CA-I agree Karl has an amazing understanding of the big picture. Him along with Mish and automatic earthare all extremely precise in seeing what’s coming.
And may you find the strength and wisdom to lower your expectations when it comes to money and material possessions. A lot of dreams will be shattered in 2009, a lot of things once taken for granted will disappear and never return. My biggest fear looking forward is probably that many of us will not be able to adapt to the vision of a future with less of almost everything. The reactions of younger generations to the realization that the vast majority among them will not be able to do as well as their parents could be rough and violent. Millions upon millions in the western world who are today reasonably well-off, and expect to retire with a nice pension, will find when the time comes that that dream is gone too.
They may feel entitled to comfort after a life of work, but their children will feel entitled to jobs and wealth and health care and schools for their own children. And there will simply not be enough to go around. Those who have been lucky enough to live the good life in the past decades will need to share, to give up a large part of what they have, or societies and communities will implode. But will they understand the problems and their implications in time to make the necessary adjustments? I am not very optimistic. Politicians, generally speaking, will be useless in processes such as these. They will give the majority of voters what they want: more of the same, or at the very least promises of more of the same. The outcome could give a whole new, and not too kind, meaning to the term ‘generational conflict’.
Things that will start to play out in the world at large in early 2009 all have to do with how to cut a shrinking pie. In particular, individuals, companies and governments all will find it much harder to finance their day to day dealings. And we will find out that many parties are in much worse positions than they have let on until now. Many levels of government have hidden a lot of trouble from their constituents, and most will now have to come clean. The only feasible ways to get their books in order are raising taxes and issuing bonds.
But tax increases are a short and narrow dead-end street when people lose their jobs and homes. And the bond markets will soon be so bloated with the excess in offerings that the price to sell them will be too overwhelming across the board. The same, of course, is true of corporate bonds. The LA Times series Hooked on Debt paints a chilling picture of the financial past and future of California, and there is no way others haven’t done the same things.
Internationally, we will see trade wars of many varieties, protectionism, debt defaults and entire countries simply going bankrupt. Once a country is sufficiently isolated in trade, it may attempt to inflate its way to happiness, even though that is clearly impossible. There will be governments that point beyond their borders to guilty scapegoats next door. In many places, troops will be gathered on both sides of borders. Inside countries, governments will be tested, tried and sometimes overthrown, with many an army and police force acting against their own citizens. Athens and Bangkok will be replayed on a 1000 stages across the globe.
In the US, government lending and spending has broken through all previously set limits. The Treasury hands taxpayers’ money to the bankrupt financing arms of defunct carmakers, who use the money to offer 0% loans to people who should never not be buying new cars or homes. Literally everything the Treasury and Fed have done in the past year has been utterly wrong, and guaranteed to make matters much worse. For the man in the street, that is. Not for the wealthy.
The next steps are undoubtedly long since on the table: massively more, and more massive, “rescue” operations, funded with your children’s ability to repay, and all focused on making you consume, no matter how broke you may already be. Remember, even with a 0% interest rate, a debt is still a debt. Don’t go there. From the point of view of democratic politics, the US turns more into a farce each passing day. The Treasury has no qualms spending more than Congress provided. Yeah, so what, what is anybody going to do to stop them? The Treasury makes public money available to Cerberus, a private company that doesn’t even have to open its books. So what are you going to do?
