IMHO, the next leg of the downturn will be the most severe. During the first part of the downturn (which began in 2000, IMHO), the Fed/govt had some leverage and were able to drop rates and push debt onto an unsuspecting public via artificially higher home values. People had some cushion from the stock market run-up in the mid-late 90s, and while the tech industry took an enormous hit, many other people still managed to stay employed in other fields.
Fast-forward to today, and there is no more buffer: stock values are flat/down compared to a decade ago, wages are down/stagnant for the decade, pensions have been decimated in the private sector, and the public sector will probably see it next. People have used up all their savings (including their retirement accounts, in many cases!) during this downturn, and have run up all their credit cards. Some people were smart enough to tap their HELOCs one last time in late 2007/early 2008 when they saw the writing on the wall — a lot of them used this money to hold on during the downturn…this money is now largely gone or significantly less than it once was, and it has to be paid back.
We are entering the next leg down with fewer resources, fewer jobs, less money, but still higher-prices (housing, education, medical care — the stuff that counts), which puts us in a much worse position than in 2008. When the collective masses begin to realize that this downturn will not just last a few months (or even a few years), we will see tightening up like nobody’s ever seen before, IMO.
To top it all off, the govt/Fed have spent so much in trying to delay the deflation, that there will be precious little ammunition left for them to fight the next wave. The govt will have to rein-in spending while increasing taxes because there is no other way out.
I could be wrong, but have a very bearish view of the next decade or two (or three…).
