These last two weeks I’ve had multiple people from multiple fields tell me we’re finally heading for a doozy of a depression, like 1929.

Why "depression" rather than "recession"? That’s what I asked when hearing all this advice,

One real estate agent coach, who handles markets in California, Las Vegas and Florida, told me, "Bill, it’s because this time people are losing their HOMES!"

Consider this…

The sub prime mess has just started. This is just the tip, and already hedge funds are going belly up. I’m waiting to see what happens to the banks … and the big problem is when ratings agencies downgrade debt ratings, which could explode the whole mess. I cannot go into that, but if the debt rating of a bond issue drops, especially for an entire class of bonds, the results are potentially catastrophic. It’s a NATION KILLER issue.

Economically speaking, basically people bought over-priced houses that they could not afford on their salaries, which themselves are dependent on iffy jobs easily eliminated or outsourced during a downturn. As I’ve constantly said, this is the danger to America, not terrorism — there are  no jobs anymore and the economic base, dependent on consumer debt, leaves us in a precarious situation.

Remember after 911? Air flights dried up, which hit the hotel industry, and then the entertainment industry, restaurants, etc. … jobs were lost simply due to a temporary decline in consumer confidence, but in this case this is a REAL DECLINE IN CONSUMER SPENDING  WE’RE TALKING ABOUT because the dollars  won’t be there. And as for free trade, as I always say, free trade is NOT The concern when the majority of your population is unemployed! That whole manta of "free trade" only works in a particular economic environment. The economists who talk  about these things never think through the extremes and big issues, but just lock their minds to some standardly accepted math models (deviations will risk your chances for tenure) just as people tie their thoughts to the Bible. 

As the Boat Monk Zen master said, ""[Quoting, locking yourself to] A fitting sentence can be a stake that tethers a donkey for 10,000 aeons."

Continuing …  the mortgages on most of these homes were adjustable rate rather than fixed (meaning as interest rates rise they’ll get even more unaffordable and there will be even more defaults). To top it off, people were given mortgage loans without any down payments, so it’s easy for people to walk away from their real estate if it was an investment that didn’t work out. If you haven’t put any money in a house, and it drops in value and you can’t pay the mortgage, many folks will just walk away. Homebanc just went bankrupt –   an issuer of prime, not subprime, mortgages. Hmmmm.

Already in Vegas suburbs you can find areas where 40% of the properties are for sale, at 20% off, and there are no buyers in sight. Florida is a mess. Other communities are being hit. This thing has just started turning … the domino effect is going to be EXTREME. Overextended debt, as it always is, has been the enemy. The stock market decline is just beginning and who knows what the final repercussions will be ?  Yes there will be bobbing both up and down, and the  talking heads  will try to assure the public that everything is all right as they quickly work to save their own monies (I saw that happen with my own eyes in Hong Kong before a big bank was decalred bankrupt), but the party is basically over. Bailouts are occuring now at the TOP, when historically they are usally done only at market bottoms!!! That gives you something to think about.

Remember, as the market declines, people liquidate other assets to pay for margin calls, etc. So gold, rather than go up, will drop in a time of deflation. So will every other asset class except cash. But with banks being unsafe with mortgage loans going belly up, the dollar dropping if the FED has to inflate to keep things afloat, with possible problems with credit derivatives and derivative leveraging tied into the banks … where do you put your cash? Banks aren’t safe in this type of situation. If you know where to put your money, let me know.

I didn’t ask for these phone calls but so many people have  called ME, so I had to write about this. The common man hasn’t a clue as to what’s happening. I even had Chinese call me who have a say in managing China’s billion dollar currency reserves, and they’re concerned!

In the long run, the only way out of this type of 60 year mess is innovation, new technology released/invested in/developed to create new industries AFTER we get somewhat out of a crash and let the bankruptcies settle. That’s the only thing that will be able to pull us out of the bottom when it’s all over. It’s a Kondratieff sort of thing, a need for new technology to power a boom that will power an economy. Something people can invest in to power the next wave up. Without that, we’ll be stuck in the water. And let me tell you, there’s PLENTY of new technologies locked up in Work for Others orders issued by the defense industry. They just have to be released.

Most people live in yesterday, and never realize that the US is actually a replacement demand market for most services and goods (everyone has a car, TV,  air conditioner, etc. and only replaces them) rather than a  growing demand market like India or China where most people don’t have these things and want to buy them as a Middle Class develops. We’re  no longer a manufacturer of most items – in fact  other countries don’t even have to buy these items from us anymore (like in the 60’s and 70’s) because they’re manufactured in their own nation by local industries. It is manufacturing, or production, that makes repayment of financial loans possible as loans for startups and factories are usually self-liquidating. On the other hand, consumer loans for items of consumption (boats, paintings, cars) depend on repayment for other sources of income that are not necessarily as secure as loans for income producing assets. With that in mind, it’s easy to see how China is setting itself up as the next economic juggernaut of the world — it will be the producer AND consumer as it grows its own middle class.

We buy too many things we don’t need using consumer credit card debt or refinanced housing loans (which disintegrate when real estate drops in value). So we’re maxed out. Jobs have been outsourced, and we actually have no stability of incomes or security of jobs if things get bad, especially if our jobs are service based. Remember that when there’s just a minor stock market down turn, thousands are fired on Wall Street, and then the insurance industry, and then so on it goes. If firms have to cut costs to survive, even MORE outsourcing will occur. Optional services will be the first thing cut in the next downwave environment. Economists say you can have a nation that survives doing services only…nonsense. The service, software, information, and entertainment industries as the basis of an economy sounds great, but is a delusion of strength and robustness.

Another point: The influx of cheap labor from Mexico and South America will lead to ugly prejudicial race problems if there is a downturn. In terms of the long view, the best and brightest also no longer favor coming to our universities for higher degrees as their first choice, or their attendance is made difficult by our new Homeland Security concerns when these are the very individuals who slowly can produce the new vitality and breakthrough necessary for the economic future.  The US strategy should be focused on reversing brain drain as innovation is the one factor that’s saved us for so long; this is the core of a healthy future. Change the policies. Welcome these folks, encourage these folks.

Yet another gigantic problem – Interlocked networks of derivatives trading vehicles (swaps, options, etc.) in the banking field have left the entire system vulnerable to a few players going under…but I don’t even want to get into that. I’ve been in that field. If you haven’t it’s difficult to explain all the interlocked players who suffer  when one party goes under. Let’s just say that all those risk models that people operate by don’t work in economic extremes, and that’s why the hedge funds go belly up. They’re just the first ones to go; the later ones are the heavier players.

These issues, as I’ve said, have  always been the problem our leaders should be concentrating on, not some crazy focus on other countries or terrorism. The dollars should be spent on these issues, these concerns, this stuff. The strategic security concerns are THESE factors. The economic base has degraded, because of the wrong policies, and this has put the country in more jeopardy than anything else you can imagine. Politicians are looking the wrong way and focusing on the wrong issues….to win votes or outof ignorance. The Comptroller of the Currency gets on 60 Minutes and says that health care obligations will bankrupt the US, and instead of changing the healthcare system, as Joe Mercola sugests (www.Mercola.com), we’re talking about doubling, tripling, quadrupling those liabilities … in order to win votes?

This is ridiculous.

Anyway, if my friends are all right, a big decline may have started. I don’t have any advice other than to read The Elliot Wave Theorist, by Robert Prechter, which will keep people updated on what to do and where to go to preserve their assets and wealth if this all comes true … whether it unfolds quickly or slowly. This view  could be wrong, but the house of cards is indeed a mess, most of which can be traced back to over-leveraged debt with increasingly  difficult chances for repayment..

Another friend just advised me that this book ties everything together (America’s Financial Apocalypse: How to Profit from the Next Great Depression), so you can look into that as well.

Come election time, start thinking about these issues. Who’s talking about them? No one. Why? Doesn’t win votes, or they’re ignorant of the matter.

The US is going the way of Rome in terms of repeating its strategy for decline. Wisdom is what is needed. Wisdom, not intelligence. Intelligent people think they’re smarter than everyone, including you, and become arrogant in forcing their way, their solution on the matter because they’re sure it will work. The only believe in their own solutions whereas wise people know how to look at issues in a multi-factorial, globular way that tends to work out.  

As I point out in my book on Kuan Tzu, you need wisdom and quick action (quick decisions) to succeed as a leader. If these guys act too late, then  everyone is in jeopardy. You need wisdom like a Ronald Reagan or Bill Clinton, rather than intelligence like a George Bush or Hillary Clinton, in order to make the right decisions. The party doesn’t matter so much any more, whereas the qualifications of the individual does.

 

More to know: http://www.larouchepub.com/hzl/2007/3431house_of_cards.html