Aggravation II
Both Paul Krugman and Badtux have talked about the insolvency crisis, so I won’t bother, but a Newsweek article on MSNBC shows that some people don’t live in the real world, or know anyone who does. The article, that was so short-sighted I didn’t even bother to grab the link, was essentially claiming that the number of people in default isn’t really that bad. All I can say is look at the damn numbers, it is worse than anything in my lifetime which stretches back to just after World War II ended.
I want to talk about another group who have gone into economic hibernation. These people have great credit scores and haven’t defaulted on anything. On paper they are seemingly doing well, but they don’t think so, as reflected in the The Conference Board Consumer Confidence Index™ for January of 37.7, an historic low [100 is “normal”].
These are people who are employed and played by “the rules”. They put 20% down when they bought their house with a 30-year fixed mortgage. They don’t have out-of-control credit card debt. They haven’t abused their HELOC [Home Equity Line of Credit]. They pay all of their bills and save some for retirement, and have for years. They are very afraid.
First off, not only is the equity in their home gone, they may owe more than the amount their house in now worth. Their investment portfolio is in the toilet. Their job is no longer something they can take for granted. Their assets have disappeared almost overnight. The comfortable retirement with some travel has evaporated. They are faced with the real possibility of having to live on Social Security. They did everything they were supposed to do, everything the books and experts told them to do, and they are in more trouble than ever with no time left to recover. They are the leading edge of the Baby Boom and there are a huge number of them. The timing couldn’t be worse for them.
You have this huge group of people who heard about the Depression from their parents and are seeing it happen again. They are not going to take any risks. They are not going to spend a penny more than necessary. They are not going to do any borrowing. They are not going to consume; they are going to hoard. They will pay down any debt they have as fast as possible, and save as much as possible, because they are panicked.
Now we have the new administration talking about screwing around with Social Security. This is one of the dumbest things anyone trying to kick-start the economy could do. This is so unbelievably brain dead. These people are drowning and the idiots in Washington decide to redesign the lifeline. This is easily the worst possible time to even discuss this.
Of course, given that these geniuses think a capital gains tax cut is just the ticket, I shouldn’t be surprised. Have they looked at the stock market? Have they looked at the housing market? Just who in fricking hell do they think has any capital gains?!?!?! Here’s a clue – you have to make some fricking money to pay taxes, and that isn’t happening, you mullet-brained morons!!!
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What’s happening is that a sizable percentage of the American population has deflationary expectations. That is, they expect the future value of their current available dollars to be worth more in the future (when they expect a lower income) than they are worth today, and thus rather than spend, they are holding on to it and stuffing it under (figurative) mattresses. The end result is to increase the reserve ratio of the fractional reserve banking system, which in turn causes deflation, causing those deflationary expectations to come true. It’s a self-fulfilling prophecy, and the experience of the Long Depression of 1873 shows what happens if government takes no action at that point — the economy didn’t come back until the 1890’s when gold strikes in California and Nevada re-inflated the money supply and the U.S. government spent heavily on warships to replace its antiquated ironclad Civil War era “monitor” gunboat navy with modern battleships.
So anyhow, I decidedly agree that mucking around with Social Security is the worst thing we can do here. We don’t want to create *further* deflationary expectations on the part of people (by deflationary expectations, I mean the expectation that they will be making less money in the future, which may have nothing at all to do with actual monetary deflation). The only way this will work out well for the economy is if the task force comes back grinning and says “Hey, you know what, Social Security is secure after all!”. Otherwise, it’s sheer idiocy. Sigh.
– Badtux the Economics Penguin
Oh yeah, tax cuts. Don’t talk to me about the idiocy of tax cuts, or of *any* scheme that simply hands money to people without any strings attached. In an era of deflationary expectations, any extra money becomes “mattress money” — it goes towards savings, not towards consumption. Add in banks that aren’t lending because of their *own* deflationary expectations (i.e., they expect that they’ll need the money in the future to handle loans that are going sour shortly), meaning that once the money hits the bank’s vaults it just sits there under a figurative mattress in the bank president’s office, and you have done absolutely nothing to help the economy. You’ve made some balance sheets look better, but that’s all — no more goods and services are flowing.
– Badtux the Economics Penguin
Badtux´s last blog post..A reminder
I’m only dealing with the 60 to 65 bracket who want to retire soon and can’t. The age for Social Security is going up, it’s not 65 for me, which means waiting for what I really want, the Medicare coverage, because health care is a killer in my age bracket.
If you have the time to wait for the bounce back, you are probably “bargain hunting”, but the group I’m talking about isn’t buying anything, no matter what the price. They aren’t selling either, as they can’t afford to take the loss. They are in stasis.
I remember the deflationary spiral on computers after component production hit critical mass and the prices starting dropping like a rock. You got stall after stall from clients who didn’t want to buy until they were sure it was the lowest price. The only thing that broke that cycle is when memory chips starting going back up and people realized they missed the bottom.
You have to wonder if anyone at the top understands the difference between micro and macro economics, or how the markets for actual goods works, because I’m not seeing any evidence of it.
You have to wonder if anyone at the top understands the difference between micro and macro economics,
i’m past wondering that. i’ve concluded they don’t actually get it.
hipparchia´s last blog post..A petition for you to sign
I’ve seen a couple of articles about “no one” predicting this would happen. Two Nobel prize winners, Dr. Doom, etc. – all these guys have been warning about this mess for months and years, but were ignored. Everyone the media brought on to talk about it kept saying “the fundamentals are strong”. The media totally blows it and goes all Condi Rice to avoid taking any responsibility for not really looking at the problems and telling people what they found. You won’t find anything if you aren’t looking.
Very accurate description of my circumstance right now Bryan. 59 years old and just recently unemployed. Done everything by the book. Almost a perfect credit score. Saved as much as I could thank goodness but my retirement savings are 50% of what they were a short time ago.
Now I am faced with a very difficult job market and a poor chance of finding any meaningful employment and almost surely not at the salary I just lost. I have put the skids on. I am not spending a penny I don’t have to. I have dropped every expense that is not absolutely necessary and cut but on everything. Any spare change is going “in the mattress”. Right now my goal, besides finding another job, is to survive until I qualify for social security and medicare.
Talking about entitlement reform is the last thing I want to hear from the government right now and every mention of it has me trying to figure out how much much more I can reduce my expenses.
I’ve know for quite a while that it was going to get ugly and tried to prepare. Now I hear the government telling me that what little safety net I had is in danger and I am not happy about it at all.
fallenmonk´s last blog post..More Good Change
It also holds for a couple of family members who have assets they can’t use, because no one who wants them has the money to buy them.
My Mother’s cost-of-living increases were the only pay raises for anyone I know in the last few years. Everyone is in stasis waiting to see what’s going to happen.
Getting old really sucks.
We’re only a couple years behind you, so, in theory, Clever Wife and I have a little room to maneuver. All we have to do is both find better jobs than we ever were able to during good times and keep them for the next ten years. Oh yeah, and we have to do that now that we’re on the receiving end of age bigotry. Actually, selling my mammoth book and having it shoot to the top of the best-seller lists is a more realistic plan.
archy’s last post – some shit about mammoths and unicorns
Don’t forget the “poor people’s pension” – the state lottery, John.
Ah yes, the state lottery. Herebouts called “The Stupidity Tax”. But I suppose if you have no other hope of a productive retirement, an almost zero chance is better than a zero chance…
Ole’ Helicopter Ben gave a speech yesterday where he verified some of my basic assumptions (assumptions based upon a fair amount of evidence, but assumptions nevertheless). Reading between the lines, ole’ Ben is yelling at the top of his voice, “fiscal policy! fiscal policy! I’ve already done everything possible at the monetary policy level!” to anybody who will listen.
– Badtux the Snarky Penguin
Badtux´s last blog post..Ben Bernanke’s speech yesterday
The defecation has impacted on the ventilation – “Greedspin” is talking about nationalizing banks, and Bernacki admits he’s out of ammo.
Maybe the Republicans in Sacramento were hoping for the state to win the lottery to close the budget gap. Our group of idiots gathers at the beginning of March for 60 days to screw up our economy. With 65% of both houses in the their hands as well as the governor’s mansion, they are forced to take responsibility for this disaster. You won’t hear Crist turning down any money from the Feds.
Fun times for all.
Yes… fun times for… some, not all. 😉
Swiss Bank Will Open Files to U.S. Authorities
I think you need to build more prisons. Oh wait… Obama can use Guantanamo for some real criminals! Won’t that be a change! Irony… I love it. LOL
*sigh* I just hope like heck that Bush/Cheney (and the rest of the gang) names are on that list! Is there any possibility of Justice? 🙂 I guess we can but hope!
Well, if nothing else… the idea does have much appeal. 🙂 The thought of the Bushmoron Gang Of Perv’s in Gitmo! LOL Who said irony was dead? Would mean one more great Discworld book as well. 🙂
OT: I have a lousy cold complete with lip sores. I hate summer colds, *sigh* So the site will be delayed. Probably a good thing, I’m not sure I like it now… I may make some changes… new coat of paint, some drapes… that kind of thing. 😉 LOL The functionality seems OK, I just don’t like the way it looks now. That’s easy to change though, when I feel better. 🙂
I like reading Bernanke’s speeches and papers. They reinforce my impression that he is a clear thinker who has spent a *lot* of time looking at exactly the situation we find ourselves in. He’s already thinking two steps ahead of the game — how to prevent inflation (i.e. how to un-print the money he’s printing) once the banks start lending again — when everybody else is still running around like a chicken with their head cut off. But problem is, he is *just* a central banker. He is constrained by his position in what he can say and in what he can do. But if you read between the lines, you get the impression that he is a very frustrated man right now because he knows what needs to be done once monetary policy reaches its limits, but he has no leverage to get anybody to do those things.
There is going to come a point when people will be forced to stop pretending and admit:
It’s a dead parrot!The system is broken and massive intervention is required!It is a sad commentary on our system that reality and common sense have become “political”. We know what’s wrong, and we know how to fix it. The more time that passes until we fix it, the worse things will get and the more expensive.