Predictions – 2010 The worst economic year in US history
More Staggering Statistics*:
-The present year to date US Federal Budget Deficit is over $206,903,000,000
-We are on track to have a 2010 annual deficit of over $1.4 Trillion
-The personal debt per citizen in America is over $53,000, while the personal savings is less than $1,100
Unemployment on the rise again!
CNNMoney.com reported today — The number of Americans filing for initial unemployment insurance surged to just below the 500,000 level last week, and have climbed more than 12% over the past two weeks, the government said Thursday.
In 1922 Henry Ford said: “It is well enough that people of the nation do not understand our banking and money system, for if they did, I believe there would be a revolution before tomorrow morning.
The Commercial Real Estate Problem:
This brings us to the next huge problem facing banks – the downfall of the commercial real estate market. It’s agreed upon by most economists I’ve ever studied that the commercial real estate market usually lags the residential market by a year or two, meaning the worst is probably in front of us.
This does make perfect sense when thought about. People foreclose on their homes, as such move away & local businesses close, lending gets tighter, people spend less money, commercial tenants can no longer pay the rent, and as such start to default. When they do, property values fall, causing the same downward spiral we’ve been seeing in the residential real estate market for the last 2-3 years.
Then there’s the fact that the majority of the commercial real estate loans are held by smaller and mid-sized banks (see chart) These banks were never put to the same stress tests as the largest banks, and are arguably in no position to weather a storm of commercial loan defaults without huge help from the government.
State Governments Are Bankrupt:
A recent New York Times report on the “state” of State Governments was particularly eye opening as well. At the winter meeting of the National Governor’s Association on Saturday, many state governors expressed growing concern over shrinking tax revenues, growing health care costs and swelling unemployment.
“State revenues continue to deteriorate, as most states are witnessing monthly totals lower than their recent forecasts, which have been revised downward,” said Gov. Jim Douglas of Vermont, the chairman of the National Governor’s Association
“Because of the decline in state revenues,” Mr. Douglas said, “43 states cut $31 billion from their budgets in 2009. For fiscal year 2010, even with nearly $30 billion in new revenue, 36 states have been forced to cut $55 billion. Thirty states have cut elementary, secondary and higher education.”
According to the Unemployment Insurance Tracker, the unemployment insurance system is in crisis due to a combination skyrocketing unemployment and – in some cases – poor planning. A record 20 million Americans collected unemployment benefits last year, and twenty-six states have run out of funds and been forced to borrow from the federal government, raise taxes, or cut benefits. In many other states the situation is deteriorating fast.
The Housing Problem:
First and foremost, there’s housing. If it’s true that there are millions of foreclosures looming, then housing prices will almost certainly take another dip. If and when that happens, as what once were middle & upper-middle class neighborhoods become poorer & less desirable, and as society’s stigma on defaulting on a mortgage lessens, it seems logical that the number of strategic defaults – people who have the funds to pay the mortgage but make a conscience decision not to – will swell to never before seen heights.
What this will most likely create is smaller & smaller pockets of well off people, and businesses there to service them, while more & more of our country’s landscape becomes desolate suburbia, now littered with empty homes, liquor stores, pawn shops and payday loans… the McMansions that were once representative of “making it” now just a reminder of a better time long ago.
Stay tuned for Part 3 tomorrow. Financial institutions getting ready for a run on banks, scary similarities America shares with great empires of the past and the fall of our once great nation.
Jon Maddux
CEO
www.YouWalkAway.com
