The end is near...er

The economic crisis ranges in titles from the hilarious "economic shitstorm" to the more somber "global economic readjustment." I like the former because it is descriptive of the havoc the crisis wrecks in individual lives. It captures the anxiety, worry and, ultimately, the sense that what we're experiencing is so profound, nothing will ever be the same again. The latter sounds like an economist's euphemism that obscures more than it describes. And it undoubtedly does just that. "Readjustment" is similar to the more familiar and hated "restructuring." When the unemployed are feeling glib they say "I was restructured" to that they were laid off. That said, I like "readjustment" because, while it is not as colorful, it gets to something deeper: something went wrong with the fundamentals of our (really, the world's) market economy.

Whether you are talking about the stocks that make up you 401k, the value of your home or the grievous errors in judgment that your banker made in the past several years, the issue at stake is the fact that, at some point, the wheels left the pavement. That is, the value of the stock, home or bundled securities simply did not reflect its real market value. Profitless companies were able to sell shares of stock for more value than they really held.  Houses were sold at inflated prices to customers who could not afford them; this was based on the crazy logic that they would forever increase in value. And the bundled securities, or derivative, market was a ponzi scheme based on misinformation (perhaps willful ignorance) and speculation. 

In fact, that is what the "readjustment" is all about: it is a period where values finally begin to reflect reality. Until we can eliminate the very human tendency to speculate and act according to expectations (which can be based on everything from very solid information to wishful thinking to calculated lies), markets will never be just markets. They, like the commodities they trade, will always hold a fetishistic attraction for us: "it's more than just a home/stock/derivative, it's an investment."   

As things get worse (a mantra we've heard a million times now, followed by "before they get better"), they are also getting more real: things are readjusting. Your home is finding a market value for which a loan can be had--the same goes for the stocks in your retirement fund and the bundled securities held by your bank. Of course, this is little consolation if you've lost your job/home/savings. And it is high price to pay for the trillions of little lies and bubble-headed fantasies that have landed us in this mess. Unfortunately, most of us are complicit to some degree in the collective delusion that washed over the industrialized world for the last decade and a half. 

Just as speculation and loose financial practices can inflate value, it goes the other way as well. Expectation of future losses can drive values below the point at which they would normally reside. Time is the only remedy...we've got to wait it out. The best we can hope for is an economic system that, post-readjustment, is characterized by more honesty, transparency and rationality. So, as we press on through this shitstorm together, just remember that, without a doubt, the end is nearer.   

Great Depression 2.0: time to get organized!

Freemarketeers are as obsolete as my old Commodore 64 (RIP). The "free" market, based as it is on speculation, exploitation and private ownership, cannot operate when the future is bleak, jobs are being lost by the millions, homes are falling into foreclosure and cars are being repossessed at historic rates (1.5 million cars and trucks in 2008, up 12% from 2007). From an social and economic standpoint, 2008 was a train wreck. To top off the dismal performance of the stock market, skyrocketing foreclosure rates and unemployment figures, it turns out that retail sales were down in December--double their projected fall to 2.7%. Retailers call the day after Thanksgiving "Black Friday" because this is the symbolic start of the holiday shopping season and the time of year when retailer first start to see profits (out of the red and into the black). With sales down 2.7% in December, it can be expected that many retailers would not have seen a profit in 2008--and with the credit markets still frozen, we should expect to see more stores closing up in the ensuing months. This leads to even more job cuts and the spiral downward continues. What is to be done?

1) Volunteerism: the more goods and services people are willing to donate to community projects, the better we'll be able to stave off the deleterious social and economic effects of the current crisis. People are already needed to staff food drives, soup kitchens and community shelters--the demand for dedicated individuals will only grow as the economy sinks.

2) Cooperative ownership of businesses: A business venture may be more feasible during economic turmoil if the rewards and risks more evenly spread across the business. This provides incentives for higher productivity in times of plenty and can entail greater job security in times of scarcity.

3) Community organizing: Government won't be able to assess or address the varied existential needs that will arise in the months to come in a timely enough manner. Communities need to organize and implement solutions to their problems. During times of economic uncertainty these issues will invariably include: unemployment, shortfalls in health care, poverty, homelessness, mental health issues, municipal transit, availability of nutritious food, crime and corruption in government... Community groups can form a bridge between a slow and possibly inadequate governmental response and eventual economic recovery.

4) Local initiatives to vie for government largess. If local government fails to address local needs, then community organizations can float initiatives for funding through other channels (state, federal, private, or through religious organizations).

Needs are only going to increase, as will the pressures of social disintegration--communities can and should take charge of these issues now. Check out http://www.volunteermatch.org/ to find organizations in your area to join. If you don't have any that meet your concern, organize one!

Destruction of wealth

Recent numbers:

1) According to a report issued by the Fed: In the third quarter of 2008, U.S. households lost $647 billion in real estate; $922 billion in stocks; $523 billion in mutual funds; $653 billion in life insurance and pension fund reserves; plus $128 billion in private business interests. 

2) The Treasury reports that $330 billion of the TARP have been allocated to banks, yet by far most of this money has gone into the "re-capitalization" of these banks. That is, this lump sum of taxpayer money has not worked as planned to loosen credit markets. 

3) The amount of household wealth destroyed in the third quarter alone amounts to $2.8 trillion--apparently the worst quarterly loss in recorded history (although sources don't claim to adjust for inflation).

4) Deflation is here. U.S. consumer prices fell at an annual rate of 12%; producer prices fell at an annual rate of 26.4%; commodity prices are down as much as 70% from their peak.

All of this indicates that we are about to witness depression era levels of unemployment, business closings, bank failures and scarcity in the coming year. 

What does this all mean? Things will likely be changing on an unprecedented scale. Make it a priority to create stability in your home, your community and beyond. Think about self-sufficiency and, beyond that, what you can do to make your community better able to withstand the shock of dwindling government largess. By all means, stock up on canned- and dry-goods, learn to bake and cook from scratch, put in a garden, etc., but also take time out of your week to donate time, money, goods and good will to community projects. Instead of "battening down the hatches" or "hunkering down," we'll get through this mess far better working together.

Strengthening social networks

As I mention in the previous posts, the future is uncertain, and planning for uncertainty, as difficult as that appears, is necessary for getting through the oncoming crisis. Indeed, the financial system's decline has been something of a spectator sport for many of us in the past few weeks (or months, if you've been paying attention). Any of us with money in the stock market feel the pain acutely, but if our economist kings manage to turn this all around, then worry not--we may be back up to 14,000 in a year's time, but maybe not. Those of us without much invested in the market have just been watching the carnage from afar--but not for long I think. The link between companies and the financial markets is direct, and when credit does not flow, and investments have been eviscerated, many companies will not weather the storm in the months to come. Many will go out of business and there will be mass layoffs; unemployment will rise quickly, and it is questionable whether the government will be able to handle a sudden increase in entitlements. In my city, there has been a hiring freeze in effect for about a year now, and with state budgets drying up, there is no end in sight. Unfortunately, the scarcity in government jobs (i.e. jobs that pay fairly well and tend to have good benefit packages) means that there are many of us who must do the best we can in the service sector (poor pay and no benefits). As companies trim down on operations in response to a sudden drop in demand (let's face it, folks are scared and cutting back even now), the masses of unemployed will rise along with all of the social ills that come along with unemployment: crime, mental illness, poverty, etc...

If this is the case, and we have a deterioration in social conditions in the coming years, it is more important than ever to bolster your existing social networks--we will all need to depend on one another as circumstances change. From the go-go 1990s until recently, hyper-individualism has been possible and perhaps, given the circumstances, even desirable; however, it is no longer a good idea to put so much of our time and attention on pleasing ourselves. This practice of self-indulgence has been part of the problem--many of us have over-extended ourselves on credit over the past decade or so (it was so easy to get credit cards), largely in the service of short-term self-gratification (flat screen TVs, big cars, lots of home decor, electronic devices of all sorts). It is time to start placing our shrinking resource into building the kinds of social ties and community institutions that will bolster our chances of making it through the global depression. This means re-prioritizing where we sink our money, time and energies.

I suggest a good place to start is (for those of us not already involved) joining a church. I am not a religious person: if you had asked me a year ago if I would ever consider becoming a member of an organized religion, I would have certainly said, "hell no." But times change. Churches foster strong communities through volunteer work and sustain an awareness of the needs of their neighbors. These venerable institutions can be a positive influence in the community and will help you directly if you find yourself in a difficult situation. Find a church that tends to be more inclusive and tolerant. If you have no preference, ask a church-going friend about theirs and invite yourself to the next gathering. Once you are part of a congregation, get to know folks and volunteer for church-sponsored outings or charities (soup kitchen, food bank, toys for tots). The point here is to multiply your social connections and, who knows, broaden your spiritual horizons. Churches foster dense social networks and often friendships that are connected to a larger institution and mission tend to be more durable than the connections forged at work or in chat rooms.

It is easy to find a church...just look in the yellow pages or ask around. Have an idea of what kind of church-going experience you want to have: for the fans of doctrine, saints and incense there is the Catholic Church; for those who prefer rousing sermons and lively music, look into a Baptist congregation; for lovers of diversity, try a Universalist or liberal Methodist church. Again, initially anyway, this is a means to multiply and deepen you social connections--it will allow you to depend on others in times of trouble and place you in the position to help others as they require help. If you join a congregation that preaches intolerance and hatred toward outsiders, you will be contributing to the many challenges that will beset our communities and families in the months and years to come. We will come through the global depression with stronger communities and intact institutions from which we will all benefit; perhaps we will also gather deeper, more meaningful social relationships in the process--enriching our lives more than the consumer goodies that we bought to fill the social vacuum that characterized, for many of us, the last last few decades.

Remember, civilizations fall when societies dissolve into factions--and when civilizations fall, people suffer all the abuses of power that tend to arise in the absence of civility. This does not mean that you you should not prepare yourself (see the previous post on stocking up on dry goods etc...); but withdrawing into your bunker and adopting a "survivalist" mentality is not helpful to anyone, not even yourself (who wants to live like a paranoid hermit?). With a strong social network, a sense of empathy and a desire to alleviate the suffering of those around us--these things will see us all through this mess together--and perhaps we'll be better of for it.