US Economic Predictions for the upcoming year 2009

“The cornucopia life style in the US ends definitively in 2009. Words like outage, shortfall,deficit, scarcity, and rationing will enter our collective lexicon, and our lives will get much leaner by year’s end. This is the year that all the glitz, fluff, and frivolous nonsense in the economy withers and dies.” The Nattering Nabob

“When a financial insider like Bernard Madoff, former head honcho of the NASDAQ, revealed that he had defrauded investors of $50 billion, the complete ruin of all these Wall Street agreements and betting schemes was glaringly apparent. The Madoff Ponzi scheme stands as a symbol for everything Wall Street was doing throughout the artificially inflated “housing boom” with its devil’s garden of securities, bonds, and Credit Default Swaps. It was a game that saw the investment gurus swap trillions in leveraged wealth, defrauding, bilking, swindling, and duping millions of investors behind a false front of financial erudition and a business suit and tie. When the rich turn on one another, as in the Madoff fraud, they become like sharks feeding on their own kind.” Business Week

Average household wealth fell 18% in 2008 with evaporating equity in homes and investment portfolios amounting to $7.7 trillion. When national toy retailer K. B. Toys files for bankruptcy two weeks before Christmas, you know the economy is flat out dead. 2008 was the worst retail holiday shopping in the last 40 years. Apparel sales fell 19.7% and Electronics and appliance chain sales dropped 26.7%. Luxury goods were hit hard with a 34.5% decline. First hit by the dying US auto industry, Detroit has shrunk from a high of 1.9 million to just over 850,000 as people leave the city looking for work elsewhere. Unemployment there is already above the official “Depression” mark, now at 10.1%.

The average person simply cannot pay $20,000 cash for a new car, so if banks continue with tight credit, auto dealerships will close by the thousands. At least one of the American “Big Three” auto manufacturers will not survive 2009. All three will struggle to survive, even with a government bailout.

Foreclosures will continue to rise in spite of government sponsored programs aimed at modifying mortgages. People are paying upwards of 40% or 45 % of their income on these bloated mortgages. We were living beyond our means for decades, and now the bill has arrived.

The problem remains deflation, which will dominate the whole of 2009. Almost all assets lose value during deflationary times.

We import over 60% of oil we need. Production will continue to erode with ongoing field depletion. The IEA reported that there will be a general 9.1% depletion in oil production on an annual basis. The world’s major fields are in steep decline, and we are not making discoveries that will in any way offset that shortfall. We need to add to present oil production a quantity equal to Saudi Arabia’s capacity every 18 months from here on to keep up with present demand.

Predictions:

The Nattering Nabob has a track record of 95% accurate for predicting events in 2008. The Nabob says that by the end of 2009 the numbers that define a deflationary depression will be near at hand, that is 10% “official” unemployment, and a 10% contraction of GDP from its previous high and the economy will suffer a 5% contraction Expect no broad economic recovery in 2009. The Nabob says that: “Cash will be king in 2009 as credit remains difficult to obtain.

Thomas Friedman (NY Times) - “I have no sympathy for Madoff. But the fact is his alleged Ponzi scheme was only slightly more outrageous than the “legal” scheme that Wall Street was running, fueled by cheap credit, low standards and high greed. What do you call giving a worker who makes only $14,000 a year a nothing-down and nothing-to-pay-for-two-years mortgage to buy a $750,000 home, and then bundling that mortgage with 100 others into bonds — which Moody’s or Standard & Poors rate AAA — and then selling them to banks and pension funds the world over? That is what our financial industry was doing. If that isn’t a pyramid scheme, what is? Which is why we don’t just need a financial bailout; we need an ethical bailout. We need to re-establish the core balance between our markets, ethics and regulations.”

Jeremy Clarkson – London Times: “I have spoken to a couple of pretty senior bankers in the past couple of weeks … They don’t refer to the looming problems as being like 1992 or even 1929. They talk about a total financial meltdown. I’m told that in simple terms money will cease to function as a meaningful commodity. The binary dots and dashes that fuel the entire system will flicker and die. And without money there will be no business. No means of selling goods. No means of transporting them. No means of making them in the first place even.”

And the good news is- all of the above are just predictions. The final results will still depend on us.

By katherine Marfal