Twenty-Two Reasons Why this Recession is Different and Why it Will Endure

Text size

SurvivalBlog
October 19, 2009

I find it surprising that I’m now getting inquiries from readers, asking if “we’ve reached bottom” in the current economic recession, and asking if the time has come to start buying stocks or residential real estate. It seems that the talking heads of mainstream media are using some sort of voodoo. How can anyone think that we’ve hit bottom, and an economic recovery is in progress? To dispel the myths from the CNBC Cheering Section, please consider the following. (And note that I’ve provided references for each assertion, just so you know that I’m not talking out of my camouflage hat.):

A broken global credit market that has not fully recovered. See: After Lehman, U.S. firms adjust to new face of credit
Lack of transparency in Mortgage-Backed Securities and other re-packaged debt instruments. See: Geithner Blames Lack of Transparency for OTC Derivatives Hit on Market.
The increasing Federal debt, which is growing at an unprecedented rate. See: The National Debt Clock.
Mountains of consumer and corporate debt. See: Observations on the US Debt.
The Federal budget deficit. See: Federal Deficit Hits All-Time High of $1.42 Trillion.
Ever-expanding bailouts. (I call this The MOAB.) See: As More Companies Seek Aid, ‘Where Do You Stop?’
Monetization of the National Debt. See: Fed Could Expand MBS Purchases. (Can you spell Oroborus?):
The destruction of the American consumer economy. (It had been artificially credit-driven). See: A Year After The Crisis, The Consumer Economy Is Dead.
Chronic unemployment, possibly much higher than officially reported. See: Alternate Data at ShadowStats.
More than $500 Billion USD in hedge funds that have borrowed short and lent long. See: Assets invested in hedge funds increase by $100bn
A double wave of residential mortgage rate resets. See: this chart of scheduled mortgage interest rate resets.
Continued down-ratcheting of house prices. See: Housing Prices Will Continue to Fall, Especially in California
The under-reported “shadow inventory” of foreclosed houses. See: The “Shadow” Foreclosure Inventory
The very likely collapse of commercial real estate (”the other shoe to drop”.) See: Is a commercial real estate bust inevitable?
A huge crisis lurking in over-the-counter derivatives. See my analysis published in 2006 and the dozens of articles on the Derivative Dribble Blog.
Under-funded pensions. See: Almost half of top unions have under funded pension plans.
A coming wave of municipal bond and municipal bond hedge fund failures. See: The Failure of Leveraged Municipal Bond Hedge Funds.
Increasing numbers of bank failures. See: FDIC: Bank Failures to Cost Around $100 Billion.
Insurance company collapses–some, like AIG, were foolish enough to insure more than a trillion dollars in derivative contracts. See: AIG: Is the Risk Systemic?
Worsening state, county, and city budget crises. See: State prepares for shutdown as budget deadline looms, and this article from a liberal site: Predicting Worse Ahead from America’s Economic Crisis.
Loss of faith in the US Dollar, on the FOREX. See: Dollar’s reserve currency status in focus as G-7 finance ministers meet.
The coming mass currency inflation, follwing some asset deflation. See: Which is more likely in 2010: Deflation or inflation?

Back in the Fall of 2008, I started hearing from consulting clients with notes of fear in their voices. They realized that something is horribly wrong with the economy, but they could not properly isolate and articulate the problem. In my estimation, the “something wrong” that they sensed is nothing short of a monumental shift in the economic climate.

America will continue in recession. Most economic recessions are simply a product of the business cycle. These recessions are relatively mild and they often last just 12 to 24 months. The economic engine just readjusts and everything soon gets back to normal. But the recession that began in 2008 is something radically different, and it won’t be short-lived. The current slow down was triggered by a collapse in the global credit market. For decades, the global credit market grew and grew, in an enormous debt spiral. Our neighbors to the south saw trouble coming decades ago, because their economies were at the time more debt-dependent than our own. As far back as the mid-1980s, their newspapers featured political cartoons that portrayed an enormous, insatiable monster that was invariably captioned “La Dueda“–”The Debt”. Our cousins in Latin America saw it coming first, but the dark side of the debt nemesis will soon be clear to everyone.

The Federal governments’s debt, just by itself is cause for concern. As an old gunsmithing friend mine, the late Chuck Brumley, was fond of saying: “If your outgo exceeds your income your upkeep will be your downfall.” Several decades of profligate spending by the US Congress are finally starting to take their toll. Just because their friend Helicopter Ben has a high-speed printing press does mean that they can continue to spend money like drunken sailors in definitely. (On second thought, I should apologize for impugning the reputation of drunken sailors. They are actually much more conservative with their funds than congressmen.)

Because modern banking in the western world is based on interest charges that create continuously compounding debt, credit cannot continue to grow indefinitely. At some point the excesses of malinvestment become so great that the entire system collapses. This is what we are now witnessing: a banking panic that is spreading uncontrollably as wave after wave of ugly debt gets destroyed by margin calls and subsequent business failures.

Some economists are fixated on reading charted histories–and unrealistically expect that by doing so that the can reliably predict future market moves. Although they are working from a flawed premise at the micro level, the chartists do have some things right on the macro level: There are major economic “seasons” and even climate changes. The most vocal chartists like Robert Prechter hold to what is called the Elliot Wave Theory. And the big bad nasty in this school of thought is a Kondratieff Winter. This “K-Winter” is an economic depression phase that the world has not fully experienced since the 1930s. An economic winter does not end until after the foundations of industry and consumer demand are rebuilt. This can be a painful process, often culminating with war on a grand scale. (It was no coincidence that the Second World of the early 1940s was an outgrowth of the Great Depression of the 1930s.)

The US Federal Reserve and the other central banks are furiously pumping liquidity to the best of their ability, but in the long run they will not be successful. At best, dumping billions in cash on the economy will delay a depression by perhaps a year or two. But inevitably, a K-Winter depression will come. And the longer that it is delayed, then the worse the depression will be. Further inflating the debt bubble will only make matters worse.

“Big Picture” Implications

As I’ve mentioned before, hedge funds are presently most at risk in the unfolding liquidity crisis, because they use lots of leverage in lending funds that they themselves have borrowed. They borrow short and lend long, and effectively use debt compounded upon debt.

Even more alarming is the scale of global derivatives trading, particularly for credit default swaps (CDSes). Derivatives are a relatively new phenomenon, so most derivatives contract holders are only just now experiencing their first major recession. Thus, it is difficult to predict what will happen in a genuine K-Winter phase. In a perfect world, derivatives are a nicely balanced mechanism, where there are parties and counterparties, and every derivatives contract equation balances out to have a neat “zero” at its conclusion. But we don’t live in a perfect world: Companies go bankrupt. Contracts get breached. Counterparties disappear and disappoint. We have not yet experienced a full scale “blow up” of derivatives, but I predict that if and when it happens, it will be spectacular. The pinch in CDSes (a form of derivative contract) in 2008 was just a faint foreshadowing of what we’d experience in a a full-blown derivatives collapse.

The scale of derivatives trading is monumental, and the vast majority of the population is blissfully ignorant of both its scale and the implications of a derivatives crisis. There are presently about $500 trillion of derivatives contracts in play. That is many times the size of the gross product of the global economy, but the average man on the street has no idea what is going on. It won’t be until after the giant derivatives casino implodes that the Generally Dumb Public (GDP) awakens and asks, “What the heck happened?” Since the credit market began to collapse in the summer of 2008, the number of new derivatives contracts has dropped precipitously. But whether the aggregate derivative market is $400 trillion versus $500 trillion, when a crisis occurs there will undoubtedly be some very deep drama.

The next decade will likely be characterized by successive waves of inflation and deflation, and perhaps some of both simultaneously, at different levels. Countless corporations, and perhaps a few currencies or even governments will go under as this tumult plays out. (Take note of the recent vote of no confidence in Latvia.) The current low interest rates will soon be replaced by double-digit rates, much like we saw in the late 1970s. The dollar will lose value in foreign exchange, and may collapse completely. The Mother of All Bailouts (MOAB) will inevitably result in mass inflation. The bull markets in silver and gold will surge ahead, propelled by economic and currency instability. (Investors will be desperate to find a safe haven, when currencies and equities are falling apart.)

Mitigating the Risks

Be ready to “winter over” the coming K Winter depression. That will require: 1.) Prayer. 2.) Friends and /or relatives that you can count on (a “retreat group”). 3.) A deep larder, and 4.) An effective means of self defense with proper training. (For each of those four factors, see the hundreds of archived articles and letters at SurvivalBlog.com for details.)

Since additional large-scale layoffs seem likely, it would also be wise to have a second income from a recession-proof home-based business.

In the event of a “worst case” (grid down) economic collapse, it would be prudent to have a self-sufficient retreat in a rural area that is well-removed from major population centers. Get the majority of your funds out of anything that is dollar-denominated, and into tangibles, as soon as possible. The very best tangible that you can buy is a stout house on a piece of productive farm land. It will not only preserve your wealth, but living there may very well save your life.

Comment Rules

45 Responses to “Twenty-Two Reasons Why this Recession is Different and Why it Will Endure”

w00p Says:
October 19th, 2009 at 11:40 am
first

arwijn Reply:
October 19th, 2009 at 12:01 pm
Ban First-ers’ IP adresses!!!

Ban London Reply:
October 19th, 2009 at 12:21 pm
Lyndon LaRouche was right. Fight the British Empire and the London financiers.

http://www.youtube.com/watch?v=m7ajstG4AkM

Gary Reply:
October 19th, 2009 at 12:30 pm
Fight them and you’re only fighting lower level minions. The real power is in Rome, where it’s been for centuries.

bigpete Reply:
October 19th, 2009 at 12:54 pm
Yes,,what do you think the vatican is all about?think about it.

Intent Gaze Reply:
October 19th, 2009 at 1:06 pm
What IS the Vatican all about? Money? We know that, so do explain how the Pope is the Mastermind behind all this? CrustDisgust92@aol.com

Gary Reply:
October 19th, 2009 at 2:35 pm
I don’t think there is a “mastermind,” really. This is a multi-generational agenda that has been unfolding for thousands of years and everyone involved in it, including the Pope, is only a servant to it. He no more conceived of the “master plan” than any of his predecessors. He’s simply fulfilling his role, to be replaced by the next Pope at a later date. Look at the membership of the elite’s organizations. In Skull & Bones, for example, there have been members in several elite families for generations. The Bushes are an example. The same has occurred in all their secret societies for thousands of years, going back to the most ancient elites: those who lead us from nomadic hunter-gatherers to becoming farmers, tied to permanent settlements, which evolved into the first city-states, which, in turn evolved over time into the modern matrix-like society we live in today. Over all that time, every one of the elites has known that he serves an ancient agenda that is far bigger than he is. You’re looking at this as if it were a recent development, as if the Pope now living in Rome got up one morning and decided to rule the world. The papalcy itself goes back centuries and grew out of the melding between the early Christians and the elite of ancient Rome. But even the roots of that are far, far older.

The Swede Reply:
October 19th, 2009 at 3:05 pm
The “Mastermind” is the “Great Game” same as Shell Oil is not a Man its a system but do you think someone in Shell Oil will pull the plugg on it self?

puppetsinDC Reply:
October 19th, 2009 at 5:24 pm
firsters are mostly likely sheeple

birgit Reply:
October 20th, 2009 at 9:28 am
I agree, ban the ip addy of smuck sheeple!

bob boblaw Reply:
October 19th, 2009 at 2:16 pm
people who rush to write “first” are just showing the world how lame they are

FreedomLover Reply:
October 19th, 2009 at 4:10 pm
Granted that. BUT seriously. We’re going to have to get VERY serious about helping each other.

I John 3:16 Hereby perceive we the love of God, because he laid down his life for us: and we ought to lay down our lives for the brethren. 17 But whoso hath this world’s good, and seeth his brother have need, and shutteth up compassion from him, how dwelleth the love of God in him? 18 My little children, let us not love in word, neither in tongue; but in deed and in truth.

In other words, less talking and more doing.

mike65 Reply:
October 20th, 2009 at 10:19 am
I couldn’t agree with you more freedomlover.

Opie Reply:
October 20th, 2009 at 11:09 am
People who write “first”, are they showing the world they are lame or does it go back much farther than that. I believe it goes back 3000 years to Rome, before the papacy when the world dominators were planning to dominate the dominated. They were like, “We need to dominate this giant flat planet and I would like to say this sinister organization started here fir…” Then someone shouted out, “FIRST” and the leader of the group said, “You’re a frickin’ sheeple man!!!…Get to the back of the room. You’re so frickin’ lame!”

This is a brief historical speculative piece on the development of ‘Firsters’!
Don Says:
October 19th, 2009 at 11:41 am
2500 FLORIDA NATIONAL GUARD training for deployment in Pinellas Park Florida….. WHY?

john Reply:
October 19th, 2009 at 11:52 am
They’re being trained in Pinellas Park Florida for deployment… so? Gotta train somewhere…

kilo16 Reply:
October 19th, 2009 at 12:09 pm
would be nice if you could get some pics of all this. i have been to the park 2500 people would draw some attention i would think. no their isn’t any rail lines close by that i know of john. plenty of boat docks and an air port.

Steve Reply:
October 19th, 2009 at 1:00 pm
They’re not actually training in Pinellas Park. Training to actually be conducted at Camp Blanding Joint Training Center near Jacksonville according to this source:
http://www.miamiherald.com/new.....89359.html

Don Reply:
October 19th, 2009 at 3:04 pm
They have finished in Jacsonville and are here until January? Why?
big mo Says:
October 19th, 2009 at 11:44 am
fist!!!

FreedomLover Reply:
October 19th, 2009 at 4:10 pm
In-yer-face!

evan Reply:
October 19th, 2009 at 4:56 pm
Not only do you suck, but you can’t spell either
Mac-101 Says:
October 19th, 2009 at 11:53 am
Good article. As a people WE NEED to hound our elected officials and ALL friends, family, and strangers and demand that the borders are secured, DRILL and BUILD, reindustrialize America, and quite Bankrupting our NATION. FAIR TAX, TARIFF against nations that have restrictive Tariffs us, JAIL the BANKSTERS!

FreedomLover Reply:
October 19th, 2009 at 4:13 pm
This is so old. Everyone knows this – no one is doing it.

This agenda has been in process since before most of us were born. How do you plan to stop it? If we should start a revolution, it will be bloody. And it’s just what they want. Their depopulation using war will be their dream come true – as it’s coming true now.

roaddog6 Reply:
October 19th, 2009 at 4:25 pm
yeah, well, we can’t lay down and lick our nuts now can we.

Madman Reply:
October 19th, 2009 at 10:31 pm
The bitter irony of someone named Road Dog talking about licking their balls, made me smile. LOL
322skull Says:
October 19th, 2009 at 11:56 am
Rothschild says… http://www.youtube.com/watch?v.....rofilepage
SPIRITBLADE Says:
October 19th, 2009 at 1:04 pm
I TOLD YA’

THIS ‘RECESSION’ AIN’T GONNA-END, UNTIL THE MESSIAH RETURNS.”

(d’juh)

masterkyiron Reply:
October 19th, 2009 at 6:36 pm
when you start seeing huge ships in the sky you will know they are here.

mike65 Reply:
October 20th, 2009 at 10:22 am
I agree spiritblade.I have said that myself.
luggnutz Says:
October 19th, 2009 at 1:13 pm
ok moderating bitch….get ready….I’m on hold and your ass is next
musky Says:
October 19th, 2009 at 1:20 pm
infowars my ass….you’re on an ego trip….pride is before a fall…
Don't be a Sucker Says:
October 19th, 2009 at 1:57 pm
Am I the only 1 to see how Anti-Climatic this Lindsy Williams “show” / Infomercial has been

trying to get you all scared

telling you nothing new

beeing vague with his info

but if you buy his DVD and he’ll Tell You Everything

even A.J. is a better salesmen than this guy
August Says:
October 19th, 2009 at 4:16 pm
HEY, You Know all that $12 Trillion in National Debt? Well, whatever it bought, that stuff is long gone and buried at the garbage dump.
Bullbutter Says:
October 19th, 2009 at 7:26 pm
No sheet August, let em come repo it, the sheet wernt no good anyway
jim Says:
October 19th, 2009 at 7:37 pm
you rich people that still live in houses are going to have to pay more in taxes to give it to us unemployed people who live in cars. because our auto insurance rates went up.
Bullbutter Says:
October 19th, 2009 at 7:56 pm
It’s time to share the love
Warrivar Says:
October 19th, 2009 at 8:12 pm
Hit rick bottom? hahahaha rrrright…let me spell it out for the sheeple here…rock bottom is when you replace that starbucks in your hand with a hamper from the bread and milk lines. rock bottom is when you realize that prada bag, that nice car, and that fancy house can all be taken away then you are left with what is pure, with that is undeniable. your skill and integrity which unfortunately is in short supply this day and age.
f yea Says:
October 19th, 2009 at 9:31 pm
27th.
Jack Says:
October 19th, 2009 at 11:15 pm
USA OFFICIALLY IN DEPRESSION: VP BIDEN SAYS

Today US Vice president admits on a news interview that the USA has officially entered a depression. In a commentary on Sean Hannity’s show (video below), he demonstrates to viewers Biden’s comments regarding the current status of the economy and continuously used the phrase “it’s a depression; it’s a depression” to refer to the United States economy.

http://digg.com/world_news/US_.....depression
JAMES J Says:
October 20th, 2009 at 8:17 am
OK ALEX JONES I AM DONE WITH U IF UR SPREADING HOPE AND GAIN OF USA WHY DO U CHARGE FOR UR DVD’S FOR MONEY IF UR TRUE AMERICAN WHY DON’T U MAKE IT FOR FREE AND SHIPPING AND HANDLING FOR FREE U JUST LIKE THE STOCK MARKET SERIOUSLY SEE PEOPLE LIKE U WANT TO MAKE MONEY OUT OF FEAR UR NOT ASS DIFFERENT FROM OBAMA BUSH AND CLINTON ALWAYS PUTTING A PRICE TAG ON SOMETHING OH THERE ALEX JONES SOOO FAMOUS FOR WHAT CLIFF IS WAY BETTER THEN U MAKE ALL UR DVD’S FOR FREE NOT JUST A FEW ALL OF THEM THEN I WILL BECOME A BELIEVER

birgit Reply:
October 20th, 2009 at 9:31 am
oh hush child

james Reply:
October 20th, 2009 at 4:24 pm
oh u hush little man make it free asshole always someone out there making money so kiss my ass tell me to hush
AJ Clemens Says:
October 20th, 2009 at 11:58 am
Don’t forget the Gramm-Leach-Bliley Act. As long as it is on the books there will be wild swings in the stock market and the threat of depression. It must be repealed, and we need to go back to the Glass-Steagal Act passed in 1933, and repealed by GLB in 1999.
Ryan Says:
October 20th, 2009 at 3:29 pm
http://www.youtube.com/watch?v=XTv6GRDINjY Neal Boortz Atlanta radio talkshow host explains building 7 and trashes Alex Jones and 911 truth. I slip in Operation Northwoods around the delay.