Well, as the financial bad news comes in faster and thicker, the word "recession" is being bandied about, and a few brave souls dare even to call it by what it looks to be - a real Depression: deep, long, bad.
There are so many ugly pieces in this mix that it is hard to sort them all out. Shall we talk about the rising commodity prices - food and energy that are stripping people's personal economies? How about the problem of national debt, where each of us personally carry almost 200,000 of the nation's debt (let's not even mention the personal stuff). How about the credit crisis? Americans (and Brits, Canadians and Australians too, to a lesser extent) have funded their lifestyles with debt - if people stop handing out credit cards, mortgages and car loans (which is already happening), we're in trouble. There's the devaluation of the dollar - the rising prices for everything we get from China (that is, nearly everything). There's the danger of bank runs and the problem that the US dollar is the reserve currency for foreign nations. There are the tremors in the Chinese economy. I could give you twenty links, but the best source for all this information is Matt Savinar's site. Matt and I don't always see eye to eye on every issue, but he does a better job than anyone I know at Marshalling the economic data, so you might as well just go on over: http://www.lifeaftertheoilcrash.net/BreakingNews.html
Actually, I will give you one specific link:
because I honestly think that the last few lines sum up what will be the defining issue - the mortgage crisis. The Business Week article above includes a quote that I think is particularly telling:
We all know that more hits from these subprime loans are coming, but are having a devil of a time figuring out how it will happen or how to stop it," said Lawler, who was once chief economist for Fannie Mae. "We've never been in this situation before."
Here's the thing - foreclosures are spiralling - some projections suggest as many as 2 million more next year than this. In fact, most of the loans that are having trouble may not be "subprime" anymore - the next tier up of mortgage loans are showing real signs of trouble, and even many good credit risks who bought in 2006 and 2007 are struggling to make payments. Some of those in danger will probably be bailed out by various state and national programs, but as the Boston Globe reported last week, such programs are so far, not doing much.
How this will play out in the long term is anyone's guess. My own take is that we will probably not develop a vastly expanded class of homeless people, simply because we've spent the last decade building insanely more housing than we could ever want or need - that is, in the end, the banks who get screwed will be grateful to get anyone into housing, at almost any price. What we'll see, IMHO of course, and this is a guess, is far more debt slavery than homelessness.
One other possible vision comes from James Fallow's summer of 2005 article "Countdownto a Meltdown." In it a fictional political consultant looks back from 2016 at the economic crisis that made America into a second world nation. I was struck, when I read it, by this particular passage because it sounds so very apt to me. Fallow writes,
When the market collapsed, Americans didn't behave the way economic theory said they should. They behaved the way their predecessors in the Depression had: they stayed in their houses, stopped paying their mortgages and waited for the banks to take the next step. Through much of the Midwest this was a manageable problem: the housing market had gone much less berserk to begin with, and, as in the Great Depression, there was a longer-term, more personal relationship between customers and financiers. But in the fastest-growing markets - Orlando, Las Vegas, the Carolina Research Triangle, northern Virginia - the banks simply could not wait. The deal brokered at the White House Security-in-Shelter Summit was ingenious: federal purchase of one million RVs and mobile homes, many of them built in idol auto or truck factories; subsidies for families who agreed to leave foreclosed upon homes without being evicted by marshals, such that they could buy RVs with no payments for five years; and the use of land at decomissioned military bases for new RV villages. But it did not erase the blogcam live broadcasts of families being evicted , or the jokes about the "Preachervilles" springing up at Camp Lejeune, the former Fort Ord and the Philadelphia naval shipyard."
I think here Fallow's predictions have nailed human behavior - we won't sell up or make rational choices. We'll default and wait for a bailout, and I suspect that some people, at least, will get one, because too much of the economy is tied up in the housing market not too. Perhaps it will be RVs, but more likely, I suspect, the government will bail out the collapsing building industry by setting them to retrofitting foreclosed upon housing that the government now owns because Fannie Mae and Freddie Mac bought them up. Toll Brother's new projects will be make the new projects - coming soon to a neighborhood near you.
For the rest of us, the days of picking up and moving are probably quite near the end - at least if you envision it as trading one house for another. Moving in with your Mom, however, will become quite popular I suspect. I've been asking my readers for several years to make a plan to go on from where you are now - I think that may well be what many of us have to do. There are places where houses are still selling, and there are bargains to be had on the foreclosure mart, but generally speaking, I think if we depend on equity from our present houses to carry us into our dream future, we're dreaming.
Do I know all this to be true? Absolutely not - I've said it before, I'll say it again - I don't understand how the giant financial edifice has stayed together this long, so I don't want anyone to bet too much on my predictions. I'm in good company now too - most of the economists I know are mystified too. When you ask them why we're not already deep in recession, mostly they admit to confusion - my friend Steve, a Professor at a local University, observed that "we're outside the markers." But I've noticed that none of the economists I know seems to think that we'll stay outside the markers for long.
My own suggestion would be to ask yourself this. If you knew you would be undergoing catastrophic job loss, for a long period in 3-8 months, how would you change your life? Would you blow it all now, run up the credit cards on holiday shopping? Or would you retrench, get rid of the cable and the meals out, put more in savings, pay down your debt, plan a bigger garden, do some job training for careers that won't go under like auctioneer and nurse and put some more rice and beans in the pantry? I would recommend that all of us work under the assumption that our jobs are toast - that we can expect to lose them and have a tough time getting them back. Start thinking long term now - how will you feed yourself and your family, where will you live, what will you do, what do you need. How will you go into peak oil and climate change from where you are now, with what you have now. Are there things you need? Ways to make it easier?
Could you start moving now into the informal economy? As Teodor Shanin, the founder of Peasant Economics observed, the financial collapse in the former Soviet Union actually, in the long term, improved the economic stability of many lower class Russians, as markets suddenly opened up for new, local products. The informal sector of the economy - subsistence, cottage industries, barter, local currency, criminal activity (ok, I'm not suggesting this ;-)) - these things make it possible for you to reserve what little cash you've got for things like paying the mortgage and the taxes.
If it doesn't work out badly, so much the better. But all of us will manage better if we have a plan, and the tools to get by. If I can give out one piece of advice it is this - go into 2008 prepared for the worst, hoping and praying for the best.