Sunday, October 26, 2008
This picture was taken in 1936, and captures the human cost of the excesses of the 1920's, and the pain of the Great Depression. The photograph might look vaguely familiar, as the woman pictured is Florence Thompson. She was made famous by the "Migrant Mother" photograph taken by Dorothy Lange. This picture was taken at the same time, and was one of five pictures taken that day of Florence and her children. This one is much less known, but you can see it is very similar to the famous Migrant Mother photograph.
Now, I know that people have become tired of my editorial comments on the economy and the government. I know that people tune in here to see a picture from the past, and are not really interested in my opinion on world affairs. Because of this, I try and limit my editorial comments to the Sunday posting. So, today is Sunday, you have been warned, and here goes.
I am really surprised by the somewhat complacent attitude that people have towards the recent Wall Street meltdown, and collapse of many parts of our financial systems. People now clearly see that Wall Street is in trouble, but I don't think that people yet see that the next shoe to drop will be for the crisis to hit main street. As the stock values continue to slide, companies will first stop hiring, and then they will begin to lay people off. As people lose their jobs, fewer and fewer people have money to buy things. As they spend less, companies make even less money, their stocks slide further, and then more people are laid off. This is the terrible spiral we are about to enter, and it will be almost impossible to predict how far down it goes before it hits bottom. I can, however, predict how I see the crisis unfolding.
The government, and the people, now are seeing that we have a very significant problem. The approach that the government is taking, with the support of the people, is to solve the problem by throwing money at it, and moving the country to a socialistic system. For example, when the economy first started to slide, the government's first response was a stimulus package that sent money out to everyone. This was silly. We have a terrible national debt, and our economy got in trouble due to too much spending and not enough savings. So what do we do? We encourage everyone to spend more. When this did not fix the problem, and in fact made the problem worse, the next thing we did was to start bailing out companies in trouble. At the same time as we are bailing out failed companies with failed management, that same management was receiving obscene bonuses and other compensation. Now we learn that much of the $1 Trillion bailout package will be used to buy equity in the failing banks. This is by definition socialism . . . government ownership of public companies. As the financial system continues to fail, there is now talk of another stimulus package.
It is clear that our approach to the problem, which was caused by too much spending and too much credit, is to throw more money at it. Presently, our National Debt is funded primarily by foreigners. Over 60% is held by foreign entities, much of it by countries like China, which might not actually be our friends. I imagine that very soon these entities will realize that we are in danger of not being able to service our debt and deficit, and that the only way for us to continue to operate is to monetize the debt (print money to pay it off). Just as we saw panic selling in stocks recently, we will see panic selling in treasuries. The US government will no longer be able to fund its operation and debt obligations, and they will do what they have always done . . . print more money. As this happens we will experience hyperinflation at a level unseen in our history.
I believe that this will lead to a new Great Depression, and the human suffering in the new Great Depression will be far worse than the last Great Depression. The reason is that in the last depression, there was some manner of social order in the country. If a man was hungry, he might try to steal your chicken in order to feed his family. He would probably not riot, burn, and pillage a shopping center. If we look at the response of people to various events in the last few years, we see that it does not take much to set people off into rioting and pillaging mode.
So, what should we do? Well, I have more or less given up on the government doing the right thing, so I think we as individuals need to be as prepared as possible. I am not a crazy survivalist. I think it is silly to buy a generator, or store food in the back yard. I think that there are some rational things that you can do. First, as a working person, are you doing a job that is really needed by society? It is like a huge game of musical chairs . . . when the music stops, will you have a chair? I believe that in any scenario, society will need and pay nurses, teachers, policemen, and those that manufacture needed goods like food, energy, or medicine. I think that if I were a salesman at Best Buy, a car salesman, worked at a health club or other such things, I would be concerned. If you work somewhere that offers goods or services which are not absolutely necessary, I would try and retrain and find a "mission critical" job as quickly as possible. The second advice I would give is to drastically reduce spending, and if you are in debt, get out of debt as quickly as possible. Downsize in what you are spending. Save more, give more, and re-evaluate what you consider to be a necessity. I would do things now like cancel cable TV, fire the maid, stop the health club subscription, stop manicures, mow your own grass, stop buying electronic gadgets, and re-evaluate plans for your children's college . . . can they attend a local university, and live at home?
I am not trying to frighten people, but based on my analysis, I am concerned that the economy has crossed the tipping point, and things will get much worse before they get better. Be prepared, and refocus on the things that matter . . . family, faith, and friends.