Saturday, May 23, 2009

Too Many Holes, Not Enough Fingers

The dam is still bursting, albeit more slowly with the creation of new government "fingers" to plug the holes on a weekly basis. Despite this intervention however, the real economy continues to deteriorate on multiple fronts.

GM will be bankrupt as early as next week. Why people pushed the stock up to $2 before a near 50% plunge I'll never know. More job losses on top of the 637K level we just saw. Just as a reminder for anyone who can read a graph. The job losses over the last 18 months show a shooting line up and to the right. Based on our population, it is not feasible to lose many more jobs on a monthly basis (say, 1 million/month) than we are now. This has to level off at some point. Don't mistake that for economic improvement any more than a leveling off in the decline in housing prices. This number can't reach 100%.

California is bankrupt. But so soon will be Ohio, Michigan, Indiana, and based on the number of Illinois banks getting shut down on a weekly basis, I would bet that they're not doing too well either. As local and state governments fail to meet budget restraints caused by huge shortfalls in tax revenue, what will our national government do? Yes, bail them out. But where will it end and how much more pain is the American taxpayer willing to to take?

Speaking of us, the taxpayers, did anyone like Timmy Geithner's response as to whether or not TARP repayments will be used to pay down national debt? I hope not, as he seemed to think those payments will just reinflate the value of his credit facility, not give us our money back. Combine that with the fact that warrants are being paid back at potentially pennies on the dollar and we see that none of this will be very profitable for main street.

The credit card legislation is being pushed through at warp speed. Consumer protection measures are good, but let's not forget what credit is. It's money that's not yours. My coworker was arguing with me about a sudden change in her terms that she she can't afford and may have to default on her payments. She was a little surprised when I didn't offer her sympathy, but instead the advice to not spend money she doesn't have. More so than personal changes, I'm curious to see how card companies respond to the legislation and subsequent effects on retailers.

That Florida bank failure took a week longer than expected, but doesn't anyone seem to care that Bank United is the largest failure since IndyMac, and will cost the FDIC $5 billion?

3 comments:

Tiger Coach said...

Ax...
True that the Midwest is struggling under the burden of re-inventing the economy... but the bigger picture is a diminished industrial capacity which for all intensive purposes puts the nation at risk...

Meanwhile, the old cliche that "The South will Rise Again" does not stand so much as a political power, but an industrial power. Non-Union states, in spite of weaker output, a less productive work force, and a minimal number of skilled labor...paints a more scary picture.

The fact is, that we are all in this mess together... and as soon as Americans figure out that when their neighbor looses a job, that it will affect them as well then the masses will be up in arms.

Meanwhile, the banksters will have wiped the last drops of gravy from the plate...

AX said...

Yes, economic problems on a local level vary greatly from state to state. California and here in Florida are victims of FIRE economy housing bubble destroying jobs at rapid pace. Midwest is held hostage by outdated union strangleholds with pension funding that have toppled one of our largest industries, that refused to make necessary changes and are now left without a pot to piss in. TC, I've heard even that teachers such as yourself will be faced with unfunded pension benefits such as healthcare due to tax-base shortfalls in the near future. Are you hearing such things yet?

Tiger Coach said...

Ax...
Florida somewhat similar to the Southwest was based on FIRE. Also it is a recipient of billions in vacation and snowbird dollars. However, unlike the Southwest Florida has tangled with the hurricane variable which in many ways has caused another perfect storm scenario in terms of housing prices...and insurance rates. For instance, my mother new home in Townsend, TN has/had a huge contingent of "tweeners" who left the Midwest and moved to Florida...only to move out of that environment...for whatever reason.

In term of the Midwest...where do I begin my friend? Let's see 100 years ago:
1. Standard Oil
2. Ford Motor
3. Goodyear Tires
4. other associated manufacturing applied here...

I think the Big 3 made deals that they could NEVER keep...and unions gave much of those benefits back too late. Where could a non-college educated person get a job making 70000-100000 a year? To a point, unions have helped kill the goose that lays the golden egg...

Still though, I honestly believe the companies have been mis-managed? Think about some of the products that have been manufactured over the years...and how many replica products GM produced... not to mention, engineering flaws...

Educators...and tax bases like everywhere else will diminish... That being said, there will undoubtedly be some type of impact on pensions. While Ohio STRS is still well-funded, I think us Generation Xers will face a level of diminished service...Boomers are going to bleed things dry...SS, Medicare, and maybe even public pension plans.

I guess that takes people like you and I back to square one... Let's build that financial ARK.... in some way shape or form... Since we are in the minority of people who actually think about what the future may hold, it would be prudent to do more about the things that we have control over!!!