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January 18, 2009
Issue 29  -  Collapse Accelerating
 
Things continue to get worse and worse.  The world is slowly slipping into a global depression.  We will not escape and the United States will probably be one of the hardest hit countries.  We are literally bankrupt as this example from Ohio shows:
 
"Feds bailing out Ohio unemployment fund
 
The Associated Press
Posted Jan 12, 2009 @ 03:57 PM
Last update Jan 12, 2009 @ 04:19 PM

COLUMBUS — Ohio’s unemployment compensation fund has been depleted, forcing the state to begin borrowing federal funds.

Officials say no disruptions in benefits are expected.

The Ohio Department of Job and Family Services said Monday the federal government has already approved $500 million to be borrowed by Ohio to pay benefits in January and February. The state has requested that it be able to use $50 million of that amount to pay benefits this week.

Agency spokesman Dennis Evans said Ohio is committed to preventing the unemployed fund from missing any payments.

Ohio and many other states have seen their unemployment funds decrease drastically as the number of unemployed workers has surged amid the recession."
 
A lot of pension funds, unemployment funds, endowment funds and similar are really hurting.  Expect this type of thing to continue and accelerate in the coming year.  Now California is also on the brink.  With mounting legal costs and a swooning stock market, it could be argued that they are insolvent.  This "trick" is just one of the first signs as the states, who can't print their own money, go through hard times:
 
"California Delays Tax Refunds
January 16, 2009
 
SACRAMENTO, Calif. (AP) - California's controller says he will begin a 30-day delay on tax refunds and other payments starting Feb. 1 because the state is running out of money.  Controller John Chiang said Friday he must delay $3.7 billion in payments next month because lawmakers have failed to address California's growing deficit.  With a $41.6 billion shortfall over the next year-and-a-half, the state is on the brink of issuing IOUs.  Chiang says his office must continue education and debt payments but will defer money for tax refunds, student aid, social services and mental health programs.  A severe drop in revenue has left the state's main bank account depleted. The state had been relying on borrowing from special funds and Wall Street investors; those options are no longer available."
 
Expect this scenario to be played out in state after state.  Tax revenue is shrinking and expenses are increasing for the unemployed and poor.  This stress will lead to layoffs and furloughs or "vacation" without pay.  This self reenforcing mechanism will ensure things get worse.  The system is bulging under debt which will lead to defaults and more bank stress.  In reality banks, in the main, are already bankrupt.  The amount of capital they possess versus their market cap is so far out of whack that anyone investing in these time bombs is literally throwing their money away.  The following snippet fromt the Times is right on the money:

 
"Unintentional nationalization may be pending for US banks - NYT
Losses, particularly for Citi (C), have become so large that it will be almost mathematically impossible for the government to inject enough capital to save large banks without taking a majority stake or at least squeezing out existing shareholders. Recall that Fed Chairman Ben Bernanke warned earlier this week the government has no choice but to put more money into banks. Analysts say TARP gives too many ways for real problems at banks to be concealed from shareholders and taxpayers. The ideas of a government wrap and creating a government-backed bad bank would protect common stockholders from being wiped out.
FED'S LACKER SAYS THERE MAY BE MORE "SHOES TO DROP" REGARDING FED'S CREDIT MARKET PROGRAMS"
 
So at least one fed governor is honest enough to let the cat out of the bag, there will be more shoes to drop.  Many more shoes.  The socialization of the country is well under way with the Patriot Act and this nationalization type of action.  Remember we are also "owners" of insurance stock (AIG) and car makers (GM and Chrysler).  As the wheels come off the bus, the feds will come to the rescue with more money.  Ultimately, this is a losing strategy and will only prolong the pain and delay the ultimate righting of the economy.

The housing market is one area that will continue to be an anchor around the necks of consumers.  Witness this chart from Prudent Bear:
 
 
 
This chart is exhibit A in regards to the path this country has taken.  This chart goes back over forty years and the owner equity was fairly consistent over that time with a slight downward bias.  Then in the last year or so, (this chart is surely worse with 2008 added) it has fallen off a cliff.  This has been coincident with an explosion in debt.  People were extracting money out of their homes like a giant ATM while "values" were plummeting.  The party's over and has been for some time.
 
What will ultimately play out from all of this?  I believe a depression is in the cards and cannot now be avoided.  It is even likely that the depression has begun but the screwy and deceptive methodologies used by our deceptive government are making it harder and harder for the common man to figure out what is actually taking place.  The article here, which was written in 2008 is probably a pretty accurate description of what will come to pass.  This is very long article but is well worth your time.  An excerpt:
 

"The crisis in banking has distinguished depression from recession. The very term "Black Friday" comes from the Panic of 1869 when the mob was dragging bankers out of their offices and hanging them in New York. They had to send in troops to stop the riot. A banking collapse destroys the capital formation of a nation and that is what creates the Depression. The stock market is not the problem despite the fact it is visible and measurable and may decline 40%, 60% or even 89% like in 1929-32. But the stock market decline is normally measured in months (30-37) whereas the economic decline is measured in years (23-26). Beware of schizophrenic analysis that is often mutually contradictory or often antagonistic in part or in quality for far too often people think they have to offer a reason for every daily movement.

Our fate will not be determined by the stock market performance. Neither can we stimulate the economy by increasing spending on infrastructure any more than buying your wife a mink coat, will improve the grades of your child in school. We are facing a Depression that will last 23-26 years. The response of government is going to seal our fate because they cannot learn from the past and will make the same mistakes that every politician has made before them. Even if the Dow Industrials make new highs next week (impossible), the Depression is unstoppable with current models and tools."

So the die is cast.  All that awaits is the playing out of the inevitable.  I wish it weren't so.  Gold and silver will be the only sure thing in the malaise.  Make sure you have some.
 
Addendum
 
Hopefully our fearless leaders don't take us too far down the garden path where it could end up like this:
 
"Zimbabwe to Launch 100 Trillion Dollar Note

HARARE (AFP) – Zimbabwe unveiled a 100 trillion dollar note Friday in the latest grim measure of its staggering economic collapse, heightening the urgency of a new round of unity talks set for next week.  Veteran leader Robert Mugabe and opposition chief Morgan Tsvangirai are set to hold talks Monday with key regional leaders in a bid to salvage a four-month-old unity accord, which has yet to be implemented.  The stalemate over disputed elections last year has only fuelled the economic and humanitarian crisis that has impoverished the country, leaving nearly half the population dependent on food aid as a cholera epidemic sweeps the country.

The Reserve Bank announced in the government mouthpiece Herald newspaper a series of trillion-dollar denominations to keep pace with hyperinflation that has left the once-dynamic economy in tatters.  The new 100,000,000,000,000 Zim-dollar bill would have been worth about 300 US dollars (225 euros) at Thursday's exchange rate on the informal market, where most currency trading now takes place, but the value of the local currency erodes dramatically every day.

The move came just one week after the bank released a series of billion-dollar notes, which already are not worth enough for workers to withdraw their monthly salaries.  Inflation was last reported at 231 million percent in July, but the Washington think-tank Cato Institute has estimated it now at 89.7 sextillion percent -- a figure expressed with 21 zeroes."

Here is one of the already worthless billion dollar notes: