JOURNAL: New Lows

In a quick follow up to the "Middle Class Consumers" journal entry. A change is afoot and it will be a good thing:

Bloomberg. Consumer confidence sank to the lowest level in at least 41 years this month as Americans grew more concerned about keeping their jobs and paying their mortgages, raising the risk they’ll spend less next year.

Bloomberg. The decline in U.S. manufacturing deepened in December as demand for such products as cars, appliances and furniture reached the lowest level since at least 1948, signaling further cutbacks in factory jobs and production this year... Separate figures today showed business at European factories contracted in December by the most on record.

Time for some "Yankee" ingenuity re: resilient communities.

A couple thoughts:

• If similar data on manufacturing is showing up in Asia (and there are signs that it is, although the data is of poor quality), it will be a disaster there soon. In short, it's impossible to be a mercantilist if there isn't a large/affluent market to exploit. Back in 2006, I weighed in on the topic of China and economic failure (see the brief "When China Derails"). We still haven't seen much on China's potential collapse in military/intelligence analysis, although it is growing at the edges of the commercial analytical world. What does this mean? In a couple of years we are likely to see "blue ribbon" panels bemoaning a "failure of imagination" in regards to China, despite tens of billions being spent on gov't analysis/intelligence. Hilarious cycle.

• Here in the west, the crisis we are seeing might have started in the shadow banking sector with the collapse of subprime mortgages. However, the unexpected happened: it revealed the US/Euro middle class as insolvent and forced a shift in behavior (towards something new). That insolvency and shift in behavior will sink chances of economic recovery from gov't stimulus (you don't add debt in a debt driven crisis) and financial sector bailouts.
  

Comments

[Duncan Kinder]

"Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery."

Francis Micawber

[Chris Arkenberg]

Pretty much the whole consumer structure is being corrected to cut out debt spending. All the numbers were artificially inflated from too much cheap credit. The correction is pushing folks back to living within their means, reinforcing the real value of goods and services.

[complexfatwa]

"you don't add debt in a debt driven crisis"

Apparently Blue Chip missed the memo.
http://www.nytimes.com/2009/01/03/business/economy/03econ.html

Mainstream economics gets more absurd by the day.

[WarLord]

Actually its causing people ot live "below" their means because the only jobs in the current economy are counter at Mickey D's and greeter at Walmart.

Hollow economy (this one) leads to a hollow state. Nationalizing healthcare and providing it to every citizen 'might' save us from anarchy.

[Marcel Weiher]

I doubt that the Euro middle class is insolvent. Maybe the UK...

[S]

John,

Intereesting post. No need to go into the hollowing. A bigger question will be the collapse of Chian whcih is growing well below the target rates and whispers are it is negative has grevious implications for the global monetary regime as backed by US treasruy debt. happens to the dollar? Who are the winners. Germans save 12% of their income. Gold reserves? Do we have them? Who has them? What will the next regime look like> The Atlantic alliance will work agrgressivily to undermine competitive systems but the outcome will be what it is, fracturing and perhaps multiple blocks otr a portfolio backed currency system. The only way out for the US is bankruptcy. But that means a restructuring on the order can;t even fathom. As Americans , most of whom, still think this is a short term blip begin to realize that the hollowness is real, the promise enshrined in the constitution will also look hollow. Seams so apparent but dromant will breach. The glue that keeps the US together is economics or the promise of it. If we are just like everyone else we will act like everyone else.

Could you comment on the War College paper supporting deployment of US trops doemstically? Someone applying the mosaic theory would easily infer that this is not an accident.

[gmoke]

Lead money to do weatherization, insulation, and energy efficiency. These improvements will pay for themselves in short order and perhaps even help to finance a larger move towards renewables. All that work will create jobs, the entry level jobs in the new green economy.

Focus on employment, as in a Gandhian economy, and the whole thing can start with citizens' action as we are doing with our monthly weatherization barnraisings in Cambridge, MA.

[different clue]

Gmoke, Perhaps some of those emerging green jobs should be set aside for coal miners and oil workers to transition into as their industries encounter more regulation and opposition? That way at least the coal miners and oil workers would not join their bosses in trying to strangle the emerging green economy in its cradle.

[Nils]

One reason I like reading GG, John, is that it always reminds me that, as much of a pessimist as I already am, greater pessimism is always possible. ;)

[John Robb]

Marcel: Point taken on the Euro middle. UK certainly. Government insolvency is the problem for the rest. Exporters like Germany are going to have BIG problems.

Hey Nils!

Gmoke, great ideas as always.

[Duncan Kinder]

Paul Krugman:

"Let's not mince words: This looks an awful lot like the beginning of a second Great Depression."
http://www.nytimes.com/2009/01/05/opinion/05krugman.html?ref=opinion

[rick]

Nils? Nils of Polish Christmas dinner in Atlanta?

[BrianSJ]

This is good stuff and has a positive sense of action. What I cannot find at the moment is anyone looking at the linkages between the economic situation and the Brave New War (plus son of Cold War). It can't be good for the West. All sorts of political nastiness are bound to be waiting for Obama to arrive.

[BrianSJ]

Me and my mouth. Head of MI5 has done exactly that in the Daily Telegraph.
http://tinyurl.com/9dere3

[ross]

A few comments: China has the means to address their swiftly collapsing economy in a number of ways which may prove successful at holding the line. We will see, and here they are:

1.) Spending their massive dollar reserves on fiscal stimulus.

Towards that end, their efforts at Keynesianism will likely be far more effective than ours, since their nation has the aforesaid surplus and a nation of savers unlike the U.S. where everyone save a few are in both the public and private sector are in massive hock.

2.) Expect a rise in militarism.

If the Obama crowd are gearing up create some sort of civilian conservation /quasi military corps, with Reichsfuhrer Rahm Emanuel as its barking (mad) head, just imagine what the Chinese will engage in. Prediction: Taiwan will be under siege before the end of Obama's first term.

[Marcello]

"We still haven't seen much on China's potential collapse in military/intelligence analysis"

Because predicting state collapse is a rather tricky proposition. By any reasonable standard North Korea should have collapsed in the 90's. Yet they are still there (on starvation rations and exporting heroine but still).

[adam]

The ever-excellent Marcello has a point.

I'm not convinced that China will collapse, partly because there are still people alive in China that remember what the living nightmare of 1906-49 was like, but mostly because the Chinese government appears to have massive resources compared to pretty much everyone else in China.