California collapse in progress! Just the first domino in a wider collapse.

The State of California is heading into a world of hurt. The state started to furlough workers this week. On top of that several counties in California are alluding to a possible tax rebellion against the state. It is hard to tell if this is just a staged political move or they are really going to carry out a rebellion. Either way, a tax rebellion might as well be a full blown armed rebellion. The consequences will be dire no matter what happens. 

California is a canary in the coal mine. The rest of the country needs to have all eyes on it at the moment. In fact the world might want to pay attention to what is happening. California is larger than most countries. The thought of any kind of rebellion within the United States was unthinkable a few years ago. The mention of it might become polarizing in the current economic environment. The body of state government isn’t strong enough nor does it have the unity to hold together in the face of a county rebellion. If California comes apart the rest of the nation will follow.

This whole economic mess is turning into a perfect storm. If President Obama’s stimulus plan fails to put the brakes on this downturn it is going to spiral into something far worse than a depression. Obama had a lot of hopes pinned on him. He was revered as some kind of mythic savior during his election. If someone so great cannot pull the world out of economic distress the country isn’t just going to fall down for a few years. The United States is going to collapse.

Obviously the collapse of the United States isn’t in anybody’s interest. It would be bad on a local level. Imagine the worse depression the planet has known on top of a die off. A collapse would also throw the planet into absolute and complete chaos. The collapse of the Untied States would start a domino effect that would take several other countries down with it.

Not many people realize it but the world is at a cross roads. Hopefully the elected officials can pull something out of their collective asses soon. If a resolution to the situation is not found it might be time to consider taking a very long hiking trip.

Things to watch out for

We are not yet at the point of collapse. There is still a long way to go before the country hits bottom. The United States has a lot more pain to go through. Some things to watch out for will be a reduction in basic services. I wish I had blogged about a few weeks ago when I thought of it. Unfortunately I was beaten to the punch by the reality of the economic situation.   

One basic service that is in the process of being reduced is the United States Postal Service. The government is talking about removing a Saturday delivery. I am actually horrified by this prospect. The spin that is being placed on the cut in services is that it will save the postal service money. A possible reality is that the postal service could collapse.  

Another thing to watch out for is a reduction in garbage collection. When that stops in a city it is time to leave. I fear disease more than I fear criminals. 

Welcome to the New Depression

I am not much for reporting news. I stated this blog not so much to report on current events but to warn of impending disasters. Today we saw the announced layoffs of nearly 72000 people country wide. That was simply the ones that made it into the news. I wonder how many thousands of other people received a layoff notice today. 

It was one thing to predict and plan for a serious economic downturn. It is another thing to watch it unfold. When I started to realize what was happening in 2005 I honestly had no idea that things could ever get as bad as they are. The sad realization is that we are nowhere near bottom. This economic depression has years to play itself out. Nearly everybody on the planet will feel the terrible effects of the New Depression. 

Depression is perhaps not the right word for the situation that the world finds itself in. The very word conjures up the landscape of the 1930s. Today’s economic situation is very different from that of the 1930s. The world was not exactly coupled to our economic well being. The United States was a producer of oil not a consumer. When things got really bad people could go back to the family farm to make a living. Now days we live in steel hives and concrete labyrinths. There is no place for anybody to go except for the streets.

 The only people that are going to have any kind of hope will be those that can hold onto a dwelling. Those people that can ensure their own food security will have a chance. The people to fall into the New Depression first will have very little chance of making it through to the other side. The trick to surviving in today’s world is to outlast your neighbors. In a survival situation that is going to mean doing whatever it takes to make it out alive. 

Tremors in the Golden State

The economy is getting down right scary. It is one thing to predict future events. It is a very different thing to watch them unfold. The truth of the matter is that the economic situation facing the country is much worse than I predicted. The situation is becoming dire for a great many people. The world economy is spiraling out of control at a frightening rate.

Simply focusing on California as an example, I want to point out that the situation here is far worse than in other states. There is a severe drought that is affecting agriculture. Most of the fruits and vegetables that the entire country enjoys are grown in California’s central valley. The fact of the matter is that crop yields will probably be around half of their normal levels.

California’s state legislature has until February 1st to come up with a balanced budget. A balanced budget is a constitutional requirement for California. The state cannot legally function without it. If a budget isn’t passed by the legislature the state actually turns services off. The reason this is so severe is that the state’s welfare system is dependant on funding from the state. If a budget is not passed in February, hundreds of thousands of people will be without state provided income.

Unemployment is a tricky thing to measure. Official estimates for unemployment are hovering around 9%. The unofficial estimates are between 16% and 19%. The state is predicting the official estimate to reach into the double digits within the next few months. Unemployment benefits can carry a person for the better part of a year. Assuming serious layoffs hit the state sometime this year the later part of 2009 and into 2010 are going to be interesting indeed.

California can normally accommodate of about 7% before the state needs to seek federal funding. The feds are not exactly in a place to lend out to the states. It is safe to say that the unemployment system in California will suffer a break down of some sort in 2009. When that happens it is also safe to say that things could go to shit within weeks of funding drying up.

In 2001 the tech bubble nearly caused the end of our civilization. A lot of people cannot wrap their heads around what actually happened when there was an evaporation of wealth on that scale. For the most part people sailed past the down turn like very little had happened. The credit crisis has caused a far worse downturn than what happened in 2001.

State property tax revenue is down. Next year's state income tax revenue should be severly dimished as well. California is facing some of the worst economic conditions ever. 

The entire planet is facing some serious challenges in the years ahead. Several countries are in the midst of panic and even riots. That level of degradation has not reached the United States yet but there is the strong probability that it will. When we do start to slide into that terrible abyss California will be the first state to fall in.

Things are getting worse.

The economy has become a train wreck. I have not posted since September because I have been trying to stay away from simply reporting news and actually making predictions and pushing people to preparation. This is more of a reiteration than an actual reporting of news.

·         Major banks either failed or were absorbed.
·         There was terrorist activity aimed at financial sectors in India.
·         Over a million people in the United States have lost their jobs since September.
·         Gasoline is now less than $2.00 in many places within the United States. Make no mistake it is headed back up to the $4.00 range soon. 
·         OPEC has (or will) cut oil production by 2 million barrels per day.
·         Oil production is following the Hubbert curve precisely.
·         There was a new president elected in the United States.
·         The United States officially entered a recession.
·         Several countries including Iceland are on the brink of collapse.
·         DHL closed a hub in Wilmington Ohio essentially killing the town.

It looks as if the world is in uncharted territory. We are standing on the edge of an abyss if not already falling into it. A lot of companies are in panic mode. A lot of people do not know what to do or are completely unprepared for long term unemployment. A vast majority of the population does not have the skills necessary for the coming depression. 

I made a few predictions when I first started this blog. Here are a few more short term predictions: 

·         The United States will see an average of 1 million people unemployed per month in 2009.   
·         There will be another stimulus package aimed at consumers.
·         Crime will start to rise dramatically in major cities.
·         An increased number of soup kitchens will open.
·         At least one country will go through a collapse.
·         I do not see riots for the United States in 2009 but there will be protests. 

Just to clarify. I am not talking about these things happening within a year or two. Most of this will happen within the first or second quarter of 2009. The only suggestions that I can give are that people need to come up with self sufficiency skills fast. If I am right a depression is just around the corner. Things will start to snowball once we get into 2009. If the economy does not turn around by the middle of 2009 I do see riots in 2010.

Signs

Every now and then I pick up on a sign that there is a problem in our economy. A few years ago when the new bankruptcy laws were passed I could see a near future in which these laws would become more important. After all I predicted a down turn to the housing markets years before it actually happened.

Today was one of those sign post days. The FDIC wants to up the limit for personal protection to $250,000 for a savings account. This might seem like a good thing overall for the average citizen. After all if a bank collapses today and you have more than $100,000 in it then you are pretty much hosed.

To me this new (yet to be) law is a serious red flag. The president is not there to warrant bailing out people for more than $100,000. If you have more than that in any one bank account you are not managing your money properly. The same goes if you have more than $250,000.

The proposal is a sign post that there is inflation on the way. I would add Gold as a short term investment against inflation. Do not even think about this paper gold nonsense. Gold is only worth something if it is in your hands. 

Leave the credit. Cash is king.

There is a bailout proposal in the works in Washington. This plan has been in the works for an entire week now. Essentially what this plan does is bail out banks and other financial institutions.

The bailout is needed because portions of the credit market are completely frozen. Meaning home loans, auto loans, student loans, and personal loans are not able to be processed in the normal way. This bail out is designed to unfreeze those markets. So far this freeze has not affected current credit limits.

You need to pay attention to this!

Ok so that is the overview of the drama happening this month in regards to the global financial crisis. There is something a little more subtle that is staying out of the news that everybody should be extremely concerned with. For those of you that do not have or use credit cards but use a debit card you should be paying attention to this crisis in an acute way. If you use a debit card you are taking part in the credit market. This crisis affects you!

Personally I almost never carry cash. When I do carry it I do not like to have large amounts on me. There is never more than $50 in my wallet at any given time. Like many other people in western civilization my transactions are either done with a credit card or with a debit card.

No more credit cards!

There is the potential for this crisis to spill into the credit card market. When you use a credit card you are borrowing from a bank. If the credit card market freezes it would mean that your bank would no longer be lending you money. Commerce on a personal level would all but stop.

It gets worse!

Whenever you use a debit card your bank is actually borrowing money for a day to cover the transaction. This money is taken out of a fractional reserve system. This means that the bank only has a fraction of the overall deposits on hand at any one time. The danger is that banks are now heavily leveraged and they no longer have the ability to deal with people en mass withdrawing money.

What all of this means is that all forms of electronic transfers could be shutdown within days or weeks. There is a real potential that ATMs and credit cards could stop working all together. 24 to 48 hours after that happens things are going to get ugly. We are talking Mad Max ugly.

Lets hope the leadership in Washington can pull a rabbit out of their hat. 

The only thing I can suggest is that people have some real cash on hand for this scenario.  In the long run it may not matter if this bail out passes or not. The planet may have a long and hard depression ahead of it no matter what happens. This bail out does do something important. It prevents the depression from hitting today or tomorrow or next week. The United States is a consumer society. This bail out has bought us another 2-9 months to either turn things around or prepare for the absolute worst.