How many articles in the last year have there been suggesting the housing bust is nearly over, or that the worst may be over? How many articles in the last year have there been suggesting that the credit crunch may have hit bottom? How many articles have we seen just this year suggesting that the inflation we see is nothing special when we take out food and energy? (gag me!) For Christ’s sake, BusinessWeek even had a cover story last year about how economic statistics we all know may be outdated and may really be painting a less positive picture of the economy than the reality!

The truth is, the media here is so stubborn in not wanting to get real about the issues in this economy that I wonder if they’re not paid based on how “positive” the message of their article is. To have them tell it, the housing bust was close to being a thing of the past quite often in the last year, but anyone with a clue knows that’s far from the case. They want so badly to say that the economy is just fine that they stretch small positives and make them look like huge positives, or like BusinessWeek, try to spin the numbers to put that message out.

I saw the kind of trouble we’re seeing right now a couple of years ago, and I don’t get paid big bucks to figure this stuff out.

I have yet to see one media member even point out something about inflation that seems to escape everyone: the real rate of inflation is probably appreciably higher in this fee-based economy where we get nickeled-and-dimed at every turn. Companies keep prices artificially “low”, then tack on loads of taxes and fees that are sometimes more than the price that we get quoted. The inflation rate doesn’t take those taxes and fees into account.

Without a President that understands this, we are screwed. As individuals you can protect yourself via learning about the issues, and moving your money out of dollar denominated assets.

6% inflation is a joke, Mary. There are many people that either live on just the wifes income or live on an income that half or LESS that what they used to make. I spoke to one such gentleman at Home Depot the other day. Sad, really. Over a million manufacturing jobs have been lost in MI alone. Gone. Forever. Here in MI we know that for every lost maufacturing job 7 jobs are directy affected. There are other numbers out there that say 11 or 12% may be more realistic. We’re already 8% in MI and we’re the canary in the mine shaft.

I’m glad Dallas is good for you. I remember back in the 80’s when oil got cheap and my brother-in-law moved back from Alaska. He went from working for the oil company to living in a rough area of Detroit and selling insurance, unsucessfully.

To address Paul R. La Monica’s question — are we closer to the end or the beginning?

I wish I could be as positive as Paul seems to be.

Paul’s question brings to my mind Winston Churchill, and with apologies to Churchill, I quote:

“Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.” — Lord Mayor’s Luncheon, Mansion House following the victory at El Alameinin North Africa,  London, 10 November 1942. ( Excerpted from http://www.winstonchurchill.org/i4a/pages/index.cfm?pageid=388#not_the_end )

For those amongst us who are looking for a ‘quick fix’ I think that such a solution does not exist. The only probable solution is TIME itself.

Why might this be so?

The CIA might concur with this opinion and might have even tried to promote this message to the President, but the message did not seem to be getting through.

We have, over the last several decades created a monetary system (in all Western currencies) that is dysfunctional. It is so because it does not send the proper signals to those who are making economic decisions every day in American and our other Western societies. This leads to incorrect decision-making and to not just sub-optimal behavior but even to bizarre behavior that is corrupting of society and of progress in general.

I cannot pretend to be an expert (like can Ben Bernanke or Alan Greenspan), but in reading from different sources, many of them from the so-called Austrian School of Economics (the Mises Institute is a good source) I feel IMHO that we have created a system or systems that are leading us in a direction that will cause us grievous harm.

This is not unique to America, although like with most other things, America is ahead of the rest of the world.

Namely, we no longer have an economic and monetary system that dissuades us from bad decisions nor protects from the jeopardy resulting from those bad decisions. We have instead adopted a system that leads us directly to those bad decisions and practically guarantees the jeopardy from those decisions.

For one thing, as quaint as it might sound to the ‘sophisticates’ that we have all seemingly become, we have discarded that ‘barbarous relic’ GOLD. Gold was never ‘magic’ — it just happened to be the best thing we had come up with as far as ‘money’ was concerned. Does anyone think that ‘paper money’ is as good? Shades of Moral Relativity!!!

For those of you who have the time and interest, I would encourage you to read the 2 articles at http://www.theconservativevoice.com/article/13463.html and at http://news.goldseek.com/JamesTurk/1126711755.php

We have lost the impartial arbiter that gold was. It performed the “invisible hand” function of arbitration and allocation within the money system. Without such an impartial hand we only have had the FED’s hands (Federal Reserve) and the hands of other Central Banks — those hands have tragically given a value to money that was NEVER accurate for avoiding misallocation and “malinvestments”.

In the old days the value of money allowed for the most stable and sustainable growth by helping set a ‘price’ for money; that is, the natural rate of interest at any point in time. This took account of all the supply and demand for money at that point in time, at that point in the business cycle.

That state of affairs provided for proper feedback of market information. It helped prevent the kind of excesses that we have all seen recently. It would most certainly NOT have allowed for the building of the Debt Mountain we live with today (and will die by).

The “human hands” (Maestro-Wizard behind the Curtain as somebody wrote) at the FED are the hands that have controlled our system for the last 3 decades and more (including during the Great Depression).

The FED is guilty of many mistakes. It has grievously hurt many people. And Ben Bernanke has admitted as much: “I would like to say to Milton [Friedman] and Anna [Schwartz]: Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.”

The truly tragic part of this story is that Ben Bernanke thinks that by increasing the money supply he can solve this type of problem. What confusion! What a Greek Tragedy!

Up until Paul Volcker’s term as FED Chairman, the Federal Reserve made many terrible mistakes. Like any Central Bank the “FED” is supposed to mitigate the ‘bad’ effects of the naturally-occurring Business Cycle — instead of mitigation it usually ends up causing exacerbation of the problems.

Under Paul Volcker the FED had to painfully correct the results of those earlier missteps. For the last 20 years first under Greenspan and now under Bernanke “accommodation’ has been made the byword of the day.

Both Greenspan and Bernanke have been riding the benefits of Volcker’s painful interventions. They have done nothing other than this. They most certainly have ‘solved’ nothing — Greenspan’s term was especially egregious in its misuse of the FED’s powers IMHO!

Sadly, of course, it is not only the FED as an institution where “Expediency” has been so misapplied. All throughout society we have taken the easy way out — so-called “easy money” and OPM (opium) = Other People’s Money.

It has been a very seductive and a very addictive practice. Now we are finding out how very painful the withdrawal can be from such a long-standing practice.

As the Credit Bubble slowly implodes, the Debt Mountain built up also begins to collapse.

When a dot.com boom becomes a dot.bomb bust, fixed assets like those of miles of fibre cable are left behind. So with housing.

But how are those “assets” now valued? That is, what value-added function do they perform in our ongoing economy?

With cable many of us seemingly benefit by using the Internet for communications. However, compared to the original costs of those “assets” the current valuation is a mere pittance.

So what? you ask.

The loss was taken by those unfortunate investors who were expecting a much higher future valuation and some return on their investments.

Did not society as a whole benefit?

No, not in net terms. As with housing, these ‘assets’ were largely built with OPM, i.e. with borrowed money.

What happens when such debts are repudiated?

If such debts are pervasive and society-wide — not with just one individual or a few — that particular class of assets with which the debt was “collaterized” (as in “backed up,” much as you back up your own debts with your own personal assets) — that class is now “written down”.

This is done because that specific class of assets will NEVER — in present value terms — reachieve the original valuation — it will never PAY ITS WAY BACK — there is a PERMANENT loss on the original investment.

With any given house (in such a losing class of assets) it means that the original buyer can likely NEVER justify the original cost based purely on economic terms. That is, BASED on his or her future economic realized benefit from occupying that house — it can never be “home” on that BASIS.

But of course someone else might indeed benefit — on the basis of a much LOWER capital cost basis — when that new buyer buys the lower-priced home.

What does all of the above verbiage mean to our present discussion about “where we are” with regard to this “recession”?

It means that we have a LONG and painful road yet ahead to travel before reaching the end. It means that it will take a long time for all the collateral pledged (to all the bad loans made) to be revalued and repriced and to be resold (“liquidated”) into the economic system. There is natural resistance to revaluations. That alone will cause interminable delays. Then there is government and FED “help”. That will further slow the road back.

Since it is probable IMHO that the majority of such loans made have not yet even been acknowledged as being “bad” it follows that the collateral behind those loans has also not been repudiated or resold.

There will unfortunately still be many more yachts, vacation homes, condos, autos, jobs and businesses, office buildings and even rental rates (and so on) yet to be recognized as being ‘redundant’ or subject to revaluation, seizure, foreclosure, repossession, and ‘liquidation’.

Even cities and counties are finding that the basis on which they had set their property taxes is no longer economically justified — in many cases there is no one to collect the taxes from! Even the banks will not acknowledge “ownership” — hey, who is the “owner” if the mortgage was “bundled” and sold offshore? Good luck! What a mess!

What is most tragic (it goes without saying) is the associated “collateral human damage” associated with this future activity — and I am “Looking Forward” Paul!

This damage includes, but is not limited to, the future divorces, crime, societal breakdown, homelessness, mental and physical health breakdown, drug abuse — all of which never needed to happen. So it goes. (Apologies to Kurt Vonnegut.)

But bad times end, stocks may even start to be a good buy. they bottom and rise before therest of the economy.

The thinking of many always trumps the thinking of one.

But sometimes we have to read a lot of superfluous material to synthesize that “thinking of many” to come up with the best of the best.

I am sure Paul La Monica reads and weighs all of our contributions.

I also hope that Mary from Dallas and John from Ellicott City, Maryland, and Paul from Denver CO, and D. from Colorado Springs, CO, are right. No one is saying that we are IN a Depression, at least not yet. What some of us are afraid of, is that it might yet come to that.

I know Mary is not insensitive to the plight of those in more dire circumstances. We also have to remind ourselves of that old adage: “a recession is when your neighbor loses her job, a Depression is when you lose yours”.

Regardless of any small disagreements I might have, I really enjoyed reading EVERY single post. Thank you everyone!

Great post from Andy of Waynesburg, PA. As Western societies have moved more and more to Moral Relativism and decadence, others will pick up the torch from those in the West who used to practise the so-called Protestant work ethic.

While the 50-s were never perfect — never the land of Howdy Doody and Leave it to Beaver — there is something to be said about what we have ALL lost, and I agree we are STILL lost on some road to somewhere we would likely prefer not to go. To all of us a question: Quo vadis?

To Kevin of Palm Harbor, Florida. Yes indeed, one can only wonder whether the 2003 quote from Warren Buffett will indeed prove to be prophetic. “…Mr. Buffett argued that such highly complex financial instruments are time bombs and ‘financial weapons of mass destruction’ that could harm not only their buyers and sellers, but the whole economic system.” Please see quote at http://news.bbc.co.uk/2/hi/business/2817995.stm

As to Kevin’s point about more damage than OBL could ever have hoped for — sadly very true. One wonders where the CIA analysts were. This was and is a fault at the heart of our capitalist, Western way of life. We have not learned. Without learning we can hardly hope to correct our path.

In reading Concerned Massachusetts Resident’s entry I could only think of Lou Dobbs and how he — sometimes yelling into the wind — is still trying to wake us up. It is Middle America (and Middle Canada and Middle Europe and Middle Australia and Middle New Zealand and Middle Japan and Middle South Korea and Middle Everyone) who will pay the piper — we are always left holding the bag — we will be the ones with no chair to sit on when the music stops.

To the list from Lewis from Vienna, VA, I would like to add Ron Paul. One of the few people in Washington who can see what the FEDERAL RESERVE (along with deficit spending) has wrought.

No question that Paul from Chicago has a valid point — we don’t save, we live check to check, or debt to debt — but do we really deserve to be woken from our dreams so rudely? Was it only OUR fault? What about our leadership? Who was it who encouraged us to go ‘nuts’ with our spending at the malls after 9-11? To ‘feel good’ and ‘to save America’s economy’? At what cost?

Where do people obtain the gall to pretend they can represent us when they have no idea how to lead? Where does this and the last FED chairmen get off thinking they know best? They are playing politics, they are gambling, with people’s lives. The hubris is unbelievable. The arrogance completely unjustified.

People in government, like good doctors, should ‘first do no harm’. But these people treat us like we are rats in some big financial and moral experiment. Even rats deserve better!

Come on everyone! You know in your heart of hearts that when the Federal Government sends out “stimulus” or phony “tax credit” checks to everyone, that they have run out of meaningful ideas. Not only that, but they have effectively given themselves a grade of “F” on their own Financial Report Card of their past economic performance. They are bereft of ideas. They are morally and intellectually bankrupt (as a group).

Where did the Contract with America idea go? Joe E. from Plant City, Florida is right — it is immoral to pass our debts on to the next or later generations.

John, from San Diego, you are scaring even me! Sadly though, I cannot disagree with your sentiments.

While the Economic Talking Heads all say that Protectionism is wrong and will kill us like it did in the Great Depression (and I am a financial conservative as you can tell) I do agree that we have to start buying locally. We will be forced to cut back on our ‘extravagances’ our travel, our eating-out, our big houses and cars, our trips to beauty parlours, our pet grooming, our big TV-s…

But when we have to cut back on food, medical care, shelter, clothing, and gifts for our children. What then? Mike from Redwood City, CA, I hope you are right, that we can successfully find cheaper sources.

Mike from Portland, OR, makes an excellent point. What long-term good has actually come from all the bubbles inflated by Greenspan? What did the booms leave behind? Did the FED, in helping to create obscenely “easy money,” do us any favors?

Mr. Greenspan, did you achieve what you wanted in 2002 to 2006? OK you said Yes back then, and again recently when you said you would have done nothing differently. But what will you say in 2010? Or even 2009?

You are right Mike — Lord, please spare me from having to live through another so-called boom again.

And James in Detroit, MI, you got it Pontiac (sorry, couldn’t resist). You are right IMHO, which is all that I have — my opinion — this is indeed (sadly) a WHOLE new ball game.

Again thanks to everyone who contributed. I don’t think Paul La Monica could ever have dreamt of such participation by all of you!

The problem seems to be in how the government figures SSI COLA’s. They omit fuel and food which is the biggest expense for seniors and continues to rise at a exponential rate so that a person like myself loses ground each year. This may be the year the government takes me down.

Frank Yanczer Osage Beach, Missouri

Thanks for a dose of reality, Paul; I’m glad to read some common sense to temper the “the sky is falling” mentality of many readers.