Kunstler's predictions for 2009

Much of what has been lost in 2008 will not be recovered: enterprises, personal fortunes, chattels, reputations. By May of 2009, the stock markets will resume crashing with the ultimate destination of a Dow 4000 before the end of the year. Meanwhile, jobs will vanish by the millions and companies will go bankrupt by the thousands, especially in the so-called service sector, and in all the suppliers of such, along with the landlords in all the malls and strip malls. The desolation will mount quickly and will be obvious in the empty storefronts and trash-filled parking lagoons.

Meanwhile, jobs will vanish by the millions and companies will go bankrupt by the thousands, especially in the so-called service sector, and in all the suppliers of such, along with the landlords in all the malls and strip malls. The desolation will mount quickly and will be obvious in the empty storefronts and trash-filled parking lagoons. Borrowing from the future will become a practical impossibility as past bad debts from previous borrowings continue to unwind, cease performing, and get written off.

Bankruptcy will be the new Nascar. A lot of families will lose everything. They will sift and disperse into the housing owned by other family members -- parents, siblings -- and a strange new not-altogether comfortable kind of togetherness will become common. Over time, a lot of people will go looking for casual work "under-the-table"( and probably low-paying). To some degree, these workers will begin to look and act like a new servant class, and before too long they may be absorbed into the households of people who employ them. There will be plenty of room for them there.

Counties, municipalities, and states will join in the bankruptcy fiesta. It would be reasonable to expect collapsing services as a result. This would be a situation fraught with danger -- of rising crime, of public health emergencies as water systems are not kept up and sewage treatment becomes unaffordable.

Right now we are caught up in a compressive debt deflation as mortgages stop "performing" and loans of all kinds are welshed on. Since money is loaned into existence, and a great many loans are not being repaid, then a lot of money is going out of existence. That's what I mean when I say that capital is leaving the system. At the same time, the Federal Reserve has made good on its promise to drop money from helicopters if necessary to prevent an implosion of the banking system (as all that older money goes out of existence), and so it's now a question as to when the amount of new money will exceed the disappeared old money.

We could see the start of serious inflation sometime in 2009. To some extent, all currencies are now free-falling together, some at slightly faster rates than others, but the situation of the US dollar is so grotesquely dire, and our structural imbalances so monumental, that it is hard to imagine that our currency will not win the international race to the bottom. I'll forecast the that the US dollar is worth 40 percent of its current value by next Christmas.

The big theme for 2009 economically will be contraction. The end of the cheap energy era will announce itself as the end of conventional "growth" and the shrinking back of activity, wealth, and populations. Contraction will come as a great shock to a world of conventionally programmed economists. They will toil and sweat to account for it, and they will probably be wrong. Unfortunately, this contraction will do its work in unpleasant ways, driving down standards of living, shearing away hopes and expectations for a particular life of comfort, and introducing disorder to so many of the systems we have depended on for so long. People will starve, lose their homes, lose incomes and status, and lose the security of living in peaceful societies. It will become clear that the Long Emergency is underway.
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Worst holiday retail season in at least 40 years:

http://www.bloomberg.com/apps/news?pid=20601087&sid=ajAqMbszJmNY&refer=home

"[T]he Federal Reserve has made good on its promise to drop money from helicopters if necessary to prevent an implosion of the banking system (as all that older money goes out of existence), and so it's now a question as to when the amount of new money will exceed the disappeared old money."

Bzzt! It's not even a question. There are tens of trillions of "bad money" in the world financial system. The hedge funds are almost solely responsible for driving speculation execesses up to that wild level of fantasy. Governments are trying to gently break a few trillion to their constitutents, and it's just not going well at all with that level of bailout. So, what do we really expect to happen, here? Will Obama in 2009 or 2010 really get on the TV and tell the U.S. population that, sorry, the bailouts must climb by a factor of TEN?!?! The U.S. taxpayer already knows that he's been put on the hook for about $10K. Will he think that revising that to $100K will make the common American sit still?

To wit: "Dear Average American, suddenly you're in debt so deep it's like you're paying for ANOTHER HOUSE ENTIRELY, and the worst thing about that is that you don't even get to live in it, or use it as equity. Thank you for listening, and please don't riot."

"We could see the start of serious inflation sometime in 2009."

NO WE WON'T! Why do people continue to invest their thoughts in the Western Myth of Constant Growth? WE'VE JUST ENTERED A GREAT DEPRESSION. Depressions are deflationary. Housing won't recover. Jobs won't recover. The crashing of the greatest speculation bubble in all of Human history has resulted in the destruction of tens of trillions of dollars. That's deflationary by any metric.

There will be relatively minor, periodic changes in the price of certain commodities, like gasoline and milk. But people will readily adapt by using less of those items when the price spikes. Overall, we're facing a wholesale collapse of prices for goods and services. And the steeply rising unemployment will only feed that creative destruction.

Our standard of living in the USA will retract to about the level of the 1940s. That time wasn't bad, but you have to seriously look at how people lived back then, and you have to accept that THAT is how you will have to live too ... if you want to avoid becoming a hobo.

 In 1940 the U.S. had already started to prepare for the coming war years.  In 1942-1945 the U.S. had rationing that kind of threw the free-market aside.  Maybe we should not have used rationing.  It would be interesting to see how inflation would have worked with cash chasing the limited availability of goods.  it certainly would have sucked up the "excess" cash that was generated by wage increases that got people into the defense plants.  It would be interesting to see how Republicans could run a war in a "free market".  Oh, that's right, they are.  They're using deficit spending to do it.  

In 1946 (with the GIs coming home) there was inflation with too few consumer goods being chased by the cash saved during the war years.  If we had not had rationing I imagine those inflated dollars could have been used to build new factories to produce the goods that consumers were ready to buy.  Oh, but wait, there would have been no cash to fuel the pentup demand.  It would have been in the hands of those who would build the factories.  But there would be no reason to build the factories because there would be no money to buy the goods that were wanted.  Maybe Commuinism might have looked better at that point.

Old South End Broadway

GZ, if the govm't just keeps printing more and more money to maintain liquidity, doesn't that mean that our money will become worth less, in absolute terms, than it was?  Isn't that inflation?

Pete, firstly, the collapse of billions in loans and trillions in hedge funds means that money is being destroyed.

Secondly, how can you have full inflation if your employer refuses to pay you any more money? Eventually you just go broke, and your retail economy goes broke. How does that "maintain liquidity"?

Supply-side inflation is not real inflation. Eventually the supplier must either drop his prices to reflect the current poor condition of his customers (which he wants to woo back, since they stopped buying), or he liquidates, which is the same thing.

The point I keep trying to make to people that deflation is inevitable. We ALREADY had a significant period of inflation, where the prices of nearly everything (except cheap Chinese CRAP) went up, and Up, and UP. Following that sort of wave, deflation is the only antidote.

Of course, there is another possibility. The government could outrightly nationalize select industries to make sure prices remain high by decree. Take housing, for instance. A lot of people (shitheads that they are) want house prices to stop falling. In order for that to truly happen, the government would have to take summary control of your housing. Every house. Every condo. Every apartment. All those would have to suddenly belong to some, new, Federal Socialist Housing Authority (FSHA). Then, the prices of these items would have to be set by the FSHA, not by the owners and not by the buyers or renters. THAT would work ... and there would be horrible side effects, as you can tell. But until that wonderful Socialist day happens -- note sarcasm -- then the prices of all this excess, overvalued housing must FALL. Deflation. BIG deflation.

Maybe I'm being obtuse here, but if the government just keeps printing money with nothing to back it up -just keeps cranking the presses- and gives all that money away to banks for loans to everyone and doesn't raise interest rates, keeps paying unemployment payments to those without work, keeps shoring up failing industries with those bogus dollars, and bails out the financiers without anything in return, doesn't all that devalue the dollar?  If you double the amount of dollars in the economy without any commensurate rise in productivity or people working, isn't that effectively devaluing the currency?  The government controls inflation by the power of the printing presses.  They don't seem reluctant to turn those presses off.  If they flood the economy with dollars, isn't that devaluation? 

Our dollar has been devalued already with respect to oil. But other currencies in the world are under much the same assault, and this Credit Crisis is a global phenomenon.

In the final analysis, you're fishing for hyperinflation due to devaluation, and you're just not going to find it. All this printing can't succeed. As I said, the hole is tens of trillions in size. It can't be filled by anything but outright, Fascist takeovers of private industry by governments. If that's the actual fix action that restarts inflation, then it will be a cure that's worse than the disease, as living in a police-and-administration state will be your overriding concern, NOT the price of a house or car that you will never pay off anyway (and it won't matter, since it will remain the property of the federal agency that "administrates" it).

Inflation is dead, Pete. How can I make that more clear for you? Devaluation won't work, since the rest of the world has caught our cold. The price of a cheap Chinese piece of shit plastic consumer dildo-thing will go up, likely, but we don't really need things like that anyway. So what? You can make do easily with a 18-inch TV instead of a 54-inch monstrosity, for the same price. The value delivered is fairly subjective, hence is the same.

America can produce a lot of what it actually needs already. We won't starve, even with the Ethanol Scam. We won't freeze, since we have enough oil and natural gas. Domestically, the U.S. dollar CAN'T devalue ... again, unless it happens by DECREE, where the government tells you the price of something, and then uses a guy with a gun to enforce that price.

I already said that our lifestyles will downsize. I grabbed the year 1940 to illustrate the level we'll fall to. Well, that's a disruptive period, so let me be clear about how the average American of 2020 will live:

1. Small house. The doubled size of houses since 1980 will halve again to normal.
2. Minor repair abilities within the house (tools, scavenged materials, etc.).
3. Winter heating in the 50s. Cheap wood-burning stoves will be popular.
4. Summer cooling is a fan or two, and breezes. A/C will be a real luxury.
5. One car, kept running through intensive and oftentimes community efforts.
6. Lots of books, and an old computer.
7. Lots of cookware and canning equipment.
8. More family involvement since there's no point in moving away for work.

More prosperous or extended families will learn to buy an extra car for sharing amongst the family members. Some of these families will capitalize on the larger, abandoned houses and make them communal, and may carefully make use of some of the previous era's luxuries like an old A/C unit, fed into a central room where the family can gather. Although we've long denied it, communal efforts must rise again, since the alternative is to literally go broke separately and then just start shooting each other, in a Bosnian fashion.

No businessman (except perhaps Henry Ford) would pay his workers anymore than he could to get labor from them.  Those businesses that rely on mass consumption (food, clothing, small appliances, maybe automobiles) would seem to be doing the worst right now, and the near future.  Their market is being cut.

 A market that relies on wealth and exclusivity should still be able to find a customer base among those making $250,000 or more a year.  They will be able to afford the cars with the cachet of exclusivity, and the homes that are produced as "one of a kind" rather than as a particular model.  Those of us without employment might (as GZ suggests) find work as "gentlemen's gentlemen".  I wonder when schools for that "profession" will begin to show up on TV? 

Old South End Broadway

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