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From: bob klahn
Date: 2009-04-28 14:48:00
Subject: Recession/Depression

 I was shopping for food for work a couple days ago, when I
 started thinking about the price of meat. I see a lot less
 higher quality meat on the shelves, more cheaper cuts. Well,
 every steer slaughtered produces the same potential cuts, no
 matter what the economy. The economy decides what cuts wind up
 on the store shelves, what people can and will buy.

 Yet the cattle farmers have much the same expenses in producing
 the beef, no matter what is selling. True feed prices will drop
 as the demand drops, but the time delay in adjustment will do
 it's damage. And the suppliers face their cost factors just like
 the farmer.

 What all of them face, and what is not easily adjusted to is
 debt service. Cutting a farmer's price and even his operating
 costs does not cut his debt service. Most farmers I have heard
 of are in debt, often to the point where his net worth is far
 less than the value of his land would suggest.

 There comes a point, and it may be soon, where that debt load
 starts forcing farmers out of business, far more so than in
 normal times. As some go out of business we can expect to see
 some short term run up in prices, that may keep others afloat
 for a while, but they will drop again. This might lead to a
 problem of rolling bankruptcy, keeping the cycle going for a
 long time.

 In the meantime, rising food costs will draw more out of
 shoppers accounts, leading to further reductions in purchases,
 or cutting elsewhere. And that will extend the problems to other

 I expanded this to consider business in a wider sphere. A great
 many businesses use loans to cover variations in operating
 expenses. Few businesses can keep enough cash on hand to cover
 expenses. If they can, where will they keep it? If they bank it
 someone has to borrow it or there will not only be no interest
 to pay on it, but the banks will have to charge for storing it.

 As businesses lose sales their ability to service their debts
 will decline also. Shutting down a store or plant may cut the
 labor and energy costs, but it doesn't even touch debt.

 This extends further to individuals, who typically do carry
 debt. A great many cannot survive long without a job. a few
 months and they will be going under. Even without losing a job,
 a cut back in hours, or even an increase in employee insurance
 payments, can have some of that effect.

 This country is facing a problem with bad debt now. I see it
 getting much worse.

 There has been talk in Toledo of city layoffs. It is now
 official, about 350 city workers, including 240 firefighters and
 police, are facing layoff. This has led to a lot of letters to
 the editor blaming city council and the mayor, but now towns and
 cities all around the area are announcing such layoffs.

 GM is shutting down for 9 weeks.

 Chrysler is cutting employeement compensation.

 All of this adds up to a lot of people being squeezed just to
 stay alive. And that puts debt service on the back burner.

 This series of cutbacks and layoffs and hour reductions can
 easily lead to debt default. This country could easily see a
 tremendous increase in such defaults. That can, in turn, lead to
 a further decline in the economy.

 Back in 1992 I don't believe I was in the Fidonet, but I was
 active locally. In June of 1992 I predicted the economy would
 cause GHW Bush to lose the election. Around that time, perhaps
 July, the Fed cut interest rates. I said it was too late for
 Bush, they should have done that 6 months earlier. Later I read
 that Bush also blamed the Fed for his loss.

 During the '90s I studied the changes in Fed rates, vs prime
 rates, the GDP and building starts etc. I concluded the Fed had
 a habit of significantly changing interest rates about once in
 every presidential term. The trend was to change them the
 opposite way for each presidential election. Whether by
 coincidence or not it tended to boost the economy when a
 republican was in office, and cause it to decline under

 During the latter part of the '90s I was posting about the
 overblown stock market, esp the dot com market. Conservatives
 ragged on me about that. Some even told me the rules had changed
 and the market could not fall. Well, they were wrong, weren't

 In March of 2000 I predicted the downturn that led to the
 recession of 2001.

 Throughout GW Bush's terms I have been reluctant to predict
 anything, because I thought the whole system was so screwed up
 it was not very predictable. Finally, in late 07 or early 08 I
 predicted the current troubles. In every case I laid out what
 actions by the Fed I thought would prevent the downturn, and the
 Fed never did it.

 Eventually the fall came, and eventually, Dec 2008, it was
 announced that the recesson actually started in Dec 2007.

 Now we are being told we are in a recession, not a depression,
 and we are not likely to go into a depression. As I consider the
 vast risk of debt default, and the great potential of rolling
 layoffs can cutbacks, I find I disagree.

 I am very much afraid we are headed for a depression. Unless the
 stimulus packages can start working soon, and other steps are
 taken to avoid defaults and layoffs, I cannot see how we can
 avoid a depression.

 And I believe things now are worse than we are being told. Not
 that the govt is deliberatly lying to us, but that the book
 keeping system they are operating under has been so compromised
 over the last 20 years and more it is incapable of giving us the

 And none of the remedies offered by the republicans will do one
 bit of good.

 So, my prediction is, if the stimulus doesn't start working
 fairly soon, we are likely to find ourselves in a real honest to
 badness depression.

 And believe this, that scares the hell out of me.

BOB KLAHN bob.klahn{at}

... A sunrise, the mountains, the grace of God are not earned, they are given.
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