Copyright Ozarkhomesteader 2009. See below for fair use.
In the fall of 2008, I kept reading over and over again, “We could not have predicted this downturn.” Even today, in the New York Times, financial planners said the same thing. Truth be told, I had been predicting this downturn since early 2006, if not earlier. I’d also moved my investments into guaranteed income tools, and I’d been alerting my students as we talked about past downturns. Of course, I suppose I could have been a Jeremiah, but as it turns out, I was not. I’m going to list here some of the major issues that concerned me—and why I’m still restricting my exposure to certain types of investment. Remember: I am not a financial planner or advisor; I’m a humble teacher and gardener. Remember too that this is not an exhaustive list of what I thought was wrong, but it’s a start.
First, housing prices and especially the second mortgages people were getting based on assumed increases in property values scared the squash out of me. In the 1920s, folks did something similar by buying stocks on the margin. The housing crisis of the 2000s was caused by the equivalent of buying on the margin in housing. It’s a dumb idea to assume that prices will keep going up, and it’s especially dumb when real estate advisors are saying that housing is overpriced. The solution is greater control over mortgages and particularly restricting re-sale of mortgages in bundles, since those sales to big, distant companies hid the problem for a long time.
Second, companies were underfunding pensions, and they were selling out to abandon retiree obligations. When you do that, you are underfunding the future. The solution is forcing companies that buy out other companies to stand by pensions first. The alternative is to move away from traditional pension models and toward non-profit, employee-controlled retirement savings like TIAA-CREF offers.
Third, industries all across the US were failing in the face of forced pricing from companies like Walmart. Under the old manufacturing model, companies told retailers what the wholesale price was for their products. In the past decade, though, Walmart and other retailers have told manufacturing companies what Walmart would pay—forcing manufacturing overseas. What does that do in the short term? Walmart shoppers get lower prices. In the long run, workers lose their jobs and consumers can no longer get products (like Black and Decker) fixed in the US, so they have to buy more products—but now there’s a cascade of job losses, so maybe they can no longer afford even the cheap stuff.
Fourth, some key industries have failed to keep up with the times. The auto industry is the most obvious case. Detroit produced good cars in three sizes: large, XL, and XXL. The auto makers kept adding on extras but couldn’t get real quality. Lines like Saturn’s original and wildly popular S-series that were small but also well engineered were abandoned in favor of big ticket items. Too bad Americans couldn’t afford those big ticket vehicles. (See my piece on the Chevy Volt and how I think they’re still missing the mark.)
Fifth, we’re in debt up to our eyeballs to other countries for our wars. In previous generations, wars were funded by Americans, who bought war bonds during the war and then spent like maniacs with savings when the war was over. Today, most of American debt is owned by China and Japan. And who reaps the profits? other countries. I’m not saying that federal debt is a bad thing any time. I think it’s crucial now to bolster and re-shape the economy, but we need to make sure that Americans have bigger incentives to invest in US bonds, so we’re paying back ourselves. We also need to think very, very hard about whether there are cheaper, more effective alternatives to nation building than battles, like building and funding schools for enough time for them to do so good, facilitating NGO’s* micro-grants to support women-owned businesses in countries where gender inequality increases political problems, etc.
This brings me to my sixth and most important point. Since 2000, the median American income has declined. At least two things have caused this decline. First, a bigger chunk of employee compensation has been going into health care. We have to fix that situation. An equally troubling trend has been the piece of the pie that the wealthiest Americans have. Income inequality has not been this pronounced in the United States since about 1907, back in the days of sweatshop factories when workers put in 14-hour days, 6 days a week. Yes, income inequality now is even worse than it was right before and during the Great Depression. Truth is, unless you fix this disparity, we’re all doomed.
*NGO= non-governmental organization
Copyright Ozarkhomesteader 2009. Fair use of this source includes very short excerpts with a clear link and direct non-link reference to Ozarkhomesteader at WordPress.
April 2010 addition; all rights still reserved:
Am I jumping back in the market in a serious way? Not as long as pension funds like those of the major automakers are still underfunded.
Good job, Homesteader!
I’m convinced there are even harder times ahead, although I think it will be a bumpy ride down, with peaks and valleys, except that each time come out of a recession, the good times will not be quite as good as they were before, and each recession we drop into will be worse than the one before.
One thing you didn’t mention is the coming decline in fossil energy, which I believe is the prime driving factor in all the things you mentioned. We’ve probably already crested the peak of petroleum production, and will reach “peak coal” within a decade.
In a time where each calorie of food we consume required ten calories of fossil energy to produce, the coming energy decline hints of famine on the horizon. Grow food!
That’s what we’re hoping to do in British Columbia, and we could use some help!
Thanks, Jan, and I absolutely agree that peak oil is coming soon. High prices a few years ago certainly contributed to the decline of the American economy, by making already-present cracks in the foundation more vulnerable. And we absolutely agree that people give themselves a cushion from downturns by growing their own food.
Good luck with your venture.
This is why we need to find a way to legalize hemp even if we can’t win the cannabis war quite yet. Henry Ford’s diesel car was designed to run on hemp fuel. It’s renewable, green and grows almost anywhere almost any conditions.
Fords were designed to run on hemp? Really? I’d really appreciate seeing documentation on that. I’ve never read that and have read a lot about early cars.
As for cannabis, I admit to having mixed feelings. I know adults who seem to use it as responsibly as alcohol, but I also have known adults and kids who’ve had problems. We certainly need a solution to drug gang border wars, however.
I believe the Ford-hemp connection is actually that Ford developed a plastic body made from hemp.
To my knowledge, Ford’s early days had little or nothing to do with diesel.
There’s a lot of apocryphal stuff on hemp enthusiast websites about Ford using “hemp gasoline,” but I haven’t seen any references.
Rudolph Diesel demonstrated an engine running on peanut oil at the Wold Exposition of 1900.
Welcome to the blog, Jan. I’m sorry I didn’t see your message earlier. It got delivered to my spam folder. Thanks for explaining about the hemp-Ford connection.
I love this blog. My family lives near Ft Smith – I’m impressed that you, too, are in AR.
Your thoughts in this article are very similar to things we were saying years ago. And if we Americans don’t grow up a little, we’re just going to keep fading away …
Thank you, Chris, and welcome! I agree; I’m afraid we’ve done little over the past few years to turn the tide.
Thoughtful piece! I believe we’ve also done ourselves a disservice by becoming a society in ‘boxes’-so many specialties, so few people with good, common sense about life skills. We trust the ‘specialist’ (doctor, news spinner, mortgage company) rather than take the time to research and THINK.
Thank you for the kind words. Critical thinking really does seem to be a lost art. I think most of us have the tools to spot a scam (like the mid-2000s economy), but we’d rather dream of riches.
What’s worse than the blindness of the folks in DC this decade concerning the approaching tsunami of debt, the currency devaluation and the ongoing “economic downturn” is the fact that some people in DC saw it coming in the early 1990s and warned then of what was to come. See my recent post on the same topic w/ a quote from the House Floor in 1993 at
http://alternativenewsreport.net/nation-debt-celing-national-bankruptcy-floor/
Trust me. There are elements within and behind the government that know all about what they are doing. I believe this is a slow and ongoing controlled demolition, not unlike building seven. What we are seeing is the controlled demolition of the US currency in a grinding and tragic slow motion sequence that began in the 1980s and is now approaching critical mass.
Chase
I agree on that there are people in government who know what they’re doing, but I’m not sure if you and I agree on who those people are. After all, had the economy not tanked during the Bush administration, we would not have a deficit problem. Had the Bush tax cuts not existed, we would not have a deficit problem. Has Bush not pushed us into two wars, one on clearly false pretenses and one where cheaper alternatives existed, then we would not have a huge proportion of the deficit we have today. The debt, of course, is another matter. The only president who ran a surplus that had the possibility to reduce the debt in recent generations was Clinton. The debt is on everyone’s shoulders.
Now, what was this post about to begin with? Oh, yes, the downturn of the late 2000s.
I enjoy reading your blog posts, Predicting the Downturn: Signs of Bad Times Ozark Homesteader has been included in my favorites in firefox.
Thank you. I hope you’ll return to see more posts.
The Clinton administration – among other debacles – created an artificially inflated economy. It had no where else ta go – but BUST. Then, of course, the subsequent CIC’s took the heat for it – still are……. What we have here – now – is a ONE PARTY system. They’re all parasites who can’t seem to come to terms with the fact that they have already fleeced us all for every penny we manged ta earn – not ta mention the fact that right is now wrong – and – wrong is now very much “in vogue” May God have mercy on us all!!!
The Clinton administration presided over the largest non-wartime expansion of the economy in the history of the US, although we now know that during that period real wages for middle-class and working-class men were declining. What does date from the Clinton administration that directly contributed to the collapse in the 2000s was the repeal of New Deal legislation (Glass-Steagall) that had mandated separation of banking and securities trading. The Republican-led Congress proposed and passed the legislation, but Clinton did sign it into law.
Like you, I’m bothered by our options when it comes to voting. I fear that the Supreme Court decision in Citizens United has doomed us to corporate oligarchy.