about time you got your own domain, so you can switch hosts anytime. It's a small price to pay for independence.

Dave the Dog said...

Hi Jim,

Read your posts for well over a year now and I thank you for them. They have thrown everything they can at this in order to keep the plates spinning . . . they may be able to hold it all in place for some time to come but the crash is going to come eventually. Keep up the good work.

Jubilee said...

I think we are on the edge of the precipice right now. Things are going to get a lot worse this winter as our currency degrades and our state budgets are slashed. Ugly starts soon.

Jim in San Marcos said...

Hi Tom

Thanks for the info. I am ready for a change, this might be the push I needed to get it going.

Jim in San Marcos said...

Hi Dave

Welcome aboard. I like your analogy of "keeping the plates spinning." This mess reminds me a lot of a circus--minus the laughs.

I'm glad you like it and thank you for your comments

Jim in San Marcos said...

Hi Justin (Jubilee)

I'm not sure when the fan will kick in on this mess. Anytime now seems like a good call, but it ain't happening, go figure!

I enjoyed your Oct 2 POST on inflationary issues.

Take care

ca said...

Jim --

I think the real collapse occurs after the 2012 election. Until then they will use alot of duct tape to keep this debacle together.

Jim in San Marcos said...

Hi Ca

2012 is a long way away. If things are getting worse by a factor of 4 each year, we will need an awful lot of duct tape.

I'm betting that the economy will be down the chimney by the end of December.

I think between the two of us, we have the date for the collapse pretty well nailed down.

Dave the Dog said...

Hi Ca, Jim,

Here in the UK the feeling is that it's all being held together until after the election next year. If the main opposition come in it sounds like they are willing to take the pain by stopping all the stimulus packages, raise retirement ages, raise taxes and agressively cut spending . . . but they might just change their minds when they get in!

Jim in San Marcos said...

Hi Dave

I'm all for that and I am at retirement age, so it's my benefits that would be lost.

As you suggest, it probably won't happen. Democracy is a little like a rudderless boat, you can do some steering by dragging your foot in the water----I can barely hear the roar of Niagara

Anonymous said...

Jim in San marcos,

"I'm betting that the economy will be down the chimney by the end of December."

while i appreciate your posts and original thinking, i think that you have officially become a permabear.
you have made continuous predictions of the "end". specifically, in the summer you said the chinese market was going "in the dumps within 2 weeks", you also said that we would have a major correction in the u.s. markets by the end of summer, and were wrong on both accounts. i have read your blog for years and you have continuously called the "end" to things and have been flat out wrong.

how about thinking about the bigger picture a little more rather than continuing to be married to your depressive outcome.

I believe that any intelligent person must look at both sides and weight the facts.

I too was short in 2008, shorted subprime, dsl fed cfc etc, at that time, shorting the market and financials was warranted but of course that changed when the financials were devastated, so i started to buy them, bac at 5-7 and so forth. and remember, you can always hedge your positions with puts, so you don't have to swim naked ;).

even Paulson who made billions shorting financials has gone long, point being, there is a time to be short and there is a time to be long. being permanently married to any one idea is dangerous and unprofitable.

eventually we will have a market correction, probably even a crash but will we be alive to see it? will we have missed many good opportunities in the meantime? that is the question i want you to think about and write about.

i have been wrong many times and will be so in the future, that i am sure of. however, when my thinking or thesis is wrong, i try to figure out why, rather than make up excuses that sooth my ego.

just a thought and the great thing is that, TIME TELLS ALL, so we'll get the answer to these questions soon enough.

thanks for all that you do.

Jim in San Marcos said...

Hi Anon 1:56

I have two parts to the blog, the articles I write and then there are the comments.

My comment "I'm betting that the economy will be down the chimney by the end of December." Was a half hearted joke, but I am holding about three times the number of options I normally hold for a quarter. I usually have about $3,000 I spend on options (mad money) each year. I get to deduct the 3,000 off of my taxes. So it is subsidized by Uncle Sam.

I did go out on a limb last year claiming the Dow would drop to 6,000. At the time I had about $300 dollars worth of options that had jumped in value up to $80,000. Panic was in the market big time and I missed the read on it. I got greedy and collected zip.

You are right, there are many ways to play the market and they would make lousy reading.

I do spend a lot of time reading news from other countries and this does tend to flavor my comments from time to time. US financial news is pretty much bath water. Europe and China were in a bad way 10 months ago.

Container shipping from Asia has dropped 25% from last year, 50 to 100 million people are unemployed in China and the unemployment rate in Europe is beyond pathetic.

I am ready for this once in two lifetime events, a stock market crash of gigantic proportions (we are talking off the cuff here). 99 percent of readers never get to the comments section here, so this is more my personal thoughts.

So far, I don't think that I have been wrong, just early in my predictions by about a year. Most of what I have predicted has happened.

I do believe, that if there had been no government intervention, this mess could have been over and done with by now. The end result, we would all be broke, it will take a while, and we will still get there.

I still think that when the market tanks, that is the time to buy stocks with your T-Bill money.

As for an ego, I don't see it, driving a Porsche down the street is an ego thing. Writing a blog with only a non de plume has very little swagger as far as egos go.

Take care, and thank you for your post.

AngryTaxPayer said...


You call them as you see'em and let the chips fall where they may. You have also said on this blog that the government keeps changing the rules, which is absolutely true and makes predicting the future that more difficult.

I wouldn't worry about defending yourself from paid-for Obots trolling the blogospher attempting damage control, history will have your back on this one.

I believe this Christmas retail season will be the wake-up call for most Americans still in denial about the coming calamity. The Fed and Treasury have been working overtime to hide the massive US debt still yet to unravel.

The only problem is this featured film will end just like it did in 1932, except worse. Taxes are about to go through the roof, the government will create social-life-rings that will shadow the socialism that FDR created during his reign, the US will loose is sovereignty and power to the United Nations, and the likes of Chavez, Ahmadinejad, (et al) will be looking down on us from their new-found world power perch.

I don't believe the US will survive the 'Greater' Depression of 2006 this time around. We just don't have the will power (or balls) left to fight the government takeover unfolding before our eyes.

For the future of our Country, I pray that I'm wrong!


Rob in NS said...


Just throwing my two cents in on predictions. It is very difficult to predict outcome of game when goalposts keep getting moved by the government.

frakrak said...

I don't really read your blog for the predictions Jim. What keeps me coming back is your logic and your analogies!!

In a world where our attention span is about 10 seconds for critical thinking, and when public opinion can be moved from one position to the other with a smart press release, you hold your ground and have the logic and facts to do so ....

Hope you decide to get your own page up and running...

Anonymous said...


Does it really matter what the DOW does if the dollar isn't worth a dong?

The FED and wall street can, and will, manipulate the market to keep the DOW steady; to keep the masses happy. As a DOW company goes bad, they will just replace it with another.

I predict they will keep the DOW around 9-10k even as the economy continues to slide. If may even go to 15k as they claim "RECOVERY!". But, inflation will offset any real gains.

And yes, Jim's posts are awesome. As for exact dates of his predictions, who cares. Please look beyond the trivial. It is his insight and wisdom that counts.

Yes, the goal posts keep shifting. Without government interference, Jim's 6k prediction would have been dead on, if not optimistic.

As for sovereignty, tell me about it. A foreign organization (the WHO) can declare a pandemic emergency and the US Government can legally respond by breaking into a person's home and forcing injections on them. Fascism on a global scale.

frakrak said...

Jim the Australian government has just announced it will be investing a further 8bn in residential mortgage backed securities.

This is in addition to 4bn the government originally invested back in September 2008 to help unfreeze mortgage lending by our "big four banks" at the beginning of the global financial crisis.

So on the one hand the government PR is saying we are over the worst of the crisis, but it would seem they have now doubled the initial tax payer contribution.... when by their own "spin" everything is all blue sky!


Jim in San Marcos said...

Hi All

Thank you for your support and vote of confidence.

I was figuring that most readers skip the comments section. You all pleasantly surprised me.

Take Care

Jim in San Marcos said...

Hi Frakrak

8 billion sound like small change for propping up any real estate market.

I would think they would be talking 80 billion and bigger.

I wish our government had a budget of just 8 billion for failed real estate. The whisper numbers of what the Fed has spent on supporting housing is around 4 trillion right now. The figures get bigger every time we rip a month off of the calendar.

"Blue Sky" sounds nice if we are talking weather. But in financial circles, we (as a nation) seem to be buying an awful lot of it. I guess whoever sells enough of it, could end up winning next year's Nobel Peace Prize;>)

Tyrone said...

A comment you posted several years ago (I was curious about past sentiment from people)...

I think that the reality of the collapse is going to be beyond comprehension

Much of what we've seen so far has been beyond compression for most, but the real "beyond compression" probably still lies ahead.

Jim in San Marcos said...

Hi Tyrone

I wouldn't mind being wrong on that.

Today I heard on the radio, "The worst recession since the Great Depression is over."

I think everyone wishes it to be true, including me. Unfortunately the data coming in doesn't support that in the least.