December 2011 Update of THE GREAT DEPRESSION of DEBT

“The Great Depression of Debt” is a hardcover updated edition of “The Second Great Depression, Starting 2007, Ending 2020.”  “The Great Depression of Debt” can be purchased at most bookstores or at Amazon.com: http://www.amazon.com/Great-Depression-Debt-Survival-Techniques/dp/0470423714

THIS WILL BE MY LAST BLOG UPDATE! 

I will leave this site up a few more weeks for comments. But I remarked several times that I didn’t want to just be a score keeper as our economy goes into a depression, which I now believe is irreversible.  In the past, I tried to get some enthusiasm going for a boycott on Chinese goods to bring back jobs to the U.S., but I failed.  I tried to get some interest on tariffs on Chinese goods; but not only are we not putting on any tariffs, the currency imbalance between the Chinese currency and the dollar remains almost as strong as ever.  I tried to get some massive green energy program going to bring us out of this jobs problem, but the taxes required to finance this would come from the wealthy (or, as the Republicans like to call them, the “job creators”).  And that is apparently a no-no since, per “Americans for Tax Reform,” 41 senators and more than 235 House members have pledged in writing to oppose all tax increases.  So we (our Congress) feel that the wealthy were not wealthy enough thirty years ago, and we want them to become even MORE disproportionately wealthy since all the tax changes that enabled the current growth of wealth are still in place.

HOW ARE MY BOOK’S PREDICTIONS DOING?

I will use this last update to look at where I think our economy and the stock market will be going in the next year or two.  I will use “The Great Depression of Debt,” Chapter 5, (“What This Depression Will Be Like”) for relative baseline quotes, both to show how well my predictions are going and what I may have missed.

“The government will either have to raise taxes or borrow even more money to stay solvent.  If the government tries to reduce spending by shrinking the size of the government bureaucracy, the resultant increase of people out of work will also slow the economy.”  Well, we are choosing the latter – austerity is the game we are about to play.  In 1937 we tried a similar austerity plan, and unemployment jumped from 14.7% in 1937 to 19.0% in 1938.

“Companies have been optimizing bottom lines rather than investing for future businesses…Companies will respond to any slowdown with layoffs to lower their expenses, and they will implement price increases in an attempt to maintain profits (and their executive salaries).”  We are seeing that even with a slow economy, inflation is running at a 3.5% rate.  There is no reason prices will not continue to rise, and the Fed’s actions on money creation is just going to exacerbate inflation. 

“The number of people giving up on making house payments is skyrocketing…banks have been forced to foreclose on homes and sell them, causing a glut of homes on the market and a deflation of home prices.”  Many experts, such as Robert Shiller, believe that home prices may drop another 25%.  This will cause even more homeowners to be underwater on their mortgages, and more people will stop making home payments.  This will drive additional foreclosed homes on the market.  This problem is a long way from being over and will continue to be drag on the economy.  When home prices drop, even people not in danger of losing their homes begin to reign in their spending because they feel poorer.

“President Bush and Israel may decide to bomb Iran’s nuclear facilities before Bush leaves office.”  Well, Bush didn’t do this.  But bombing these facilities is certainly becoming closer to being a reality and this would definitely upset the balance in the Middle East and in world markets!

“The birth rate will go to zero…No one will want to bring a child into the very tenuous economy that will be gripping the United States.”  Well, it hasn’t got down to zero yet.  But the births in 2007 were 4.3 million, 2008: 4.2 million, 2009: 4.1 million, and 2010: 4.0 million.

“By 2013, people in the United States will have given up.  Unemployment will be over 15%, and the stock market will be down over 60% from its early 2008 price level…The debt problem will slowly diminish because, with inflated dollars, both the consumer debt and the government debt will seem smaller, and they will be paid down with dollars worth far less than they are now.”  I still stand by these predictions.

“There will be cries to go back to the gold-backed dollar.  Young people will rebel en masse against the debt that is being left them…Environmental concerns will take a back seat to getting industry running.  The exception will be the heavy government support for renewable energy sources.”  I was doing well until that last sentence!

“Protest groups will have a new and powerful means to rally forces against the government.  The internet will be used to coordinate protest marches and other mischief.”  We have yet to see the full power of this.  Move-on is planning to back people running for government to nullify the effect of the Tea Party.  And Occupy Wall Street is certainly calling attention to the fact that many in our country feel that the government is being run for the betterment of the rich and powerful with little concern for the average person.

WHAT DID I MISS?

1)      The Euro Crisis

When I wrote my book there were many that were saying that people should abandon the dollar and flee to the Euro.  Now, people are fleeing the Euro.  And this crisis will not end gently.  Sometime in 2012, the Euro countries will no longer include Greece or Italy!  And U.S. banks and others are going to be hit badly.

2)      The Tea Party

The Tea Party’s success in stopping any new taxes is going to make the depression far worse than it would have been otherwise.  They have taken away a valid option for the economy and stifled any hope of compromise.

3)      Gold!  My suggestion on being out of the market and buying TIPS was quite good, but nothing like the price rise of gold.

WHAT TO MONITOR

1)      Will unemployment benefits be extended and the tax holiday regards social security withholding be continued?  If not, Roubini, the chairman of Roubini Global Economics, predicts the “fiscal drag will be $350 billion, 2.3% of GDP,” in 2012.  I actually think that Roubini is being optimistic, which is unlike “Dr. Doom!”

2)      Can Bernanke pull a miracle out of his hat?  The Fed, unlike Congress, is trying to fight the coming depression.  QE3 may include the Fed buying problematic mortgage backed securities from the banks in an attempt to free up money for new mortgages.  But I believe that this will be too little too late.

3)      Is President Obama willing to risk impeachment by going around Congress to spend on additional stimulus?  The president could reference some esoteric emergency regulation that would enable him to spend for the well-being of the economy.  But he would have to do a massive stimulus this late in the game, and the resulting jobs must be self-sustaining, not things like road paving.

4)      The elections.  President Obama will likely be reelected NOT because he has been a good President but because the Republican candidates are so problematic!  The real question is whether our economy is so sick by then that people will realize that “the just say no” Congress people should be kicked out and replaced by people willing/able to think and compromise.

THANKS TO ALL

Thanks to all of you who have purchased my books or have been following this blog.  Good luck to all of you in the coming years.  With a little luck and a lot of monitoring of personal expenses, many will get through this depression with a limited amount of hurt.  We as a country will survive; but we will come out of this a poorer and more humble nation!

Warren Brussee

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