The Recession Is Over, Welcome To The Depression

 

The Recession Is Over, Welcome To The Depression

 

By Lou Scatigna

Recent economic numbers reflect serious problems with the U.S. economy. On Tuesday the National Association Of Realtors announced the largest drop in existing home sales since 1968 when they began to keep such records. This happened in one of the stronger months for home sales, and with deflated prices and record low mortgage rates. Most economists expected about a 13% decline but they missed the mark by far as existing home sales dropped a whopping 27%.

So why did home sales drop so much in July? Well part of it was demand pushed forward to get the government bribe in the form of the $8,000 or $6,500 tax credit. But the main reason home sales plunged is because Americans have no confidence in the economy or their government’s ability to fix it. Last week, first time claims for unemployment “unexpectedly” rose to 500,000, a number you would only see in a rapidly declining economy not one in “recovery”. If you don’t have a job or are concerned that you may lose the one you have, you are not going to go out and buy a home no matter how low interest rates go.

The average American is finally “getting it”, they realize that the American economy is broken in a way they have not experienced in their lifetime. For the first time in decades American families are paying down debt instead of piling more on. Fearful of future job losses, many are putting money away for a rainy day instead of spending it on new car or expensive vacation. Retail sales are suffering and will continue to slow as the economy falls into the abyss of economic Depression. With the housing market plunging, unemployment at almost depressionary levels (if we count discouraged and part time workers we are already there), foreclosures at record highs, bankruptcies rising, people just can not spend money on anything they don’t really need. Since the consumer is 70% of the U.S. economy, when the consumer pulls back, the economy follows and declines as well. Last week a friend of mine who owns a furniture store that has been in business for 81 years announced that he is closing his doors. He said the last two years were the worst the store ever experienced…IN 81YEARS!

Stock prices have begun to sense the destruction ahead. As more “unexpected” weak numbers are announced investors will run for the hills and we will experience the most brutal stock market decline in decades. The loss of wealth in the market will further depress economic activity. I would lower my stock market exposure immediately if overexposed to equities, the next leg down is going to be brutal I fear.

The Federal Reserve will continue to try to stimulate through further asset purchases and liquidity injections under QE2 but it will fail to achieve the desired result. After a period of deflation, confidence in the U.S. Dollar will decline and we will experience a real currency crisis and perhaps a dreaded hyper-inflationary period. After the housing numbers were released on Tuesday morning gold moved from $1,205 to $1,235/ounce, only $30 from it’s all time high hit early this summer. Gold knows that the only thing the Fed can do is print and print, which is highly inflationary and very dangerous.

My advice is to make sure you have some cash in your home (3-5K) and I would begin to buy a 6 month supply of food and anything else you use everyday (toilet paper, soap, toothpaste etc.). I don’t want to sound alarmist but it makes sense to have an emergency supply anyway in case of natural disasters, storms or power outages. In the best case, these items will be much more expensive in the future or, in the worst case, not available as people begin to hoard in anticipation of higher prices. “Inflation expectations” can drive demand up resulting in dwindling supply and rapidly rising prices which only feeds the frenzy.

We are now entering a very nasty period, the economic numbers are telling the story and people are starting to listen. Take the proper precautions in all matters financial.

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