War, Boom, Bust: The Recession Cometh.

As a business owner who takes orders from all over the country and a manufacturer, too, the writing is really on the wall: The downturn has begun and it isn't going to be pretty. I hope that all of you here at the DU will watch your expenses and your charges and brace yourselves for the bad economic weather we are entering. Plan ahead. Set some money aside if you can. My small business now has and so has my family.

It's a perfect storm this time, too.

Fed Chairman Ben Bernanke knows he needs to cut rates and make money more plentiful to stave off foreclosures, to prime the pump making more money available and cheaper to keep businesses investing, to keep consumers spending and to avoid more layoffs and companies cutting back on spending.

But Chairman Bernanke also must weigh the fact that one of the greatest contributors to inflation is energy costs, that means oil, and today oil danced around the $80 range even after a promised increase in production by OPEC.

Chairman Ben Bernanke's dilemma:

1.) If he cuts rates, the dollar plummets even further which is really a bad thing. Especially, since more and more oil is being traded overtly and covertly in Euros which may explain the $80 price in the face of increased production. As the dollar sinks, China will not allow their currency to underwrite the dollar which will mean higher prices in the Wal-Marts and other U.S. retailers who are at this point little more than glorified distributing warehouses for Chinese goods.

2.) If he doesn't cut rates, the sub-prime mess will really, really get nasty quickly with banks going under and yes...runs on the banks. Don't think it can happen? It just did in France last month and it happened with Countrywide, too. And when people run for their money, the banks don't let them have it "in order to protect them from themselves."

So, faced with the two options, Chairman Ben Bernanke will cut rates. No doubt about it. Will it be a quarter? Will it be a half? Don't know, but either way, the recession is already here.

And the recessionary cycle has begun as it always does:

Consumers are running out of spending money mid-month and quit buying from the stores.

Stores are reporting ugly drops in sales, even below their estimates and, in turn, are cutting back on orders from factories and their suppliers.

Factories are in turn slowing down on business purchasing and inventory restocking...and of course, this means layoffs.

Layoffs only accelerate the lack of consumer spending and the spiral downward continues.

The so-called Bush tax-cuts for the extremely wealthy did not keep the economy running these past years where we saw some growth and meager job creation (compared to the 23 million jobs created during Clinton's years). It wasn't the Bush tax cuts that kept the house of cards from collapsing.

What kept this shitty economy floating along these past years was two things:

1.) Greenspan's' cheap money and low rates that fueled the housing market

2.) And sadly, Bush's war spending which was all borrowed, of course. Yes, that old defense budget spending did also help offset Bush's stupid tax cuts.

War, Boom, Bust. Anybody here old enough to remember that one? Well, it will be the proper name for the Bush Years between 2001 and 2009. War, Boom, Bust.

We've had the war.

We've now had the little boom.

And now comes the bust.

Please have a talk with your families and prepare because 2009 is not going to be an easy year.

Best to all, DZ

DEPRESSED WAGES. Wages have never achieved the purchasing power they had in 1969, the year liberals went out of power and were replaced by conservatives in both parties.

Cheap and expensive credit, both ridiculously easy to get, were substituted for inadequate wages. People wanted the same lifestyle their parents had had, but had no way to afford it on their wages. Debt was the only way to achieve it.

A lot of people out there are about to get a very harsh lesson in household economics.

I hate recessions and how miserable it makes everyone. The poor always suffer the most. And, of course, crime rises as well, both domestic and the old-fashioned kind, too.

Quite the opposite actually.

I, too, have been watching this progress through its stages.

I've also tried to prepare, but timing was not the best for me. I was able to all but eliminate my debt, which I think will be my saving grace. I hope that we'll be able to get through this with only minor abrasions.

Good post!

I'll be in the Lone Star State next week. Congrats on eliminating your debts. I began paying everything off last month as much as it hurt to do it, I'm glad I did.

I hate posting pessimistic things here and I'm generally an upbeat guy, but this is a big tide coming our way and I just hope that all our good friends here at the DU will do a little preparing for it. It's in that spirit that I posted this tonight.

association said this week that across their membership the savings rate has now exceeded borrowing rate - which in the past has been a sure sign of recession.

I know because we saw it in our business mid-summer and had began hearing it daily from other businesses we deal with. I try to be as positive as possible, but this is looking very ugly and I'd feel badly if I didn't share this here.

Funny thing: I want to be prepared and my friends (everyone here at the DU), but the more of us that hold back on spending only help perpetuate the cycle. But still, charity begins at home, and hence my post.

I didn't know about the credit union's savings rate, but I appreciate you telling us.

... just plain fuckamuck.

we have savings and hubby was a union job that I hope holds trough the bad times.

My best advise to people is, get out of debt if you can and spend only in necessities

I feel guilty, I just ordered a couple books I have been looking for a while (used though from Amazon), but I still feel guilty

"...But the next big issue the financial markets are going to have to deal with in our minds is the potential for recession. That has not yet been discounted in financial asset prices. Rather than speculate and guess, we thought it timely to home in on just one key economic aspect leading toward the potential for recession that will be more than well watched as we move forward – payroll employment. As you’ve probably heard in consensus commentary lately, many a pundit has stated, “there isn’t going to be a recession as long as unemployment is low and payroll growth continues”. In deference to these consensus thinkers, let’s have a look at what we believe are leading indicators for employment trends and the “messages” they are currently sending. For without question, if you don’t believe trouble in mortgage credit markets will impact consumer spending quite negatively, maybe trouble in payroll employment will do the trick..."

September 2007
http://contraryinvestor.com/mo.htm

Brokers slammed by mortgage woes

http://video.msn.com/v/us/fv/msnbc/fv.htm??f=00&g=fc69d01d-26c4-431d-a662-65f119f46d87&p=source_nightly%20news&t=m5&rf=http://www.msnbc.msn.com/id/3032619/&fg=

but so many of them were card sharks, and KNEW what they were selling was unobtainable.
But... that's 65k more added to the unemployed rolls which will probably magically not raise the national unemployment rate.
IS there ANYONE (grout) that actually tracks the REAL unemployment rate?
If you take away the military from the employed number, and add people who are out of work so long unemployment has STOPPED (I was one) what is the REAL percentage of unemployed Americans?

and I am actually relieved that I did. I had been meaning to for a long time, but I kept pushing it back, trying DESPERATELY to get a full time job so I could pay off my debt (under 10k total) but the IT bubble had burst, and all of us mid-level techs were totally screwed, if we weren't already working... and my interview skills suck.

So I finally gave in (the calls were getting really nasty, and unnecessarily so) so I said fuck you, and declared. I went through a company that fills out paperwork (that was expensive) and filed. POOF all gone (except my school loan, but my parents were kind enough to call it an early inheritance)... I can't tell you the weight that lifted.

If I go back and look at my statements, and what I've paid over the years, I paid off the original debt at least twice over. They had my interest at over 26%!!!!! I tried desperately to work with them, they flat out refused to help me pay off my debt with them. So fuck em!

I am now in Europe with my wife, and things are going much better. I miss California like you can't believe, but I won't come back for a while. I can't afford to. The cost of living is too high, and pay for IT workers has gotten rather low. Also the buying power of the dollar is dropping almost half a penny every day! (last I looked it was 1.39 USD to 1 €). The coming storm isn't a recession, a recession would be kind, what we are looking at is nothing more than total economic collapse... a depression that will make the 30's look like the 20's.

I hope I'm wrong... but I doubt it.

Sounds like you hit the problem head on. You set a good example of facing problems and dealing with them. I appreciate you sharing your story with us. Your Euros are doing just swell against the Bush dollar.

Two of my dear friends who live on the Palos Verdes peninsula here in L.A. tried to get me to buy a condo on the Costa del Sol for only $250K back in 1999. I passed on it. Well, with real estate appreciation and the Euro's sharp increase against the dollar, I can now kiss that concept goodbye for the rest of my life. What an idiot I was.

Like you, I also love California, but Europe ain't so bad, either. :hi:

but the Costa Del Sol is an amazing place. I should be pretty safe employment wise given the demand for teachers is still going strong here. At my school I have either 5 or 6 people below me in my department in terms of senority. That should keep me safe.

Europe's not so bad. It kind of grows on you.. much like a fungus or mold :)
I had a friend offer a job doing remote support to me, but it's in dollars, and I really have no desire to leave, or make dollars anymore.
I miss the weather there, but with the enforced time off coming up I hope to see more of this place, maybe goto Sweden and the first IKEA ;)
I especially want to get over to Italy, and have some real Italian food (the stuff here in NL is ... meh.
(^_^) Hope things improve for you. I would not worry about passing up on that condo, It's value will probably tank before long.

I'm hoping we'll be safe, but I agree with everything you've said.

how about if we...

1)get rid of the tax breaks for wealthy

2)institute a corp profit tax

3)tax all corps that outsource their business over seas.

4)cut taxes to the middle and lower class

5)raise the minimum wage to a living wage

6)freeze all mortgage rates

7)reset mortgage rates to the original quoted percentage and make them all a fixed rate.

8)raise the fed interest rate buy a full percentage point.

that's all I got. I know we are on a freight train going down hill with no brakes but maybe this is throwing some crap in the way to slow it down a bit?

or short the market.

FXE- the Euro Currency Trust- All my cash is in FXE. http://www.currencyshares.com/
GLD- Streettracks Gold Trust- http://www.streettracksgoldshares.com/
QID- Proshares Ultrashort NASDAQ 100 http://www.proshares.com/

Protect your capital- the wealthy people do!