There is a case to be made that you can't blame people if they didn't see the size and scope of the financial crisis that was coming back in 2007. I
remember wondering how in the world people were affording the massive houses they were buying. I also remember tearing up a letter a day from some
bank offering to refinance my mortgage to an interest only loan at a 2% rate for the first two years. My payment would have only been $299 a month. Did
they really think I was that stupid? Now we know that many people actually were that stupid or were just short sighted and greedy.
Well now the media outlets with a vested interest in seeing the agenda of the current administration continue forward are talking up the
economic recovery underway. The NY Times is giddy with excitement over the current economic boom. Their main points center around an
increase in the number of new homes being built and the surge in the stock market.
What the government has done with the housing market is create a glut of unsold homes that are not on the market in order to keep prices at
reasonable levels. In March of 2009, when the stock market was at its bottom and layoffs were at a sickening pace the number of homes in trouble
totalled around 4.5 million. In March of 2010 that number has risen to nearly 6 million and the pace is accelerating. Small banks are still failing
all across the country but the big banks are being propped up by the government and right now the federal government owns 90% of all home loans.
Two things happen at the end of April that will begin the cycle of our truly feeling the pain of the housing bubble. The home buyer tax credit expires
and the program to take on bad mortgages by the federal reserve also ends. The fed is now going to have to start putting those properties on the market
and so will banks with any new foreclosures. If new home builders are actually increasing the number of new home starts then that is only going to
further increase the supply of unsold homes forcing prices even lower. Lower prices puts more and more people underwater making them more likely to just
walk away from their homes.
The stock market rally is once again a snow job by the financial insiders to lure the suckers back in before the rug really gets pulled out
from under them. Here's what you need to understand. The six biggest banks have combined assets: 63% of U.S. GDP. The 800 billion TARP program was designed
to rescue these firms and it has done its job well. The profits of these banks has sky rocketed along with their stock prices. They were
given hundreds of billions of interest free dollars which they used to create massive profits and bolster their stock prices.
The banks are now paying that money back to avoid being at the mercy of government control over wages and bonuses. When you take away the
government support and factor in the home foreclosure problem only being worse we are now back in 2007 ready to start all over again.
There is a huge difference now though. In 2007 interest rates had risen substantially and the budget deficit for all of 2007 was only 170 billion.
We had the ability to lower interest rates and massively increase government spending to stimulate the economy. Those options will not be
available the next time around.
By the end of the year the evidence that we are not in a recovery and in fact are on the edge of an even bigger bubble than that of 2008 will
be overwhelming. Every day will bring another report of a large companies profits coming in lower than expected. The stock market may find new
lows beyond what we saw in early 2009.
So how can I be so sure of what we can expect as the calendar changes to 2011? I've already discussed the housing problem and how much of a
drag that will be on the economy. The 780 billion stimulus bill that has been keeping state and local governments going will be nearly out of
money by 2011. The state and local governments are finally going to have to deal with their budget problems forcing many of them to cut
services and layoff employees. Consumer spending, which makes up 70% of our economy is going to suffer.
We are also going to have to deal with the tremendous increase in the prices of raw materials such as wood, rubber and iron ore that have been
masked by businesses in this country. Up until now these price increases have been absorbed by the corporations and have not been passed on to the
consumer. Businesses have been unwilling to raise prices during a recession and risk losing sales. Inflation is coming, higher interest rates are coming
and unfortunately the people and the government are not equipped to deal with either right now.
April 23 - Mutually Assurred Economic Destruction
April 22 - The Truth, Does it matter?
April 21 - Name that Mob?
April 20 - Why So Quiet?.
April 19 - The Deadbeat Bubble.
April 16 - Oh no you didn't.
April 15 - The Party of Silence.
April 14 - You've got to be kidding me.
April 13 - Where do we go from here
April 12 - Youth of the Nation
April 9 - Turning the Tables
April 8 - New Age of Discrimination
April 7 - Thank You Kind Stranger
April 6 - The Cost of Compassion
April 5 - Happy Days are Here Again
April 2 - Of Course We Can Do a Better Job
April 1 - The New Normal
March 31 - Take a Deep Breath
March 30 - Metaphors and Blinking Lights