Grinning Planet would love to predict that the ugliness of 2008 has wrung all the bog water out of the financial linens and we can get back to sleeping in our fine economic bed in 2009. Unfortunately, we think 2008 was actually only the beginning. There is much, much more nastiness in the financial wash yet to come, in 2009 and beyond.
In this article, our predictions for 2009 trends are dominated by fast-moving problems in the financial arena, but we will also cover trends in energy and environment.
Barring a Krakatoa-level natural disaster or nuclear escalation of the conflicts between the US and Iran, between India and Pakistan, or between Israel and it various foes, there is really only one 2009 trend that is likely to matter to most Americans: the worsening financial storm. But there are a number of important aspects to how the crisis might play out that are worth talking about (and preparing for!).
There is little doubt that the financial crisis will continue to worsen, unaffected by the continuing feckless, reckless efforts to "fix it." We think there are five trends or possibilities that are worth mentioning specifically:
1. More Mortgage Mayhem
Housing prices will continue their slide, with more people ending up underwater on their loans or otherwise finding themselves unable to keep making mortgage payments. There will be many more foreclosures, which will not only be very bad for homeowners, it will also be very bad for banks. Contrary to the predictions of housing-market boosters, we think that housing prices will not bottom in 2009.
Here's a decent
60 Minutes report on the likely wave of defaults coming in 2009-2011 because of readjustments to Alt-A and Option-ARM mortgages.
2. Further Financial Fiascos
Both the stock market and the banking industry will stay in their precarious positions. Almost all big banks have exposure to toxic derivatives, and many large companies do too. The unwinding of the derivatives market and the crashing of the consumer economy are the Scylla and Charybdis that the government and businesses must navigate between in 2009. Margin calls will continue forcing big players to sell assets at bargain-basement prices. Many companies that avoided the derivatives swamp are still servicing large debt loads, and that gets much harder to do when profits are depressed for consecutive quarters (or years). Even though the stock markets have already fallen 40-50% from their highs, more economic bombs going off are likely to send stocks even lower for the year.
On the banking front, as more and more bad loans and bad derivatives holdings see daylight, it is conceivable that things will get bad enough that a drastic intervention (like a "banking holiday") could be required.
THE GIANTS FALL?
For those of us who have been saying all along that the financial system is rigged, that the free-marketeers are outright frauds, it might have been fun to watch the accounts of Wall Street's parasite class get vaporized. But it's not fun, because lots of good, hard-working people are seeing their retirement funds get trashed at the same time. Private and public pension funds are also showing signs of strain, and unemployment numbers are soaring.
So, while it's true that the current corrupt, failed, conceptually flawed money system must somehow "go away" and be replaced with a system that is more sensible, fairer, and less prone to manipulation and fiascos, we recognize the real pain being felt by millions of real people. We are watching in horror along with the rest of you. We're not sure what the right solution is, but it must start with cancellation of all current and future derivatives contracts—and banishment of "casino finance" techniques in the future. The magnitude of the derivatives bubble dictates that there is simply no other way.
All of this also suggests that the precious metals market (read: gold and silver) may finally escape the manipulative grasp of the central banks and break out to records highs.
3. Retail Sales Crash
Retail sales of everything but essentials (food, energy, medicine) will have their worst year in decades. Some well known retailers—especially those whose profitability grew to be dependent on the housing and furnishings boom—will likely go out of business or be forced into Chapter 11.
4. Deadly Dollar Decline
The US has benefited from a very clever monetary system since the end of World War II. Back then, we got everyone else to agree that oil would only be purchased in US dollars. In the last few decades, this arrangement has ensured a never-ending pool of foreign money being available to allow year after year of deficit spending in the US, with continually negative balances of trade. Up to now, the world has been happy to do it—the dollar was a "safe currency" because of the size of the US economy, and the US money masters always seemed to figure out how to keep US growth going while other countries were less reliable.
Even now, when the Ponzi nature of recent US growth becomes evident and the unsustainability of US debt and the Fed's inflationary printing of new dollars are recognized by all, short-term US treasuries are still in high demand by investors, who are so desperate that they still see the dollar as the safest place to park money. That may change in 2009 as the Portrait of Dorian "Uncle Sam" Gray continues to decompose, leading to a "tilt" point where the US dollar loses value against foreign currencies very significantly and very rapidly.
Such a crash of the dollar would be a level-10 earthquake for the US economy, and the disruptions to everyday life will be unprecedented. The result would be some or all of the following:
- disruptions in personal and small-business banking;
- repudiation by the federal government of US foreign debt, resulting in a cutoff of credit to the US;
- major impacts to our ability to import goods (i.e. huge increases in exchange rates and prices for imported items, and a possible total suspension of some imports, including oil);
- disruptions of liquid fuel supplies bad enough that severe rationing might be required to keep essential goods and services operating;
- interruptions in or elimination of social services and entitlement programs funded at various levels of government;
- disruptions of food supplies due to farm-fuel and transportation issues, as well as banking and cash-flow issues for farmers, processors, and stores;
- societal unrest due to the above factors and as "the blame game" kicks into high gear;
- war over the financial end game and over access to increasingly scarce resources, especially oil (or, false-flag events/wars to distract the public from the real issues and channel their anger at external enemies rather than internal villains).
A crash of the US dollar is our worst-case scenario for 2009, but we still put the odds at about 50-50.
As the trillions of new dollars that the US started printed in the late summer of 2008 being to work their way into spending, many analysts are predicting that we'll see the beginnings of a serious inflation problem. We agree. Not that you'll ever hear it from the cooked CPI numbers the government puts out—ShadowStats.com calculates that actual inflation runs double what the government reports. But you will see it in the prices you pay, particularly for essentials, where consumers have the most inflexible demand and corporations have the most pricing power.
If the two-headed financial freak—left head, US Treasury; right head, Federal Reserve—continues its wanton creation of new money, we risk hyperinflation. That's where money loses value so quickly that everyone spends newly acquired funds immediately for fear that holding money even for a short time means it will have lost significant purchasing power. That's the stuff of the infamous Weimar Republic of yesteryear and of Zimbabwe today. And if the dollar does experience a sharp inflationary upswing, it would likely be the catalyst for the big foreign holders of US debt to dump their holdings, which ensures scenario #4 above. This is how dangerous the game has gotten.
A few other topics will still be important in 2009, even if they end up being greatly eclipsed by the economic crisis. Climate change will be one of those. But mostly it will just get talked about a lot, and by the end of the year, we suspect that the world will be no closer to implementing a meaningful mitigation plan. Here's why.
Climate scientists are continuing to shout hair-on-fire warnings—"we must act now!!!"—but our political leaders are continuing to dilly-dally and point fingers. Half the public doesn't really believe in human-caused climate change because they've heard so much propaganda from Exxon-Mobil, the coal industry, and the right-wing noise machine. And while the other half of the public does believe that climate change is real, it finds the predicted effects to be abstract enough that day-to-day matters still garner all their attention.
The truth is that even if tomorrow our leaders told us the
truth about global warming
and proposed the necessary solutions, we the people—including many who "believe in global warming"—would reject the solutions as being far too draconian. You see, according to scientists, not only do we need to immediately stop the growth of greenhouse gas emissions (GHGs) into the atmosphere, we actually need to reverse course and start reducing the concentrations of GHGs in the atmosphere. We have already gone too far into the red zone, and as "tipping points" (like the release of permafrost methane and the
melting of Arctic ice)
contribute to ever more warming via an ever-worsening set of feedback loops, we will lose any remaining chance to avert runaway warming.
How bad might the effects of runaway climate change be? Remember that the last glacial period, which covered most of North America with a thick, year-round layer of ice, featured average annual temperatures that were only 4-5 degrees colder than today. Taking our climate the other direction in temperature, imagine how different our environment will be when it's 4-5 (or more) degrees hotter than today. A future "Hot Age" equivalent of The Ice Age is what inaction today is ensuring.
But the grassroots willpower to truly fix it is not there, and the political machinery is moving much too slowly to have the needed impact. (And even when the politicians finally get to their "solution," it's likely to be a cap-and-trade scheme that is better at allowing corporate elites to make money than it is at truly solve the problem.) Finally, despite bona fide efforts to implement real solutions, protagonists are still greatly impeded by the anti-climate noise machines that can't understand the science, suffer from unfounded paranoia, or prefer to profit from today's system without regard for tomorrow's disaster.
So, sorry to say it, but the 2009 trend for climate change is going to be "hot," but only in the temperature sense. To quote Bill Murray in Ghostbusters as he and his companions are about to apply their ray guns to the monster-ghost, "This bitch is toast!"
As with climate change, we've waited too long to start our energy transition away from oil. We are now witnessing a vicious free-falling aerial devil-dance between weakening economies, collapsing financial markets, vanishing infrastructure investments, and constricting energy supplies. While prices are down now and supplies are stable, that is likely to reverse in 2009. Here's why.
Oil production has been flat since 2005. Producers had scheduled many projects to come online over the next few years to add new production that would offset losses from depleting wells and would meet increased global demand. The increases in demand have flattened out due to the economic downturn. But on the supply side, there's a double-whammy: (1) Production from existing oil fields continues to decline at an average 6.7% rate, according to the International Energy Agency. (2) Crashing oil prices and the disappearance of venture capital have forced many oil producers to put development projects on hold. The combination of these factors guarantees that we will start on the down side of the peak oil slope sooner rather than later. As
Matt Simmons and Robert Hirsch
recently commented, while everyone is talking about "demand destruction" due to the economic downturn, they seem to have failed to notice that "supply destruction" is taking place at an even greater rate.
This will mean that even at reduced levels of demand, the supply and demand curves will remain close. Oil prices will thus start their march back upward sometime in 2009, and constrictions in global oil supply will make it that much harder for economies to get back on track.
The financial mess is reducing investment in oil projects, but it's also kicking the teeth out of the alternative energy sector. Ethanol plants are going bankrupt at a fast pace as the crappy economic climate lays bare ethanol's poor net-energy characteristics. Evaporating venture capital and falling oil prices mean that investments in alternatives like solar and wind are being delayed or downsized.
Like the first year of the Bush II administration, the first year of the Obama administration will have a lot to do with energy. But unlike the Star Chamber sessions hosted by Darth Cheney, in which he and the overlords of the fossil-fuel industries plotted energy strategy and global domination, the Obama folks will be making lots of public noise about their energy plans and their professed desire to shift to greener energy supplies. Unfortunately, the hand they've been dealt in 2009 is far weaker than the one the Bush administration started with in early 2001. A successful shift to green energy might have been possible if we had started eight years ago, when investment cash and oil were still in excess. In 2009, the great green shift will have a hard time overcoming the limits of a wrecked economy, disruptions in venture capital, and oil decline.
In 2008, a few areas of the US saw spot shortages of fuel. We think that more widespread shortages are likely for 2009, though the cause of any 2009 shortages is more likely to be trouble with the financial system or the dollar, rather than falling oil-production levels.
Whereas climate change is as much a long-term economic issue as it is an environmental issue, economics usually work in opposition to limitations on pollution and the excesses of resource extraction. To put it in ugly terms, it's more profitable to pillage the earth and pollute our water, air, land, and food than it is to be good stewards and live cleanly.
Other than a brief period in the 1970s, the US has chosen to accepted the false paradigm of environmental degradation as a cost of doing business. Even some of the major environmental groups have begun to surrender to this trend by attempting to work with corporations to craft compromises. That sounds inherently fair and smart, but it's not—success on that front means we'll just destroy the world a little more slowly. Corporations start from such a strong negotiating position (because of their political clout), that compromises invariably end up too far from what is sensible from an environmental standpoint.
As for the public's attitude towards environmental issues, results from survey questions like "Do you support a clean environment?" seem to say that the public strongly supports tougher environmental measures. But the polling support has never translated into much practical support or progress in terms of tougher laws or regulations. That's because politicians are largely disconnected from public opinion and beholden to the extractive industries. And even though the public may care about air quality, water pollution, and safe food, we're far too disengaged politically for our good thoughts to have much impact on the regulatory process.
In 2009, as all hell breaks loose on the economic front and waves of pain are felt across the land, grassroots support for environmental issues will evaporate. Most people will be distracted with other concerns, and some will even buy into the propaganda of the industry spinmeisters and their political minions that our collective woes are the fault of progressive groups, including environmentalists. Nothing like taking unfair advantage of a crisis, eh?
Unfortunately, on the environmental front, we think 2009 will feature humans essentially saying to the planet, "bite me." (And eventually, it will.)
Well, that's quite a heapin' helpin' of hateful horrors, ain't it? Yes, sorry, but that's where the gauges are pointing.
At this point, you may be thinking, "That's interesting. Now what's that crazy Marmaduke up to?" Conversely, we hope that maybe your self-preservation circuit just kicked in and your thoughts run more towards, "OMG, what should I do!??"
There's no way for us to suggest personal solutions that would work for everyone, because everyone's situation is different. However, we'll offer two things that we think should be top priorities for everyone:
1. Improving your food security — Earlier this year we wrote a three-part series on the subject—see the sidebar for links. It is critical that you learn how to be food secure ASAP. One of the approaches to food security is growing your own, and that is also a good way to free up a serious amount of money for other things, such as...
2. Getting out of debt — This may not be possible for many people, but if you can cut expenses to bare bones and get rid of as much debt as you can, you'll reduce your chances of falling deep into the trap of "debt serfdom." (There are a number of good pieces out there on the topic of debt serfdom, such as this
by Charles Hugh Smith or some of
featuring economist Michael Hudson.)
Will all of Grinning Planet's asserted trends play out in 2009? Who knows. But you can bet it will be a good year to pay VERY close attention to what's going on. You can count on GP to continue telling you the truth of things, ugly or not. (Our free weekly
service is a good way to stay abreast of things the mainstream media ...uh... forget to tell you.)